Laws of the People's Republic of China

The People's Bank of China

Interim Measures Concerning the Mortgage of Foreign Exchange for Renminbi Loans by Enterprises with Foreign Investment

the People's Bank of China

December 12, 1986

These Measures are formulated for the development of the business of mortgaging foreign exchange for Renminbi loans, in accordance with the Provisions of the State Council for the Encouragement of Foreign Investment.

Article 1

Mortgage loan recipients: All Chinese-foreign equity joint ventures, Chinese-foreign contractual joint ventures and enterprises with foreign investment registered within the territory of the People's Republic of China may mortgage their own foreign exchange (including the foreign exchange borrowed from outside the territory) and apply for Renminbi loans.

Article 2

Use of mortgage loans: Mortgage loans may be used as working capital and may also be used as investment in fixed assets.

Article 3

Types and maturity of mortgage loans: There are two types of mortgage loans; short-term loans and medium/long-term loans. The maturity of the short-term mortgage loans shall be three months, six months or one year. Medium/long-term mortgage loans shall be no less than one year, with a maximum term of not more than five (5) years.

Article 4

Types of foreign currencies that may be mortgaged: Foreign exchange that may be mortgaged is presently limited to the following five types: U.S. Dollars, Japanese Yen, Hong Kong Dollars, Deutschmarks and English pounds sterling.

Article 5

Except for the special economic zones, business in connection with mortgage loans shall be handled by the Bank of China and other financial institutions designated by the People's Bank of China.

Article 6

Applications for mortgage loans: A unit applying for a mortgage shall first go to the State Administration of Exchange Control or its branch office to report its foreign exchange, and sources and amount of funds, and shall upon approval, go to an authorized bank designated by the People's Bank of China to go through the loan application procedures and to fill in a loan application form.

Article 7

Granting of mortgage loans. After examination and approval by the bank of the application filed by the mortgagor, the mortgagor shall sign a "Loan Contract" with the authorized bank.

Article 8

Recovery of mortgage loans. Prior to the maturity of the loan, the mortgagor cannot prepay the loan. Upon the maturity of the loan, the mortgagor shall repay the original amount of the Renminbi loan and the designated bank shall return the original amount of the foreign exchange mortgaged, without being subject to the impact of exchange rate fluctuations. In the event that at maturity the Renminbi loan cannot be repaid, the foreign exchange mortgaged shall belong to the People's Bank of China. In cases where the foreign exchange mortgaged was borrowed from abroad, the mortgagor shall remain obligated to repay the creditor under the original debtor-creditor relationship the principal and interest thereon in connection with the foreign debt.

Article 9

Calculation of the amount of the Renminbi loan: The Renminbi loan granted to a mortgagor by a bank shall not exceed, at the maximum, the amount of the security calculated pursuant to the Renminbi exchange rate (buying rate) posted by the State Administration of Exchange Control on the date of the mortgage.

Article 10

No interest shall accrue on either the Renminbi loan granted by the bank nor the foreign exchange mortgaged by the mortgagor.

Article 11

The right of interpretation of these Measures shall be vested in the People's Bank of China.

Article 12

These Measures shall enter into force as of the date of promulgation.