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CIRCULAR OF THE GENERAL OFFICE OF THE STATE COUNCIL CONCERNING THE DECISION THAT LOCAL GOVERNMENTS SHALL NOT SEEK LOANS AND RECEIVE CREDIT RATINGS OUTSIDE CHINA

    Recently, the governments in some localities indicated their intentions of
issuing bonds outside China on their own behalf and applying to international
credit-rating institutions for local credit ratings. This is a major issue
which involves the financial and foreign debts control systems of the State.
Each locality is prohibited from going its own way. With approval of the State
Council, relevant matters are hereby notified as follows:

    1. In accordance with the relevant provisions of current laws and
regulations, a deficit budget is not permitted in local financial structure
and a local government is not authorized to issue bonds outside China. Thus,
it is not necessary for a local government to have its credit state rated. If
the rating is already in progress, it must be given up immediately.

    2. The issuance of bonds in foreign currency outside China comes within
the matters relating to international commercial loans and should be dealt
with in strict accordance with the relevant provisions of the State Council on
strengthening the administration for obtaining international commercial loans.
Those provisions provide that, for the purpose of obtaining international
commercial loans, the quota thereof shall be approved by the State Planning
Commission and such activities shall be included in the State plan for the use
of foreign funds; the raising of foreign funds, including the issuance of
bonds outside China, shall be handled by a financial institution that has been
authorized by the People's Bank of China to engage in foreign financing
business; and the State Administration of Foreign Exchange Control shall
exercise examination and approval of, supervision and control over the mode,
cost, market situation, time and other matters with regard to raising foreign
funds.