Problems relating to Trade and Investment on China
13. Finance |
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Issue |
Issue details |
Requests |
Reference |
| (1) Nebulous Execution of Tight Monetary Policy | - GOC implements control on the total loan amount by oral or written notices, guidance to the financial institutions, etc. | - It is requested that GOC liberalises financing business. | - Various Notices |
| (2) PRC Financial Institutions' Domestic Loan Restrictions | - Credit limit is enforced per bank per group of companies and per company. - Tightened credit/loan ratio control. - Reduced limit on short term foreign bond. - Due to problems facing domestic banks in PRC (namely, the tightened control by the governmental authority), the severe environment prevails in PRC over borrowing in foreign currency. |
- While the need is recognised for restricting investment into real estate and speculative investment, it is requested that GOC deregulates restrictions on business enterprises, - It is requested that GOC improves the environment for bank borrowing in PRC. |
- General Rules for Loans (issued on 27 July 1995) - GOC's Administrative Guidance to Banks - Law on Commercial Banks, etc. |
| (Action) - Foreign-funded Investment Companies (FFICs) upon borrowing from PRC domestic banks must be governed by General Rules of Loan issued on 27 July 1995, whereby such loans are restricted to financing from financial institutions such as authorised banks. Direct loans from general enterprises are prohibited. Nevertheless, FFICs may obtain loan indirectly under the form of "consigned loan", where consigners such as individuals and governmental department provide loans to such financial institution under certain specified terms and conditions. Where an FFIC obtains loan from its parent, related companies, other enterprises and/or financial institutions, GOC regards such borrowing as external loan, requiring the observance of the limit amount and completion of the external loan registration procedures. The loan amount limit for the FFICs must be within the amount, which is the difference [amount ordered] between [the total of the accrued mid-long term external bond loan in aggregate plus the accrued short-term external bond], and [the total investment amount plus the registered capital amount]. Furthermore, the total limit of external bond in the case of FFICs is determined separately commensurate with the amount of the registered capital amount. |
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| (Improvement) - On 24 June 2015, the executive meeting of the state council approved proposed amendment of The commercial bank law, i.e., "No. 45 [2011] of SAFE on issues concerning further clarifying and regulating the foreign exchange administration under some capital accounts" that replaces "the provision limiting the lending balance/deposit balance ratio within 75%" with "the flexible monitoring index". |
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| (3) Demerit from Deferment/Roll Over of Short-Term External Debt | - On external debt, in the case where, due to deferment or advent of rollover position, the loan period exceeds one-year on a short-term loan of less than one-year, GOC exercises its control on the accrued amount basis, the same as the mid/long-term debt. Because of this, it becomes no longer possible to reuse the limit for the external foreign debt after completing the loan repayment. - In regard to the short-term operational fund, under the ruling of China banking regulatory commission (CBRC), the roll-over position is prohibited. |
- It is requested that GOC: -- authorises reuse of the registered foreign exchange limit for short-term external debt, and -- implements rollover on short term external debt. - It is requested that CBRC further reviews its ruling described in the left column. |
- No. 45 [2011] of SAFE on Issues concerning Further Clarifying and Regulating the Foreign Exchange Administration under Some Capital Accounts |
| (4) Stringent Requirement for Borrowing Operation Fund | - The existing scheme does not allow rollover, unless the prospective borrower submits documented proof of payment to the bank in regard to short-term borrowing from financial institutions of operational fund. However, in PRC, where chronic delays persist in collection of accounts receivable, it is difficult to circulate funds. | - It is requested that GOC deregulates the scheme to level with other foreign countries. | - Interim Measures for the Administration of Working Capital Loans |
| (5) Restricted External Borrowing by FFEs | - In many cases, foreign funded enterprises (FFEs) confront a great hardship in fund procurement, as GOC severely controls FFEs' external borrowing. - Foreign funded enterprises (FFEs) face the risk of inability to procure requisite fund for operation due to the "Touzhucha" cap and financial authority's control. - Where a foreign funded enterprise (FFE) borrows externally from its parent company, etc., the amount of the borrowing must be no more than Touzhucha (the difference between total amount invested and authorised capital). If the external borrowing exceeds one year, the Touzhucha remains after completion of repayment. - Notwithstanding the fact that PRC is an IMF Member Country Accepting the Article VIII Obligations, SAFE restricts even lawful external payments. So called "Touzhucha" that restricts the loan amount proportionate to the invested amount not only impedes FFEs' flexible investment, but tightens day to day cash flow of their operations. |
- It is requested that GOC deregulates the restrictions. - It is requested that GOC: -- deregulates foreign exchange control, and -- repeals "Touzhucha (the difference between investment and registered investment)" - It is requested that GOC liberalises the external borrowing. - It is requested that SAFE controls speculative funds by a special legislation. apart from the normal economic activities. |
- The Interim Provisions on the Management of Foreign Debts [2003] No.28 - SAFE Directives/Notices - Regulation on Foreign Exchange Administration and Other Rules on Foreign Exchange Control in General |
| (Action) - Restrictions by "Touchuzha" persist even now. However, entering into force on 13 May 2013 of "Notice concerning Promulgation of Measures on Foreign Debt Registration" (HuiFa [2013]No.19) has obviated the need for prior SAFE's examination for conversion into RMB of the foreign debt borrowed within Touchuzha, allowing direct dealing with banks to complete the procedures. |
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| (Improvement) - On 25 January 2016, the People's Bank of China implemented the system that permits cross-border financing in the four pilot free trade zones, in Shanghai, Guandong, Tianjin and Fujian up to the Ceiling (RMB, Foreign Currency) based on the net total assets amount ("Notice of the People's Bank of China on Expanding All Pilot Programs of Macro Prudential Administration of Cross-Border Financing"). |
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| (6) Inflexible Limit of Foreign Financing | - The Limit of foreign financing in RMB does not revive after completion of repayment, short or long-term borrowing, regardless. Rollover financing eats up the new limit of cross-border financing (CBF) after the second rollover financing. To avoid reducing the limit of CBF, MFS must choose foreign currency other than RMB in lending, however, at the risk of exposure to fluctuations in foreign exchange, surfacing outright. |
- It is requested that GOC permits reuse of the limit of foreign financing on external borrowing in RMB, after repayment. | |
| (7) Interest Control for Direct Group Loans | - Group finance company is unable to set the optimum interest rate on its direct loan to group companies. - The prohibition on direct lending within the group enterprises (GES) interferes with efficient financing within GES. Parent company's financing to its subsidiary in PRC is only possible with prior approval of SAFE, which requirement restricts a maneuverable financing operation. - As it stands, borrowing is prohibited, whereby one of the group companies acting as manager for subletting to other companies in the group. |
- It is requested that GOC liberalises the interest rate cap (on deposit). - It is requested that that GOC liberalises financing by and among GES. - It is requested that GOC allows such subletting, limited only to companies within the group. |
- Notice on Issuing the Administrative Provisions on RMB Interest Rates - State Administration of Foreign Exchange |
| (8) Frustrated Fund Procurement from Bank Loan and Stock Market | - Up to this date our member film's subsidiary (MFS) has procured fund from its group finance company. However, prospectively, it is likely that such fund procurement becomes no longer possible. Bank loan and fund procurement in stock market are both under tight control. Moreover, they are institutionally less than perfect. | - It is requested that GOC: -- improves the FFEs' business environment (by deregulating controls), and -- organises the Stock Market that allows FFEs' listing. |
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| (9) Survival of Restricted Deposit Lending Interest Rate | - While restriction on deposit lending interest rate by financial institutions has been deregulated in stages, transactions remain governed by the regulated interest rates of the people's bank of China (PBC). Due to the differences in interest rates vis-a-vis overseas financial institutions, the risk of tax consequences arises in the cross border transactions. | - It is requested that PBS further liberalises interest rates. | - The People's Bank of China |
| (10) Administrative Scheme for RMB Foreign Loan | - RMB foreign loan, even for a short-term loan, is subject to control by accrued amount, which defies practical employment. | - It is requested that GOC repeals this requirement. | |
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