• Chinese enterprises given easier access to offshore financing

On 14 Sep. 2015, the National Development and Reform Commission of China promulgated the Circular on Promoting the Administrative Reform of the Record-filing and Registration System for the Issuance of Foreign Debts by Enterprises (国家发改委关于推进企业发行外债备案登记制管理改革的通知) (“NDRC Circular”) effective as of the same date.

Under the NDRC Circular, “Foreign Debt” shall refer to “debt instruments in forex or RMB with a term of not less than one year, raised outside of China by enterprises within China or their overseas enterprises or branches under their control”. This definition clarified that RMB loans from overseas shall also be included in the foreign debt administration.

The NDRC Circular cancelled the examination and approval of quotas for foreign debts raised outside of China by enterprises within China, and introduced a pre-transaction record-filing and registration system. Before the NDRC Circular, the prior examination and approval byNDRC for foreign debts raised by Chinese-invested enterprises, including domestic enterprises with a foreign shareholding ratio less than 25%, was generally required according to the Interim Provisions on the Management of Foreign Debts (外债管理暂行办法).

Now under the NDRC Circular, a Chinese-invested enterprise that intends to raise foreign debts shall only go through the formalities of record-filing and registration with NDRC in advance, and report the foreign debt information within ten working days after raising a foreign debt. It remains to be seen how quickly NDRC implements the new practice.

Instead of approving foreign debts on a case by case basis, the NDRC will from now on determine the permitted size of foreign debts on a lump sum basis every year. This means a total quota of foreign debt will be given to each province/municipality on an annual basis, and once such quota has been met by the amount of foreign debts registered by enterprises within such province/municipality no enterprise may raise foreign debt in the same year. Obviously, there is a risk that this system could lead to a run on foreign debts.

The NDRC Circular further relaxed the prohibition of settling forex foreign debt into RMB funds as set forth under the Administrative Measures for Registration of Foreign Debts (外债登记管理办法) and permitted such settlement. Thus, Chinese-funded enterprises may, like FIEs in China, use RMB funds settled from forex foreign debt for, e.g., payments under current account items within China.