On 25 May 2008, the Shanghai headquarters of the People’s Bank of China (PBoC) issued the Guidelines on Credit Flow in Shanghai 2008 (the “Guidelines”) as a continuance of its effort in the macroscopic control of the city’s credit flow.
The Guidelines, consistent with the 2007 version, categorise credit flow by different colour codes according to the target recipient of the loans. Green represents credit flow which is encouraged by the government – e.g. loans to manufacturing industries using high and new technology, small and medium enterprises, major infrastructure projects etc. Blue represents credit flow which will be supported by the government – for example, loans to support agricultural production, new manufacturing industries etc. Yellow represents credit flow which should be scrutinized cautiously – loans made to the industries or areas as specified in the Guidelines should be monitored carefully and risk control should be strengthened. Red represents categories or areas which credit flow is restricted or prohibited – these include loans being made to foreign-invested real estate projects. Financial institutions are prohibited from making loans in breach of relevant laws and national policies.
The Guidelines require financial institutions to strictly follow the Opinions on Regulating the Entry into and the Administration of Foreign Investment in the Real Estate Market (“Circular 171”), which was jointly promulgated by six ministries and commissions on 11 July 2006. Circular 171 prohibits loans (whether onshore or offshore) being made to a real estate foreign invested enterprise which has not satisfied all of the following three conditions – (i) its registered capital having been fully paid; (ii) having obtained a land use right certificate; and (iii) having a self-owned project development capital constituting 35% or more of the total capital requirement of the construction project.
For more information, please refer to an article relating to the central bank’s curb on loans to foreign-invested real estate projects at http://www.qhdfgj.gov.cn/hyxw/hyzh/2008-6-3/8633686269.html