[Home] [Databases] [WorldLII] [Search] [Feedback] Laws of the People's Republic of China

You are here:  AsianLII >> Databases >> Laws of the People's Republic of China >> MEASURES FOR PROVIDING SHORT-TERM LOANS IN FOREIGN CURRENCY BY THE BANK OF CHINA

[Database Search] [Name Search] [Noteup] [Help]

MEASURES FOR PROVIDING SHORT-TERM LOANS IN FOREIGN CURRENCY BY THE BANK OF CHINA

    These Measures for providing short-term loans in foreign currency are
hereunder formulated with a view to speeding up the socialist modernization
programme and, on the basis of self-reliance and by using the foreign currency
funds absorbed by the Bank of China, developing production of exports and
other economic under-takings and increasing foreign exchange earnings as well.
Chapter I  Eligible Borrowers and the Purposes for which Loans are to
be Used

    Article 1  Loans are to be granted to export-oriented industries and
other enterprises earning foreign exchange income directly or indirectly
who can meet the conditions for borrowing. The loans are primarily for
encouraging export-oriented industries to tap production potential and to
support their renovations and retooling old plants and equipments.

    Article 2  The loans are to be used for:

    a. financing imports of advanced technology, equipment and materials
essential to upgrading the borrower's productivity and the quality, variety
and packaging of export goods;

    b. financing imports of raw materials and components to be processed for
export;

    c. developing transportation and tourism and carrying out engineering
projects contracted in foreign countries;

    d. supporting the processing of raw materials and assembling of parts
supplied by foreign buyers, and supporting compensatory trade; and

    e. providing short-term working capital to production projects that
generate foreign exchange directly or indirectly.
Chapter II  Conditions for Borrowing

    Article 3  Applicants for loans must meet the following requirements:

    a. Marked economic results: Preference is given to borrowers who are able
to earn more foreign exchange in proportion to the money invested and repay
bank loans sooner. Borrowers should be able to run their enterprises
efficiently, make the most of the imported advanced technology, equipment
and raw materials, tap their production potential, renovate obsolete plants
and equipment, enhance the competitiveness of their export goods in the
international markets, thereby earning more foreign exchange and accumulate
more funds for the country.

    b. Assurance of repayment: Borrowers must give evidence of a reliable
source of foreign exchange income and the ability to repay loans plus
interest for which they are required to submit a schedule of repayment.

    Where loans are granted to the export-goods industry, the increased
output attributed to the loan should be primarily for export and not be
included in the state domestic marketing plan. The income from the increased
output and the export proceeds in foreign exchange should first be set aside
for repayment of the bank loan. In case the goods are to be turned over to
a foreign trade corporation for export, the borrower should sign a sales
contract with this corporation which commits the latter to repay the bank
loan in foreign exchange for the borrower.

    Enterprises not directly related to the export trade must submit a
document of approval signed by the competent department committing the
latter to repay the loan from its own foreign exchange income. When
necessary, the bank may demand that some organization that has a regular
foreign exchange income stands surety for the borrower.

    c. Availability of domestic factors of production to make imported
materials and equipment operational: Domestic factors of production refer
to factory buildings, equipment, steam, water, electricity and fuel, raw
materials, labour force, technological expertise and funds in Renminbi
requisite to making the imported equipment and materials operational. These
items must be duly arranged and approved by the Planning Commission or the
competent authorities who have to list them in their plans or sign contracts
with the borrower.

    d. With respect to the items mentioned above, borrowers should obtain
prior approval of higher authorities for those items that require allotment of
funds for capital construction or technological installations.
Chapter III  Applications for and Utilization of Loans, and Examination
and Approval of Applications

    Article 4  Applications for loans should be submitted to the Bank of
China (or People's Bank of China where the Bank of China does not operate)
together with the following supporting documents: a document evidencing the
approval of the proposed project by the department in charge; a list of
imports the loan is to finance; a schedule proving the domestic factors of
production are available and a copy of the contract; a document approved by
the department in charge showing that counterpart funds in Renminbi have
been earmarked for repayment of the amount of Renminbi required for the
import of the equipment. In the case of a project where the producer needs
to repay the loan with earnings from the export of its products, the
producer should conclude with a foreign trade department a contract or an
agreement on production and sales, and on the repayment of the foreign
currency borrowed.

    Article 5  Applications for loans by the departments under the State
Council shall be examined item by item against the prerequisites for
borrowing by the head office of the Bank of China. Applications by local
departments and enterprises shall be reviewed by the Bank of China's  regional
branches in the provinces, municipalities and autonomous regions within the
bounds of their respective loan quotas assigned by the head office. Cases
that need to be reviewed by the head office or ministries concerned should
be submitted to them for approval. In examining the applications, the Bank
should keep in touch with the departments in charge and work in close
cooperation with them.

    Article 6  After the application is approved, the borrower should sign a
loan agreement, open a loan account with the Bank of China and place an order
for imports. If the borrower fails to sign the loan agreement or submit a
list of imports within the specified time, the Bank may revoke its approval
of the loan. The list of imports must be signed by the Bank before the
order is placed. Without the approval of the Bank, neither the purpose
for which the loan is to be used nor the descriptions and quantities of
imports should be changed. The borrower should submit to the Bank a copy of
the contract signed with a foreign trader who provides the goods. The Bank
should help the borrower to make the best use of the loan.

    Article 7  For a substantial loan, the borrower should submit a quarterly
withdrawal plan according to which the Bank will arrange the funds. In case
the plan needs to be adjusted because of poor planning or unexpected changes
of circumstances, the borrower should apply to the Bank for adjustment a
month before the end of the quarter. For failure to carry out the plan, the
borrower shall bear additional bank charges on the amount of the  withdrawal
falling short of, or in excess of, the planned amounts so as to compensate
the Bank for losses in raising funds from abroad.

    Chapter IV  Term of Loans and Rates of Interest

    Article 8  The term of the loan is to begin from the day of the
withdrawal to the day of repayment of the principal and interest. The term
of loans for importing raw materials and components to be processed for
export is normally 1 year. The term of loans for importing equipment or
materials to be used in making equipment, and that of loans for other
purposes shall not exceed 3 years. Where loans take the form of buyers'
credits, the maturity shall not exceed 5 years.

    Article 9  The interest rates for loans are to be determined and made
public by the head office of the Bank of China on the basis of the cost of
raising funds on the international money markets plus its handling charges.

    Chapter V  Repayment of Loans

    Article 10  The borrower shall, in keeping with the loan agreement,
repay the principal before the loan runs out, and pay the interest regularly
to the Bank. If the borrower fails to repay, the surety is responsible for
repayment. If necessary, the Bank of China or the People's Bank of China
may force repayment by debiting the foreign currency deposit account of the
borrower or the surety (or by writing of the foreign exchange quota alloted
to the borrower and seizing his counterpart funds in Renminbi earmarked for
the purchase of the foreign exchange quota).

    Article 11  A borrower who has a regular foreign exchange income should
repay the loan from its foreign exchange earnings. A borrower who is not
directly involved in the export trade should repay the loan from export
proceeds received through a foreign trade corporation.

    This corporation or some other organization which stands surety for the
borrower should issue a certificate to "repay foreign exchange quota"
against which the borrower may purchase foreign exchange with Renminbi from
the Bank of China to repay the loan.

    Foreign exchange earnings from processing raw materials and assembling
parts provided by foreign buyers or earnings from compensatory trade must
first be set aside for repayment of the loan.

    Article 12  Loans made to finance a construction project by a state-owned
enterprise may be repaid out of profits derived from the increased output, out
of depreciation reserves for fixed assets, or out of changes payable to the
government for the use of fixed assets. Enterprises that are authorized to
retain a portion of their profits may make repayment from the retained profits
after deductions for the staff's welfare fund and bonus fund. However,
deductions for the production development fund and for retention of increased
profits are not allowed. Loans to collectively owned township enterprises may
be repaid out of profits derived from the increased output (profits before tax)
or from depreciation reserves for fixed assets. The department in charge is
not allowed to collect profits or demand payment out of the project financed
by the bank loan before the loan is repaid. If the above-mentioned funds are
sufficient to repay the loan and a surplus remains, income tax shall be paid
on the surplus or a percentage of profits shall be turned over to the
government as required. If not, the deficit may, with the consent of the tax
authorities, be covered by the industrial and commercial tax on the increased
output which would otherwise be collected. When applying for the loan, the
borrower should send a copy of the application to the tax authorities for the
record.

    Chapter VI  Buyers' Credits

    Article 13  When loans are provided in the form of the buyers' credits,
the following rules shall apply, apart form other provisions in the Measures:

    a. The borrower must abide by the provisions in the buyer's credit
agreement that the Bank of China has signed with a foreign bank and must
place orders for imports from the country in which the foreign bank is
located.

    b. The borrower must indicate in the order for imports that the buyer's
credit is to be used for payment. The commercial contract signed between a
Chinese foreign trade corporation and the foreign seller should indicate
the name of the bank providing the buyer's credit.

    c. At the time the commercial contract is signed, the Bank of China
shall negotiate with the foreign bank providing the buyer's credit and sign
an agreement on the drawdown of the credit. The agreement shall be signed
by head office of the Bank of China or by one of its branches with its
authorization.
Chapter VII  Loan Administration

    Article 14  Choosing the best possible loanees. The Borrower must
maximize the effective productivity of the loan by relying on cost
accounting. Preference is given to the borrower who earns more foreign
exchange in proportion to the amount of the loan granted and makes repayment
sooner. The borrower who performs poorly or who is unable to repay his loan
upon maturity, will not receive further loans until he shows improvement in
management.

    Article 15  Clearly specifying the responsibilities. Both the Bank and
the borrower shall abide by the loan agreement: the Bank undertakes to
provide the loanable funds; the borrower undertakes to draw on the loan and
utilize its productive potential effectively. The Bank shall raise the
interest by 10-50% for overdue loans counting from the maturity date, and
by 100% for loans diverted to uses other than those authorized by the bank.

    Article 16  Exercising bank supervision. The Bank shall inquire into each
project before financing it, examine the borrower's application before
approving it and oversee the performance of the borrower after the loan is
granted. The Bank has the duty to help the borrower achieve its economic
goals. In this way the bank shall fulfil its role of promoting, regulating
and supervising the economic activities of the borrower.

    For large loans, the Bank shall sit in on the negotiations between the
borrower and the foreign supplier and make suggestions as to the preferred
currency for making payment and the method of payment. The borrower must
provide the bank with all necessary information, documents, statistics and
a duplicate of the relevant contract.

    The borrower shall be held accountable for violation of government
decrees and policies; failure to abide by the regulations, the contract or
the agreement; dissipation of foreign exchange; or failure to repay the loan
when due. At the same time the Bank may take such disciplinary actions as
suspending or recalling the loan before maturity, raising the interest rate
or even suing the borrower in a court of law.
Chapter VIII  Supplementary Provisions

    Article 17  On the date these Measures come into force, Regulations for
Providing Short-term Loans in Foreign Currency, issued by the Ministry of
Finance on September 29, 1978, shall no longer be valid except for loans and
loan agreements previously approved and signed. Rules for the implementation
of these Measures shall be formulated separately by the Bank of China.