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On 14 September 2015, the National Development and Reform Commission (NDRC) promulgated the Notice on Accelerating Reform on the Administration of Filing and Registration of Foreign Debts Issued by Enterprises (《國家發展改革委關於推進企業發行外債備案登記管理改革的通知》) (the Circular), which took effect on the same day of promulgation. While the title of the Circular seems to suggest that it relates to issuance of bonds by corporates outside the PRC1, its scope is actually much broader. It is not entirely clear how the Circular will be implemented and, in particular, whether the foreign debt registration regime referred to in the Circular would result in any changes to the existing foreign debt regime of the State Administration of Foreign Exchange (SAFE).

Since the promulgation of the Circular, we have been closely monitoring its implementation and, having spoken with the regulators and various PRC counsels in the last two weeks, we set out below our observations of the impact of the Circular on existing and future transactions.

What is the Circular about?

Pursuant to the Circular, NDRC has replaced the previous approval system for the incurrence of foreign debt with a registration system. This new system requires the details of any foreign debt to be filed with NDRC before its incurrence. The Circular also expressly allows the proceeds of foreign debt be used either onshore or offshore, at the option of the relevant issuer/borrower.

At first glance, the Circular relaxes the overall control over the incurrence of foreign debts by PRC enterprises and makes it easier for PRC enterprises to tap into the offshore bond and loan markets. However, on closer examination, the Circular may, in certain circumstances, impose additional requirements for the incurrence of foreign debt. Also, there are concerns that the criteria for registration under the Circular would mean that NDRC’s approval is, in practice, still required for the incurrence of foreign debt by PRC enterprises.

One important point to note is that the definition of “foreign debt” under the Circular is different from the definition of foreign debt under the SAFE regime. The Circular defines “foreign debt” as foreign debt incurred by any PRC enterprise, its offshore subsidiary or branch, whether denominated in RMB or any other currency, which has a tenor of more than one year, including offshore bonds and medium- and long-term international commercial loan facilities.

The Circular therefore applies to foreign debt incurred by PRC enterprises (including foreign invested enterprises), as well as foreign debt incurred by offshore entities which are controlled by PRC enterprises (which, prior to promulgation of the Circular, was not regulated by either NDRC or SAFE).

Registration of foreign debt under the Circular

Under the Circular, in order to incur foreign debt, PRC enterprises must have:

  • a good credit record;
  • an absence of defaults under bonds or other debts;
  • a good corporate governance system and a sound risk control mechanism for foreign debt; and
  • a sound ability to repay outstanding debts.

In addition to the above criteria, registration of any foreign debt under the Circular is subject to an overall quota (the Foreign Debt Quota) set by NDRC. If the Foreign Debt Quota has been fully utilised, NDRC will not accept any registration of foreign debt.

What does the Circular mean to different types of enterprises?


Under the previous regime, a PRC financial institution or corporate which is not a foreign invested enterprise may incur medium- and long-term foreign debt within the annual quota approved by NDRC or with case-by-case approval from NDRC. Under the new regime, only registration with NDRC is required and there appears to be more flexibility for such PRC enterprise to incur foreign debt (in particular for those which do not have an annual quota), subject to clarification whether the relevant SAFE regulations would also be updated to reflect such a change in approach.


Under the previous regime, an FIE may incur foreign debt for so long as it has sufficient “foreign debt headroom” 2 and no approval from, or filing with, NDRC is required. In addition, no overall quota applies to foreign debt incurred by an FIE within the foreign debt headroom. It would appear that, while the borrowing of foreign debt has become easier under the Circular for a PRC domestic enterprise, an FIE may now be required to comply with more filing and quota requirements which were not previously applicable.


Under the former regime, the incurrence of foreign debt by an offshore subsidiary or offshore branch of a PRC enterprise does not require any approval from, or registration with, NDRC. However, as “foreign debt” is defined broadly under the Circular, filing with NDRC is now necessary. Some observers queried whether it was the intention of NDRC to require registration of any foreign debt (whether in bond or in loan format) incurred by an offshore subsidiary or branch of a PRC enterprise under the Circular, given that a number of provisions of the Circular were drafted using the terminology of bond issuances. Based on our informal enquiry with NDRC, the official to whom we spoke confirmed that it was indeed NDRC’s intention that foreign debt, whether in the form of a bond or a loan, incurred by an offshore subsidiary or branch of a PRC enterprise would be counted towards the Foreign Debt Quota, although there might be some flexibility on the registration arrangement.

Clarification required


Under the Circular, NDRC shall decide whether or not to accept the application for registration within five working days after the submission of all relevant materials, and will complete the registration of the relevant foreign debt within seven working days of application. One point to note is that the Circular requires the registration to be conducted “before issuance (发行前)”. In practice, this would mean that the issuer/borrower would need to apply for the NDRC registration at least 12 working days prior to the proposed issuance/borrowing.

At this stage, it is unclear whether the registration of foreign debt with NDRC will involve any substantive review. However, judging from the criteria set out in the Circular for the incurrence of foreign debt, it is fair to assume that such registration is more than a purely administrative process.


The Circular provides that, once the Foreign Debt Quota has been fully utilised, no additional foreign debt may be incurred. Such quota creates considerable uncertainty for PRC entities which wish to borrow in the offshore market (in particular through its offshore subsidiaries), as its ability to borrow may be limited by such quota.


As a practical matter, we note that the online registration system has not yet been set up, and there is little guidance from NDRC on how frequent issuers/borrowers (for example, an offshore branch of a PRC financial institution which needs to borrow from the interbank market as part of its daily operation) are to handle such registration.


The Circular does not specify the legal consequence for failure to comply with the registration requirements. In general, PRC counsels that we have spoken to are of the view that the failure to complete registration of any foreign debt with NDRC under the Circular should not affect the validity and enforceability of the foreign debt documents, although it will affect the repatriation of the proceeds into the PRC.


The Circular is silent on the relationship between the new NDRC foreign debt registration regime and the existing foreign debt regime administered by SAFE. A number of questions would need to be addressed:

  • Is pre-filing with NDRC a condition to SAFE accepting any application for registration of foreign debt or cross-border guarantee/security?
  • The Circular expressly allows repatriation of proceeds of foreign debt back to the PRC. How will this provision be reconciled with the current SAFE regulations on cross-border guarantee/security, which restricts repatriation of any proceeds of foreign debt incurred under a “neibaowaidai” 3 structure?

Based on our informal enquiry with SAFE last week, we understand that SAFE has not updated its requirements or procedure for the registration of foreign debt or cross-border guarantee/security as a result of the promulgation of the Circular, and the existing SAFE rules continue to apply. In practice, it means that:

  • it is unclear if SAFE would process registration of any medium- and long-term foreign debt incurred by a PRC enterprise which is not an FIE and does not have any NDRC approval or quota;
  • evidence of completion of pre-filing with NDRC is not required to be submitted to SAFE for (a) the registration of any foreign debt incurred by an FIE within its foreign debt headroom or (b) cross-border guarantee/security; and
  • restriction on the repatriation of proceeds under a “neibaowaidai” structure continues to apply.

Consistent with the response received from SAFE on our informal enquiry, we have seen one example in the last two weeks where SAFE accepted an application for the registration of a cross-border guarantee under a “neibaowaidai” structure without requiring any evidence of completion of the registration of the foreign debt with NDRC.

While the new NDRC regime under the Circular does not appear to have had an impact on SAFE’s approach to the registration of foreign debt or foreign guarantee/security to date, this is an area which would require continued monitoring. We understand from our discussion with the regulators and PRC counsel that NDRC will be discussing the application of the Circular with SAFE in the near future and we expect that SAFE may issue further guidance in this regard after such discussion.

Practical implications

The Circular became effective on the date of its issuance and does not provide for any grandfathering period for ongoing transactions.

For bond transactions, issuers would need to factor in the timing required for completion of the NDRC registration prior to the issuance. An issuer shall submit its registration application to NDRC at the early stage of the transaction, to avoid any delay. When determining whether to adopt a direct issuance structure or a keepwell structure, issuers should take into consideration the restriction on remittance of proceeds into the PRC under the existing SAFE rules. We understand that some offshore issuers have already submitted the application to NDRC last week.

For loan transactions, it is prudent to assume that the existing foreign debt and cross-border guarantee/security regime of SAFE will continue to apply. Filing requirements in loan documentation, where appropriate, will also need to be updated to reflect the new NDRC regime, although timing for completion of such filing will need to be discussed with PRC counsel on a case-by-case basis.