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CIRCULAR OF THE STATE COUNCIL ON STRENGTHENING THE ADMINISTRATION OF THE OBTAINING OF INTERNATIONAL COMMERCIAL LOANS

    The following Circular is issued, in accordance with the requirements of
the Central Authorities concerning the improvement of the economic environment,
the straightening out of the economic order and the deepening of the reform,
for the purpose of strengthening the administration over the obtaining of
international commercial loans.

    1. It is imperative to control the scale of borrowing from abroad. The
various localities and departments shall act in strict accordance with the
State plan for the use of foreign funds. No departments or units may, without
authorization, obtain from abroad any kind of international commercial loans
or borrow money from the Chinese institutions and banks operating abroad, if
such obtaining or borrowing is not included in the State plan for the use of
foreign funds and is not approved by the head office of the People's Bank of
China. Without the approval of the department for control of foreign exchange,
no loans may be deposited abroad. If any party contracts a loan without
authorization, the contract therefor shall not go into effect, the department
for control of foreign exchange, shall not handle the registration for the
foreign loan obtained, the bank shall not open a foreign exchange account for
the loan, and the principal of the loan and the interest thereon may not be
remitted abroad.

    2. It is imperative to exercise administration over the balance of
short-term international commercial loans obtained and, without the approval
of the State, no quota of balance that has been verified and approved may be
exceeded. Any part that exceeds the amount of the balance shall, within half a
year as of the date of the promulgation of this Circular, be readjusted so
that the balance shall be within the quota verified and approved, failing
which the local department for control of foreign exchange shall deduct a
corresponding amount from the foreign exchange the party concerned is
entitled to retain or shall compulsorily make use of the party's quota of
medium-term and long-term international commercial loans for the repayment
of the loan. A short-term loan obtained from abroad may only be used for the
turnover of the circulating funds and may not be used for investment projects
in fixed assets.

    3. The issuance abroad of bonds shall, within the framework of the State
plan for the use of foreign funds, be handled by a financial institution that
has been authorized by the People's Bank of China to issue bonds. All
bond-issuing units must, prior to the issuance, apply to the People's Bank of
China for approval in strict accordance with the Provisions Concerning the
Administration of the Issuance of Bonds Abroad by Domestic Chinese
Institutions promulgated by the People's Bank of China. Any government
departments that are to issue bonds in the international market shall apply
to the State Council of the People's Republic of China for approval. Without
the approval, no negotiations with the foreign parties concerned shall be
conducted. The People's Bank of China shall do a good job of co-ordination
for the domestic bond-issuing institutions to enter the international market
for the issuance of bonds and examine carefully their credentials for issuing
bonds abroad.

    4.It is imperative to strengthen the administration of guarantee of
foreign exchange. Guarantee of foreign exchange not only concerns China's
international prestige but also involves the commitments to repay foreign
debts. It is imperative to strictly implement the Interim Measures for the
Administration of Guarantee of Foreign Exchange Provided by Domestic
Institutions promulgated by the People's Bank of China. An enterprise that
is to provide such guarantee shall have a sufficient amount of foreign
exchange of its own as a guarantee and the total amount guaranteed may not
exceed the amount of funds of its own in foreign exchange. The sum of the
total amount of the guarantee of foreign exchange provided by a non-financial
institution and its total amount of foreign liabilities may not exceed the
ceiling prescribed by the People's Bank of China. Without the approval of the
State Administration of Foreign Exchange Control, no domestic institutions
may provide guarantee of foreign exchange for institutions abroad. No
government departments or institutions may provide guarantee of foreign
exchange for parties abroad.

    5. It is imperative to examine the projects of loans strictly. With
respect to a project which requires a medium or long-term international
commercial loan, the borrower unit shall, prior to the borrowing, conduct
careful feasibility studies as to the capability to repay and the economic
returns of the project and make sure that the obligations to repay are
undertaken and that the project is subject to strict evaluation by a
financial institution. No international commercial loans may be obtained
for a project which has not been established as an item for processing and
approved by the State planning department and for which the supporting funds
in Renminbi are not vet available and the conditions such as energy supply
and communication facilities are not yet present. No international commercial
loans may be obtained for projects of construction which are not included
in the State plan. With respect to a loan obtained from abroad by a domestic
unit, the foreign exchange thus obtained may in general not be used as
mortgage for loans in Renminbi and may not enter the market for regulating
foreign exchange. Where special need arises, the case shall be submitted to
the State Administration of Foreign Exchange Control for approval.

    6. It is imperative to place a strict control on the number of windows
for external borrowing. Apart from the ten existing windows designated by
the State, i.e. the Bank of China, the Communications Bank, China
International Trust and Investment Corporation, the Investment Bank of China,
the Guangdong International Trust and Investment Corporation, the Fujian
Investment Enterprise Corporation, the Hainan International Trust and
Investment Corporation, the Investment and Trust Corporation of the Shanghai
Municipality, the International Trust and Investment Corporation of the
Tianjin Municipality and the Dalian International Trust and Investment
Corporation, no other windows for borrowing from abroad shall be approved.
Other localities, departments or units that intend to obtain international
commercial loans shall apply to the People's Bank of China on the basis of
one application for one loan or a special application for a special loan.
The People's Bank of China shall conduct conscientiously the work of clearing
up and rectification in the units that have borrowed from abroad. The various
windows for borrowing from abroad and the units that have been permitted by
the People's Bank of China to obtain international commercial loans shall
handle the borrowing procedures in accordance with the relevant provisions of
the People's Bank of China.

    7. It is imperative to further improve the registration of foreign loans
and the statistical monitoring system. All foreign loans, whether procured
directly from abroad or obtained indirectly at home, shall be incorporated
into the statistical monitoring system of the State for foreign loans and
registered as such so as to ensure that the State maintains macro-supervision
and control over the scale and structure of foreign loans. The State
Administration of Foreign Exchange Control shall expedite the formulation
of procedures governing the registration and statistical momitoring with
respect to foreign loans obtained indirectly at home. Any parties that fail
to go through the procedures of registration or delay doing so shall be
penalized in strict accordance with the relevant provisions.

    8. It is imperative to arrange the structure of foreign loans rationally.
The State Administration of Foreign Exchange Control and other departments
concerned shall make a timely study of such problems involved in a loan as the
kind of currency, the interest rate, the term, the mode of borrowing, the
country of origin, and the market situation and submit proposals to the State
Council of the People's Republic of China. The People's Bank of China shall
expedite the formulation of Procedures for the Administration of International
Commercial Loans so as to strengthen the work of examination and approval
and the work of administration.

    People's governments at various levels and the various departments shall
strictly implement the provisions of this Circular, earnestly place on their
agenda the work of administration in their own localities and departments
with respect to foreign loans, see to it that loans, obtained from abroad are
used properly and efficiently, and ensure that the loans are repaid within
the prescribed time so as to maintain the international prestige of our
country. Departments for control of foreign exchange at various levels shall
strengthen supervision, inspection and guidance with respect to the obtaining
of foreign loans and shall report on the situation in good time. The State
Council of the People's Republic of China hereby authorizes the departments
for control of foreign exchange to deal severely with those that violate the
State provisions concerning the administration of foreign loans in accordance
with the relevant provisions and investigate the liability of persons directly
responsible and of the leaders concerned.

    This Circular shall not apply to enterprises with foreign investment.