On July 10, 2015, the People’s Bank of China Guangzhou Branch issued the Interim Administrative Measures for Pilot Cross-border RMB Loan Business in Guangdong Nansha and Hengqin New Zones (the “Measures”), which provide the relevant enterprises in Guangdong Province with a new cross-border financing channel and create an additional reflux channel for overseas RMB capital. The promulgation of the Measures indicates that the preferential policy of cross-border RMB loan has been put into place in all three sub-zones of the Guangdong FTZ, i.e., Qianhai, Nansha, and Hengqin.
KWM Shenzhen Office is assisting a Hong Kong bank in handling one of the first batches of cross-border RMB loans after the promulgation of the Measures. Our brief comments on the main contents of the Measures are as follows:
1. Pilot Areas
The “Nansha” and “Hengqin” as referred to in the Measures include the entire administrative areas of Guangzhou Nansha and Zhuhai Hengqin.
Eligible Borrowers include enterprises which are incorporated in the Nansha or Hengqin areas and engage in actual operation or investment in such areas, as well as enterprises incorporated in Guangdong Province participating in the investment or construction of important projects in Nansha or Hengqin areas.
In contrast to the cross-border RMB loan policy of Qianhai, besides local Nansha and Hengqin enterprises, Eligible Borrowers also include enterprises that are incorporated in other areas of Guangdong Province and participate in important projects of Nansha or Hengqin. As the term “important projects” is not clearly defined, it leaves great latitude in interpreting and making use of this provision.
Eligible Lenders include banking financial institutions which are incorporated in Hong Kong Special Administrative Region (“Hong Kong”) or Macao Special Administrative Region (“Macao”) and carry out RMB business.
There are two differences compared to the cross-border RMB loan policy of Qianhai:
First, the term used in the Measures are banking financial institutions, not banks. Consequently, Eligible Lenders is not limited to banks. Taking Hong Kong as an example, it seems that the Measures should include licensed banks, restricted license banks, and deposit-taking companies regulated by the HKMA.
Second, Eligible Lenders also include banking financial institutions in Macao, which is a natural result considering that the pilot areas include Hengqin.
4. Domestic Settlement Bank
In contrast to the cross-border RMB loan policy of Qianhai, domestic settlement banks are not limited to those banking financial institutions in Guangzhou or Zhuhai, but also include banking financial institutions in all of Guangdong Province. This may be due to the fact that the Eligible Borrowers may include enterprises in other areas of Guangdong Province.
5. Loan Purpose
The loan shall be used for production and operation in Nansha or Hengqin, project construction in such areas, and overseas (“??”) project construction. It shall not be used for investing in negotiable securities or financial derivatives, purchasing wealth management products or properties not for borrower’s own use, or used to make entrusted loans to companies which are not in the same affiliated group as the borrower.
It remains to be seen whether the term “??” refers to areas outside Nansha and Hengqin or Mainland China. If it refers to the latter, then the areas in which the RMB loans can be used would be much smaller than those permitted under Qianhai’s cross-border RMB loan policy.
Regarding the restriction on purchasing properties not for own use, given the actual practice of similar restriction in Qianhai, if the loan is used for real estate development in Nansha and Hengqin, it will probably not be prohibited in practice.
As for entrusted loans, the provisions imply that the proceeds of cross border RMB loans can be used to make entrusted loan to related companies. This is a huge breakthrough compared with the cross-border RMB loan policy of Qianhai.
6. The Scale of Aggregate Loans
The People’s Bank of China Guangzhou Branch will determine the scale of the aggregate amount of cross border RMB loans and institute control over the aggregate outstanding amount according to the development stages of Nansha and Hengqin, the development conditions of the RMB business of Hong Kong and Macao, and the requirements of domestic macro-control.
This is almost the same as that of the cross-border RMB loan policy in Qianhai.
7. Filing for Record
Borrowers who intend to borrow cross-border RMB loans shall, through a domestic settlement bank, submit an application letter for the record filing; letter of intent for the loan; a copy of business license; a copy of organization code certificate; financial statements; and other material to the People’s Bank of China Guangzhou Branch to file for a record of the loans. The domestic settlement bank shall, by virtue of the record filing notice issued by the People’s Bank of China Guangzhou Branch, handle the opening, funds remittance, and other formalities for the borrowers.
This is almost the same as that of the cross-border RMB loan policy of Qianhai.