Laws of the People's Republic of China
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The People's Bank of China, the State Administration of Foreign Exchange
Circular of the People's Bank of China and the State Administration of Foreign Exchange on Relevant Issues Governing the Prohibition of Purchase of Foreign Exchange for Advance Redemption of Loan
YinChuan  No.50
August 20, 1998
Branches the People's Bank of China in all provinces, autonomous regions, and municipalities directly under the Central Government, and in Shenzhen Economic Zone; Branches of the State Administration of Foreign Exchange in all provinces, autonomous regions, and municipalities directly under the Central Government, and in Shenzhen Economic Zone; Industrial and Commercial Bank of China,Agricultural Bank of China,China Construction Bank,China investment Bank, Bank of Communication,CITIC Industrial Bank,China Everbright Bank,China Huaxia Bank,China Minsheng Banking Corp., Guangdong Development Bank, Shenzhen Development Bank,China Merchants Bank, Fujian Xinye Bank, Shanghai Pudong Development Bank:
Because the issue that foreign exchange are purchased for advance redemption of loan is more and more serious, we hereby reiterate the relevant policies concerning the foreign exchange control as follows and demand you to implement them according the requirements hereof:
SAFE shall strengthen their control over the registration of foreign debts and the repayment of loan and interests.
In handling the registration of foreign debts for the debtor, State Administration of Foreign exchange and its branches (hereafter referred to as "SAFE") shall earnestly and strictly examine and check the borrowing agreement presented by debtor. In the event that the maturity of borrowing is less than half a year, it is demanded that the written opinion letter concerning the authenticity and the borrowing of the usage of borrowed fund confirmed by the accounting firm shall be submitted by debtor.
In handling the registration of foreign debts for enterprises with foreign investment, SAFE shall require them to submit the investment contract, the capital verification report written by accounting firm and the legal letter concerning the borrowing contract written by law firm; shall require their registered capital to be fully provided according to the stipulations of the contract; shall ensure that the accumulated amount of the long-and-medium term foreign debts borrowed externally shall not exceed the balance between the total investment and the registered capital approved by the governmental agencies concerned; shall ensure that the interest rate of the externally borrowed fund shall not be higher in principle than the level of interest rate of the same kind borrowing in the international financial market. If the enterprises don't meet the above-mentioned requirements, the SAFE can refuse to register the foreign debts for them.
In case that the debtor hasn't make the drawing in compliance with the stipulations of the contract after the registration of foreign debts, the Registration Certificate of Foreign debts issued by SAFE will automatically become invalid after 3 months since the issuing day.
In reapplying for the registration certificate of foreign debts by debtor, SAFE shall first punish them according to relevant laws and regulations concerning the foreign exchange control because they haven't gone through the registration of foreign debts in compliance with relevant regulations and make the foreign debts registered, at the same time shall require debtor to provide the capital verification report concerning the borrowed fund written by the accounting firm and the legal written letter of the borrowing contract written by the law firm.
SAFE shall exercise strict control over the advance redemption of foreign debts, that of entrusting loan(s) in foreign exchange and that of proprietary loan in foreign exchange. In the event that there is no clause of advance redemption of foreign debts in the borrowing contract, the advance the payments is not allowed; if there is the clause of advance repayment, it can be repaid with their own foreign exchange only after the examination and approval by SAFE.
It is prohibited to purchase foreign exchange with Renminbi for the advance redemption of foreign debts, entrusting loan(s) in foreign exchange and proprietary loan in foreign exchange.
When debtor files application with SAFE for repayment of the loan and interest, they shall be required to present the notice of entry into account from the bank of deposit concerned where the special loan account is opened. Only after the confirmation of the provision of debt funds can the SAFE issue the "approval document concerning the repayment of loan and interest". In case of purchase of foreign exchange with Renminbi for repayment of foreign debts, that of entrusting loan(s) in foreign exchange and that of proprietary loan in foreign exchange, debtor shall present such documents as the reconciliation sheet from the bank of deposit of all the foreign exchange accounts and the Registration certificate of enterprises with foreign investment etc; if they have foreign exchange themselves, SAFE shall demand them to make the redemption with their own foreign exchange.
SAFE shall strengthen their control over the repayment of foreign exchange loan extended by domestic Chinese-capital financial institutions. In case that the repaid amount with purchased foreign exchange exceeds US $ 1,000,000 (inclusive of US $ 1,000,000), follow-up investigation must be carried out. For the violation of the relevant provisions by purchasing foreign exchange to make advance redemption of loan, they shall be severely handled in compliance with relevant provisions of the Regulations on the Foreign exchange Control of People's Republic of China.
The branches of State Administration of Foreign exchange shall make an investigation into the registration of foreign debts and their repayment in 1998 and shall report to their next higher agency in charge immediately in case of major circumstances.
The banks shall strictly control the usage of the Renminbi loan to prevent clients from purchasing foreign exchange to repay loans in advance.
The Renminbi loan extended by the banks to domestic entities shall be confined to the production and can't be used to purchase foreign exchange to repay loan.
The banks are not allowed to extend Renminbi loan to domestic institutions with foreign financial institutions or foreign entities as the loan guarantor.
In compliance with relevant laws, regulations and this Circular, every the bank shall make a self-check into the repayment of foreign debts, that of entrusting loan(s) in foreign exchange and that of proprietary loan in foreign exchange handled prior to July 31 1998 and submit the self-check report to State Administration of Foreign exchange before September 20 1998.
This Circular shall come into effect as of the issuing day. Branches of the People's Bank of China and the State Administration of Foreign Exchange should transmit the Circular to the branches and sub-branches, the local Chinese-capital banks and foreign-capital banks and the relevant units after receiving it. Each designated Chinese-capital banks of foreign exchange should transmit this Circular to the branches and sub-branches right now. If some problems happen during the process of implementation, please report to the State Administration of Foreign Exchange in time.