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CIRCULAR OF THE STATE COUNCIL ON FURTHER STRENGTHENING THE MACRO-CONTROL OVER INTERNATIONAL COMMERCIAL LOANS

    International commercial loans are an important method for
absorbing foreign capital, and bear great significance in
ensuring the sustained, fast and sound development of the
national economy. The administration of international commercial
loans must be strengthened in earnest so as to meet the needs of
reform, opening and economic construction, make further
improvements in the efficiency of international commercial loans
and prevent a runaway increase of international commercial loans.
This Circular is hereby issued as follows in that connection.

    1. Strictly Controlling the Overall Scale of International
Commercial Loans

    In light of China's actual situation, funds raised by
institutions located within the territory of China on commercial
terms from international financial markets under the contractual
obligations of repayment in foreign currencies are all referred
to as "international commercial loans." International commercial
loans include loans from foreign commercial banks (institutions),
export credit, finances from issuance of foreign currency bonds,
convertible bonds, transferable certificates of large-volume
deposit, medium term bills and other negotiable securities other
than stocks, finances from international financing leases,
compensation trading by spot repayment, financing projects and
overseas deposits, and finances commercially raised or financed
in other forms.

    (1) The state shall conduct planned administration and
control over the total amount of long and medium term
international commercial loans. The State Planning Commission
shall, in light of China's foreign debt structure, debt-service
capability, demand of foreign capital, related conditions and the
international financial market situation, and on the basis of
opinions solicited from various localities and relevant
departments, work out long and medium term plans and annual plans
for using foreign capital, and announce the planned overall scale
of international commercial loans. With regard to the annual
international commercial loan quotas for various financial
institutions, the People's Bank of China shall, within the
planned total amount of foreign debt announced by the State
Planning Commission, and in light of the situations of various
financial institutions concerning assets and liabilities, raise
proposals concerning quotas and, after consulting with the State
Planning Commission, make decisions concerning them and announce
such decisions.

    Current international commercial loan quotas may be carried
over until the end of March of next year.

    Any international commercial loans raised shall not be used
for loans in Renminbi guaranteed with foreign exchange, and shall
not be settled.

    (2) The state shall conduct balance-control on raising short
term international commercial loans. Short term foreign loans
(with the term of one year or less than one year) shall be used
only for cash turnover of financial institutions or as short term
operating funds for enterprises, and shall not be used for
investment in fixed assets or for other purposes prohibited by
the state. The People's Bank of China shall, in light of China's
foreign debt structure and the actual need for foreign capital,
decide on the national total amount of short term foreign debt
balance, determine and announce the quotas for the short term
international commercial loan balances for various financial
institutions and enterprises. Financial institutions and
enterprises should control their foreign debt balance within
their respective quotas. Otherwise, the right of raising foreign
loans shall be revoked and appropriate punishment shall be given
to them.

    2. Examining and Approving Foreign Loans for Construction
Projects in Strict Accordance with State Provisions

    Raising international commercial loans for construction
projects shall be strictly controlled by means of the examination
and approval authority prescribed by the state. With regard to
long and medium term international commercial loans for capital
construction, and in case of an applied loan scale beyond the
limits prescribed by the state, the amount of the loan shall be
examined and approved by the State Planning Commission; with
regard to long and medium term international commercial loans for
technical transformation projects, and in case of an applied loan
scale beyond the limits prescribed by the state, the amount of
the loan shall be jointly examined and approved by the State
Economic and Trade Commission and the State Planning Commission.
Those within the limits prescribed by the state shall be examined
and approved by the local people's governments or relevant
departments of the State Council on the basis of the annual plans
for international commercial loans assigned by the State Planning
Commission. Investment projects for fixed assets involving
international commercial loans must accord with state industrial
policies and be incorporated in the national plan. International
commercial loans shall not be raised for projects which are not
approved by the department in charge of examination and approval,
the related funds in Renminbi required for which are not
available, or for which energy, transportation, raw materials
conditions and other production conditions are not satisfied, or
which have a low capacity of repayment of foreign capital.

    The State Administration of Exchange Control shall be
responsible for the examination and approval of the financial
terms of foreign loans on the basis of the annual plans for
international commercial loans announced by the State Planning
Commission. Any region, department or unit concluding contracts
with foreign parties for loans or for raising funds without
authorization shall be severely dealt with by the department of
exchange control, with their registration for foreign debt being
refused, the agreements on loans and guarantee contracts being
declared null and void, the opening of foreign exchange accounts
being refused, and possible disqualification from applying for
raising foreign loans.

    International commercial loans for investment outside the
territory of China shall be strictly controlled by means of
examination and approval by the State Planning Commission.

    3. Further Strengthening the Administration on Window Units
Issuing External Bonds

    The administration of window units issuing external bonds
shall be strengthened, and the number of said units shall be
strictly controlled. The State Planning Commission and The
People's Bank of China shall, in light of the scale of assets,
the balance of assets and liabilities, the ratio of capital to
risk, the management achievements and other situations of
financial institutions, conduct the regular examination and
verification of the window units, and shall adopt a system of
regular examination and appraisal. The list of window units shall
be published externally by the State Planning Commission and the
People's Bank of China after being submitted to and approved by
the State Council.

    The issuance of external bonds (including project financing
in the form of issuing bonds outside China for construction
projects inside China) shall be handled by financial institutions
with managerial authority over matters of international finance
and qualifications for issuing bonds that are approved by the
People's Bank of China on the basis of quotas for international
commercial loans approved by the State Planning Commission. The
State Planning Commission and the People's Bank of China shall
strengthen the examination and verification of window units,
while the State Administration of Exchange Control shall be
responsible for work concerning coordination and administration
of entering the international financial market for issuing bonds,
so as to ensure that the issuing of bonds proceeds smoothly.

    The issuance of external bonds by the Ministry of Finance on
behalf of the state shall be approved by the State Council, and
shall be incorporated in the national plan for international
commercial loans.

    Local governments shall not raise foreign loans.

    For the purpose of taking full advantage of opportunities in
the international financial market, raising the efficiency of
international commercial loans, and reducing costs for raising
funds, financial institutions shall be allowed to obtain loans at
lower interest rates while repaying those at higher interest
rates and to adjust the debt structure with the prerequisite that
the balance of foreign debt shall not be increased and the
repayment period shall not be extended, and shall obtain the
approval of the State Planning Commission and the People's Bank
of China.

    Funds from international commercial loans raised by
institutions inside China must be sent to China and used for
projects for which the competent department of foreign capital
planning has approved the raising of international commercial
loans; said funds shall not be left outside China without the
approval of the State Administration of Exchange Control.

    The state encourages the raising of international syndicated
loans, with financial institutions acting as go-betweens, for
domestic construction projects for which raising international
commercial loans has been approved.

    4. Strengthening the Supervision and Administration of Debt
Repayment

    Paying debts on schedule is the legal responsibility of units
which raise international commercial loans. For protection of
national prestige, no region, department or unit may, for any
reason, be in arrears with or refuse to make payments of due
payable sums. The State Planning Commission and the People's Bank
of China shall strengthen the supervision and administration of
repayment of international commercial loans, and financial
institutions shall do their best in predicting and pressing the
payment of debts due.

    5. Improving the Statistical Monitoring of Foreign Debts

    International commercial loans raised either directly from
outside China or through domestic financial institutions shall
all be incorporated in the statistics monitoring system of the
State Administration of Exchange Control and be subject to
registration for foreign debt or for transmission of foreign
loans.

    6. Enhancing the Analysis of Developments of the
International Financial Market

    The State Administration of Exchange Control shall enhance
the study of the currency varieties, interest rates, time limits
for repayment, credit forms, related countries, market
distribution and other matters related to international
commercial loans, and submit timely reports thereupon to the
State Council as well as timely notices to relevant departments.

    Various regions and departments must strictly carry out all
the provisions of this Circular, take effective measures for
raising the efficiency of international commercial loans, and
ensuring the repayment of foreign debts on schedule, so as to
protect national prestige. The administrative planning
departments and departments of exchange control at various levels
shall strengthen the supervision, checking and direction of the
raising of international commercial loans. Those violating the
relevant provisions of the state shall be strictly dealt with,
with the responsible persons and persons involved being
investigated for responsibility.