On November 29, 2016 the People's Bank of China ("PBoC") issued its "Circular on Further Clarifying Relevant Matters Concerning Offshore RMB Lending Business of China-based Enterprises" ("Circular 2016/306"). Circular 2016/306 came into force as of the same day and replaces from then all existing inconsistent provisions of the PBoC. This Circular is aimed at strengthening the administration and supervision of China-based enterprises' offshore RMB lending activities against the current fluctuation of RMB exchange rate as well as preventing capital outflow by using offshore RMB lending as a kind of circumvention of China's rigorous foreign exchange administration.

The following table presents an overview of major restrictive measures newly introduced by Circular 2016/306 in comparison with the "Circular of the PBoC on Simplifying the Processes of Cross-border RMB Business and Improving Relevant Policies" issued in 2013 ("Circular 2013/168"):

Issues Circular 2013/168 Circular 2016/306
Qualification of Mainland-based non-financial enterprises as lenders - There must be shareholding relationship between the China-based lender and the overseas borrower; or - Both lender and borrower are ultimately controlled by one parent company - Existing for at least one year; and - There must be shareholding relationship between the China-based lender and the overseas borrower
Pre-event review / registration A pre-event governmental review is not required; The offshore RMB lending can be conducted at commercial banks in China directly Registration with the local competent authority for foreign exchange administration must be carried out by the lender prior to conducting the lending
Limit of offshore lending balance No limit Upper limit of offshore lending balance (including loans in both RMB and foreign currencies) = latest audited amount of owner equity interest × macro-prudential adjustment parameter (currently 0.3)
Sources of lender's funds No restriction - No funds from any individual; and - No funds from lender's debt financing
Interest rate Commercially reasonable - Commercially reasonable and - Must be greater than zero
Term of lending Commercially reasonable - In principle between 6 months to 5 years (if the lending term is longer than 5 years, a filing with the local branch of the PBoC is required); - In principle only one extension is permitted