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CIRCULAR OF THE STATE ADMINISTRATION OF FOREIGN EXCHANGE CONCERNING THE RELATED MATTERS ON ADMINISTERING SHORT-TERM FOREIGN DEBTS OF FINANCIAL INSTITUTIONS IN 2007

Circular of the State Administration of Foreign Exchange Concerning the Related Matters on Administering Short-term Foreign Debts of Financial Institutions in 2007

Hui Fa [2007] No. 14

The branches and foreign exchange administration offices of the State Administration of Foreign Exchange in each province, autonomous region, and municipality directly under the Central Government, and the municipal branches of the State Administration of Foreign Exchange in Shenzhen, Dalian, Qingdao, Xiamen and Ningbo, and all the headquarters of the designated Chinese-funded foreign exchange banks:

For the purpose of rigorously controlling the short-term foreign debt scale, promoting the international balance of payments and maintaining the safety of the national economic and financial, the related matters on administering short-term foreign debts of financial institutions in 2007 are hereby notified as follows:

1.

The administration of short-term foreign debt balance quotas (hereinafter referred to as short-term foreign debt quotas) shall apply to the following foreign debts of financial institutions:

(1)

Usance letters of credit that has been accepted but not yet paid with a term of over 90 days (excluding 90 days);

(2)

Deposits of overseas institutions as well as deposits of overseas individuals whose balance in the foreign exchange account at a same bank with a legal person status is more than an equivalent value of USD 500,000;

(3)

Overseas loans, overseas inter-bank borrowings, current businesses with overseas inter-bank and subordinated institutions thereof (as the debtor) as well as overseas agency payments by various settlement methods with a term of less than one year (including one year) ; and

(4)

Short-term foreign debts in other forms.

2.

The short-term foreign debt quotas of financial institutions in 2007 will be reduced by the decrease State Administration of Foreign Exchange (SAFE). The short-term foreign debt quotas for Chinese-funded banks in 2007 shall be decreased to 30% of their respective quotas as determined upon confirmation in 2006, and short-term foreign debt quotas for non-bank financial institutions and foreign-funded banks in 2007 shall be decreased to 60% of their respective quotas as determined upon confirmation in 2006.

3.

A financial institution shall decrease its short-term foreign debt balance according to the following requirements:

(1)

By June 30, 2007, a Chinese-funded bank shall reduce its short-term foreign debt balance to 45% or less of the quota as determined in 2006, and with regard to a non-bank financial institution or foreign-funded bank, its short-term foreign debt balance shall be reduced to 85% or less of the quota as determined in 2006.

(2)

By September 30, 2007, a Chinese-funded bank shall reduce its short-term foreign debt balance to 40% or less of the quota as determined in 2006, and with respect to a non-bank financial institution or foreign-funded bank, its short-term foreign debt balance shall be reduced to 75% or less of the quota as determined in 2006.

(3)

By December 31, 2007, a Chinese-funded bank shall reduce its short-term foreign debt balance to 35% or less of the quota as determined in 2006, and with regard to a non-bank financial institution or foreign-funded bank, its short-term foreign debt balance shall be reduced to 65% or less of the quota as determined in 2006.

(4)

By March 31, 2008, a Chinese-funded bank shall reduce its short-term foreign debt balance to 30% or less of the quota as determined in 2006, and with respect to a non-bank financial institution or foreign-funded bank, its short-term foreign debt balance shall be reduced to 60% or less of the quota as determined in 2006.

4.

The short-term foreign debt quota for a Chinese-funded or foreign-funded bank newly established, or a Chinese-funded bank newly launching foreign exchange business shall be determined upon verification as no more than two times its foreign exchange operating fund or its capital.

5.

After a branch of a foreign-funded bank is converted into a bank with a legal person statue in China, the short-term foreign debt quota of the original short-term foreign debt quota management bank or the original domestic branch shall be inherited by this bank with a legal person status, and its headquarters shall submit such quota to the SAFE or the SAFE branch or management department at the registration place (hereinafter referred to as the "SAFE branch") for archival filing.

In case a foreign-funded bank has simultaneously established both a bank with a legal person status and a branch conducting wholesale business of foreign exchange within the territory of China, the subsidiary bank shall take charge of managing short-term foreign debts, and the short-term foreign debt quota shall be jointly used by the bank with a legal person status and the branch conducting wholesale business of foreign exchange.

Where it is necessary for a foreign-funded bank to adjust short-term foreign debt quotas for different regions because of the merger or split-up, etc., the institution needing to increase the quota shall apply to the local SAFE branch, who shall examine and approve the application together with other related SAFE branches, and then report it to the SAFE for archival filing.

6.

Before a branch of a foreign-founded bank in China is converted into a bank with a legal person status, the funds from its overseas parent bank for its the capital increase may be deposited into a special account which is opened in a domestic bank upon this branch's application to the local SAFE branch on behalf of the foreign bank. Such funds are not subject to the management of short-term foreign debt quotas of such domestic bank, but they may only be used as overseas short-term capital by such domestic bank and not for any other purpose.

7.

The SAFE will determine upon verification the short-term foreign debt quotas of the following financial institutions:

(1)

Policy banks and nationwide commercial banks with a legal person status (including foreign-funded banks with a legal person status converted from foreign bank branches, see the affixed forms 1 and 2); and

(2)

Foreign bank branches implementing the centralized management on short-term foreign debt quotas (see affixed Form 1).

8.

Within the regional quotas (see affixed form 3) determined upon verification by the SAFE, each SAFE branch shall determine the short-term foreign debt quotas of the following financial institutions within its jurisdiction:

(1)

Regional Chinese-funded banks (those that have not been listed into affixed Form 2);

(2)

Foreign-funded bank branches not implementing the centralized management of short-term foreign debts and regional foreign-funded banks with a legal person status (hereinafter referred to as regional foreign-funded banks, that are, those that have not been listed into affixed form 1); and

(3)

Non-bank financial institutions that have not been listed into any affixed form.

9.

A department and some staff members shall be designed by a financial institution to be responsible for managing and registering its short-term foreign debts, as well as reporting them to the SAFE for archival filing.

10.

A financial institution shall conduct careful statistics on and comprehensive report of the short-term foreign debt data (see annex) according to the relevant provisions on the statistical monitoring of foreign debts.

Chinese-funded financial institutions shall, uniformly by their headquarters through the SAFE foreign debt statistical monitoring system (the bank version), report the foreign debt data on usance letters of credit, deposits of non-resident, overseas inter-bank borrowing and overseas agency payments. The foreign-funded bank with a legal person status upon restructuring and its branches conducting wholesale business of foreign exchange shall, uniformly by the subsidiary bank through the SAFE foreign debt statistical monitoring system (the bank version), report the foreign debt data. A foreign bank branch that has not been restructured shall keep its original foreign debt data submission method.

A financial institution shall report the data on usance letters of credit subject to the following three types based on currencies; (1) usance letters of credit within a term of 90 days or less in the same currency; (2) usance letters of credit within a term of over 90 days up to one year in the same currency; and (3) usance letters of credit with a term of over one year.

The data on overseas deposits not governed by foreign debt quotas shall be reported in the system at the same time.

11.

The SAFE and branches thereof shall deliver the short-term foreign debt quotas to the financial institutions under their respective jurisdictions prior to March 31, 2007, and rigorously administer and supervise the borrowing of short-term foreign debts and the implementation of quotas.

12.

The demands for short-term foreign exchange financing of a domestic financial institution may be satisfied through currency market lending and swap, etc.

13.

The present Circular shall go into effect as of April 1, 2007. All SAFE branches shall promptly forward the present Circular to the sub-branches and foreign-funded banks under their jurisdiction after they receive it. All designated Chinese-funded foreign exchange banks shall promptly forward the present Circular to their branches. Any problem encountered during the implementation shall be fed back to the SAFE in a timely manner.

Annex: Instructions on the Adjustment of the Submission Methods of Foreign Debt Data (Omitted)

Form 1: Form of the Verification of Short-term Foreign Debt Quotas for the Short-term Foreign Debt Management Banks of Foreign-funded Financial Institutions in 2007 (Omitted)

Form 2: Form of the Verification of Short-term Foreign Debt Quotas for Chinese-funded Financial Institutions in 2007 (Omitted)

Form 3: Form of the Verification of Short-term Foreign Debt Quotas of Various Regions in 2007 (Omitted)

The State Administration of Foreign Exchange

March 2, 2007

  The State Administration of Foreign Exchange 2007-03-02  


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