On January 12, 2017, the People’s Bank of China (“PBOC”) released Circular Yin Fa [2017] No. 9 revising several issues relating to the macroprudential management of crossborder financing, introduced nationwide last year2 to further reduce enterprises’ financing costs and improve implementation. Circular Yin Fa [2017] No. 9 will take effect nationwide starting on May 4, 2017, including the PFTZs and other local pilot areas.
The revisions:
- Scope extended to domestic branches of foreign banks (including those from Taiwan and the special administrative regions of Hong Kong and Macau);
- Debt ceiling increased to twice the enterprise’s assets value as stated in the latest audited balance sheet, minus existing foreign debt (i.e., the financial leverage ratio increases from 1 to 2), while the risk conversion factor and the macroprudential parameters remain unchanged;
- Passive debt (e.g., non-resident accounts) and trade financing (e.g., letter of credit) in foreign currency are excluded and not considered existing foreign debt, as well as interbank lending;
- Only 20% of the value of overseas lending under domestic guarantee provided by financial institutions is considered existing foreign debt;
- Intra-group capital flows are excluded and not considered existing foreign debt, even if they do not arise from production, operation and industrial investment; and
- Foreign Invested Enterprises (“FIEs”) and foreign-invested financial institutions have a one-year-grace-period, to January 12, 2018, during which they can choose to apply the former management regime or the macroprudential management. After that date, the macroprudential management will automatically apply to foreign-invested financial institutions, while the PBOC and the State Administration for Foreign Exchange (“SAFE”) will further analyze its compulsory application to FIEs.
Date of issue: January 12, 2017. Effective date: May 4, 2017
