On March 17, 2009, the State Administration of Foreign Exchange (SAFE) promulgated the Circular on the Determination of Short-Term Foreign Debt Quotas of Financial Institutions in 2009, which set the total short-term foreign debt quotas for banks and financial institutions in China at approximately US$32.9 billion for 2009, representing a 12 percent increase over the 2008 total.
This is the first time that SAFE has increased foreign debt quotas for banks and financial institutions in the last three years. In fact, China tightened short-term foreign debt quotas in 2007 and 2008 in an effort to control expanding overseas borrowing and relieve pressure on the Renminbi’s appreciation. In 2007, the short-term foreign debt quotas of domestic financial institutions and foreign-funded financial institutions were decreased to 30 percent and 60 percent, respectively, of their 2006 quotas. In 2008, the short-term foreign debt quotas for both domestic and foreign-funded financial institutions were further decreased to 90 percent of their 2007 quotas.
According to the Circular, the additional foreign debt should be used on trade financing to help China’s domestic companies with exports and imports. In addition, the Circular stipulates that the authority to set foreign debt quotas for legal-person financial institutions that have a relatively small amount of assets and relatively few branches will fall from SAFE to SAFE’s local offices where the financial institutions are headquartered. This delegation of authority should further increase efficiency in the administration of foreign debt quotas, as well as bolster regional economic development.
In addition, the Circular redefines the scope of exception for the management of outstanding short-term foreign debt quotas to include: accepted but unpaid letters of credit with a maturity of less than 90 days (inclusive); overseas agency payments with a maturity of less than 90 days (inclusive); non-resident individual deposits of less than US$500,000 (inclusive) in the same legal-person bank; and the balances of various special accounts for foreign investors opened in the name of non-residents upon approval by SAFE.