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OPINIONS OF THE PEOPLE'S BANK OF CHINA IN FURTHER SUPPORT TO THE DEVELOPMENT OF FOREIGN TRADE AND ECONOMIC COOPERATION

The People's Bank of China

Opinions of the People's Bank of China in Further Support to the Development of Foreign Trade and Economic Cooperation

YinFa [1998] No.332

July 19, 1998

The People's Bank of China of Province, autonomous regions, municipalities directly under the Central Government, the Shenzhen Branch of the People's Bank of China, State-Owned Commercial Banks, Other Commercial Banks, and City Commercial Banks:

To promote the development of foreign trade and economic cooperation, support the market diversification strategy of export, and ensure the realization of this year's goal of economic growth, the People's Bank of China now presents the following opinions on the basis of the General Rules of Granting Loans and the Guiding Opinions Concerning the Improvement of Financial Service in Supporting the Development of the National Economy by the People's Bank of China:

1.

Improving the financial service system that supports the development of foreign trade and economic cooperation. State-owned banks should further enhance their support to the industry of foreign trade and economic cooperation with an aim to meet the demands of the development of international trade and economic affairs. The Bank of China should continue to play the role as the main channel for the development of foreign trade and economic cooperation, and to promote the further growth of enterprises of foreign trade and economic cooperation (hereinafter referred to as foreign trade enterprises); other state- owned commercial banks ought to strengthen their support to the operations of industrial enterprises, agricultural enterprises, and village and township enterprises that conduct import and export business to earn foreign exchange through export; other financial institutions such as city commercial banks should also render vigorous support to the export of their depositor enterprises; and policy banks should bring their own characteristics to full play to support the export of mechanical and electrical products and complete sets of equipment. While giving support to the development of foreign trade and economic cooperation, financial institutions ought to support both foreign trade enterprises and other enterprises that conduct import and export business and also give support to both state-owned foreign trade enterprises and non-state-owned enterprises.

2.

Increasing the loans granted to foreign trade enterprises on an appropriate scale. Relevant banks ought to increase the amount of credit to foreign trade enterprises, especially those with sound economic returns, good reputation, and stable economic and trade relations; relevant banks are also encouraged to organize domestic banking groups to provide Chinese of foreign currency loans, or to participate in the creditgranting of foreign banking groups.

3.

Providing loans or credit to creditworthy enterprises and increasing the credit lines. Relevant banks may evaluate the credit ratings of foreign trade enterprises in accordance with their repayment ability, profit-making capacity, management competence, record of keeping agreements, and development potential. Enterprises confirmed after examination and evaluation to be trustworthy and having repayment guarantee can be menaged in the way of credit line in accordance with The law of Commercial Banks.

4.

Supporting enterprises to raise fund from various channels. Mid-term operating fund credits can be granted, in the way used for industrial enterprises, to foreign trade enterprises with sound economic return, excellent record of keeping agreements, and guarantee for repayment, so as to help them to transmit part of their own operating fund to the capital stock of the Chinese side of the joint ventures with sound economic return; banks should vigorously grant support to foreign trade enterprises to raise fund from the capital market and to expand the source channel of capital.

5.

Supporting the development of foreign trade and economic cooperation through the means of interest rates. Commercial banks must seriously implement the interest rate policy of the People's Bank of China. The interest rate can be held down to a pre-set level or raised only slightly higher for foreign trade enterprises that have little risk, sound economic return, good record of creditworthiness, and large volume of loans. The rise of deposit or credit interest rates without authorization is strictly prohibited.

6.

Vigorously providing insurance service for foreign trade enterprises. Domestic property insurance companies are encouraged to expand transportation insurance for import and export of ocean shipping cargo, and to pay close attention to insurance undertaking and compensation so as to support the development of foreign trade and economic cooperation; and the active role of export credit insurance in supporting export, especially the export of mechanical and electrical equipment, should be brought to full play. Institutions conducting the business of export credit insurance should be categorized on the basis of country risks, and to conduct business in countries that have been approved. Disorderly competition and arbitrary reduction of service rate are strictly prohibited.

7.

Continuing to enhance the support to the export of mechanical and electrical products. The People's Bank of China shall continue to implement the policy of credit line management for the credit granted by policy banks to support the export of mechanical and electrical products, but the scale of export credit for the export of mechanical and electrical products can be increased when justified. Each relevant commercial bank ought to vigorously implement the Circular to the Financial System Concerning Continuing to Enhance the Support to the Export of Mechanical and Electrical Products(YinFa [1997] No.No.61 of the People's Bank of China) and Circular Concerning the Adjustment of Interest Rates of Seller's Export Credit for the Export of Mechanical and Electrical Products(YinFa [1996] No.23 of the People's Bank of China) issued by the People's Bank of China.

8.

Vigorously granting support to overseas project contracting and overseas direct investment. Each relevant bank should give priority support to overseas engineering contracting projects that have at least 50% of mechanical and electrical products or complete sets of equipment provided by China, and overseas branches of the bank ought to provide corresponding service; in case of projects with outstanding economic return, the ratio of equipment provided by China can be reduced as long as the security of the loan is assured, but the ratio cannot be lower than 20%. Enterprises that meet the conditions for overseas direct investment, especially those for whose products the domestic marked has reached a saturation point but the imternational market is promising and those that utilize domestic equipment and spare parts for production and assembling abroad, should be given first priority.

9.

Vigorously supporting the development of foreign funded enterprises and enterprises with investment from Hong Kong, Macao, Taiwan, and overseas Chinese business people. Each bank should support with priority the capital need of the enterprises listed as those to be encouraged in the Guiding List of Foreign Funded Industries and increase Renminbi and foreign exchange loans to those enterprises; appropriate credit support can also be granted to on-going projects of these enterprises that are beneficial to the improvement of employment, and new and high-tech industries that have good economic return but have difficulty in putting the fund in place on account of the Asian financial crises; banks should improve the financial service to these enterprises to better their investment environment.

10.

Supporting reasonable import of foreign trade. While supporting export, banks should provide support to reasonable import. Relevant banks should vigorously grant financial back-up to import of products that meet the national import policy, especially new and high-tech products and resource products that are scarce at home.

11.

Supporting foreign trade enterprises with "closed credit". "Closed credit" can be granted, with reference to that granted to state-owned industrial enterprises, to foreign trade enterprises that suffer temporary industrial enterprises loss but have orders and guarantee for repayment. A coordinated service process of establishment of L/C, issuing of packing credit, bill of exchange, and recalling of the credit can be provided after strict examination by the creditor bank. This kind of loans cannot be granted to enterprises close to bankruptcy.

12.

Being on guard against financial risks in the loans granted to the foreign trade industry. Banks' autonomy in granting credit must be protected at the same time of their providing support to foreign trade enterprises. No organization or person can force the bank to provide loans or guarantee. Each financial institution must stop providing new credit to and recall within a set period of time the credit that has been granted to the following enterprises: those that have serious losses, those that are close to bankruptcy, or those that do not have the repayment capability; those that use various means to evade liability of those that are in arrears to the principal and interest of the bank's loans; those that divert loans to transactions in the stock and futures market; those enterprises, projects, or products that have been banned or restricted by national laws, regulations, or industrial policies. The establishment of the credit registration system of the central bank ought to be accelerated in order to provide information service to commercial banks and to prevent the enterprise from evading the liability to the bank by multiple accounts and credits.

  The People's Bank of China 1998-07-19  


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