New SAFE regulations on registration of foreign debt

In recent years, the central government has progressively relaxed foreign exchange controls. The August 2008 Regulations of Administration of Foreign Exchange – China’s basic foreign exchange regulation – removed government restrictions on current account payments and transfers, and on 1 August 2012 verification procedures for international trade of goods were eliminated.

Following, and consistent with, the relaxation on supervision and administration of capital account item transactions in December 2012, the State Administration of Foreign Exchange (SAFE) recently took further steps, publishing the Administrative Measures on the Registration of Foreign Debt, together with Operational Guidelines on the Registration of Foreign Debt on 28 April 2013 (collectively the new foreign debt regulations). It also published the Foreign Exchange Administration Regulations on Domestic Direct Investments by Foreign Investors, together with Operational Guidelines on the Domestic Direct Investment Businesses on 10 May 2013, (collectively the new FDI regulations) both of which took effect on 13 May 2013.

Foreign debt

The new foreign debt regulations simplify the registration procedures of foreign debt and clarify some issues that were not entirely clear under the previous regime. The key changes set out in the new regulations include:

1. Verification and filing requirements

• Designated account. In the past, a borrower of foreign debt must obtain verifications from SAFE for the opening of the designated disbursement account (in some locations, a repayment account is also required). Under the new foreign debt regulations, such verification is no longer required. The borrower may now directly open a designated foreign debt account with a domestic bank after the registration of the foreign debt.
• Drawdown, interest payment and principal repayment. The drawdown, the interest payment and principal repayment of foreign debt would no longer require verification from SAFE and can be processed directly through the above designated foreign debt account at the borrower’s bank. In addition, the borrowers are not required to file with SAFE for each drawdown, interest payment and principal repayment.
• Conversion of loan proceeds. Under the new foreign debt regulations, the conversion by a foreign invested enterprise (FIE) of the loan proceeds borrowed by it in foreign currency into RMB does not require verification from SAFE. The new foreign debt regulations also make it clear that the foreign debt of domestic companies may not be converted into RMB unless otherwise permitted by law.

Business Law Digest is compiled with the assistance of Baker & McKenzie. Readers should not act on this information without seeking professional legal advice. You can contact Baker & McKenzie by e-mail at: Zhang Danian (Shanghai) danian.zhang@bakermckenzie.com