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	SUPPLEMENTARY NOTICE OF THE STATE ADMINISTRATION OF FOREIGN EXCHANGE ON THE FOREIGN EXCHANGE GUARANTEES OF RMB LOANS

	(No. 26 [2005] of the State Administration of Foreign Exchange promulgated on April 15, 2005 and shall have come into force as of April 1, 2005)


SUBJECT : RMB LOANS; FOREIGN GUARANTEE
ISSUING DEPARTMENT : THE STATE ADMINISTRATION OF FOREIGN EXCHANGE OF THE PEOPLE'S REPUBLIC OF CHINA
ISSUE DATE : 04/15/2005
IMPLEMENT DATE : 04/01/2005
LENGTH : 1,376 words
TEXT :

In order to have correct understanding and implantation of the provisions on the foreign exchange guarantees for RMB loans in the Notice of the State Administration of Foreign Exchange on the Verification of Targets of Short-term Foreign Debts of Domestic Foreign-funded Banks of 2005 (No. 4 [2005] of the State Administration of Foreign Exchange, hereinafter referred to the Notice), the supplementary notice on the relevant issues is hereby given as follows:

I. MEANINGS OF FOREIGN INSTITUTIONS, RMB LOANS AND GUARANTEES IN THE NOTICE

A foreign institution mentioned in the Notice may be a foreign financial institution or non-financial institution, or a foreign natural person. In addition to the RMB loans in a simple sense, the foreign exchange guarantees for RMB loans still include the letters of guaranty provided by banks to foreign-funded enterprises and the trade financing for RMB credit lines, etc. Besides the credit guaranty, the forms for a foreign institution to provide guarantees may be the pledge and mortgage of its lawful assets within or outside the territory of China, however, which can not go against any restrictive prescription provided for by any other administrative department on pledge or mortgage. Where a foreign institution offers credit support to any foreign-funded enterprise in the form of a comfort letter, and if this kind of credit support concerns the issues on the actual foreign exchange performance and the foreign exchange settlement and sales in the future, the relevant registration formalities shall be handled according to the Notice.

II. HANDLING PRINCIPLES OFFOREIGN EXCHANGE GUARANTEES FOR RMB LOANS PRIOR TO APRIL 1, 2005

Pursuant to the Notice of the People's Bank of China on Improving the Administration of Foreign Exchange Guarantees for RMB Loans (No. 223 [1999] of the People's Bank of China) promulgated and implemented in 1999, the parties involved in foreign exchange guarantees for RMB loans are: the designated domestic Chinese-funded foreign exchange bank (the bank offering RMB loans), domestic foreign-funded enterprise (debtor), and foreign financial institution or domestic foreign-funded financial institution (guarantor).

Thus, the foreign exchange guarantees by foreign institutions that have been accepted for RMB loans from domestic Chinese-funded banks prior to April 1, 2005 shall be handled according to the document of No. 223 [1999] of the People's Bank of China until these loans are paid, namely: a debtor does not need to handle the registration formalities on contingent debts. If the guarantor performs the foreign exchange guarantee, the Chinese-funded bank shall conduct the settlement of performance foreign exchange by itself. After the guarantor performs the contract, the debtor may not be restricted by "the difference between the investment amount and the registered capital" when handling the registration of foreign debts.

It is not clearly prescribed by policies as to whether any other domestic financial institution can accept foreign exchange guarantees by foreign institutions for RMB loans before April 1, 2005. In regard to those RMB loans under foreign exchange guarantees and granted by any other domestic financial institution, if the foreign institution has performed the contract, they can be handled according to the following principles:

(1) The foreign institution may perform the contract to the domestic financial institution in accordance with the contract on foreign exchange guarantee;
(2) The performance foreign exchange obtained by the domestic financial institution may not be converted into RMB, and can be uniformly used to purchase RMB operational capital at a proper future time;
(3) In case the foreign debts of a debtor incurred from the guarantor's performance is less than the difference between its investment amount and its registered capital, the foreign exchange bureau may handle the registration of foreign debts for the debtor after imposing proper punishments on the financial institution and debtor that have violated the provisions on the administration of foreign exchange; and
(4) In case the foreign debts of a debtor incurred from the guarantor's performance is more than the difference between its investment amount and its registered capital, the local foreign exchange bureau may handle the registration of foreign debts for the debtor after imposing proper punishments on the financial institution and debtor that have violated the provisions on the administration of foreign exchange. In case the debtor files an application, the foreign exchange bureau may permit the debtor to repay the performance bond pursuant to special capital items on external payment after examining the authenticity thereof.

III. HANDLING OF EXTENSION OF FOREIGN EXCHANGE GUARANTEES FOR RMB LOANS AFTER APRIL 1, 2005

Where a domestic financial institution has accepted the foreign exchange guarantees for RMB loans prior to April 1, 2005, and the extension thereof shall be handled after April 1, 2005, it will be handled as new loans and guarantees, and the debtor shall handle the registration of contingent debts pursuant to the relevant provisions.

Where the debtor fails to or can not handle the registration of contingent debts, the RMB debts have not been paid while the guarantor has performed the contract, and the bank offering loans is a Chinese-funded bank, the Chinese-funded bank may conduct the settlement of performance foreign exchange by itself. After the guarantor performs the contract, the debtor may not be restricted by the difference between its investment amount and its registered capital when handling the registration of foreign debts.

If the bank offering loans is any other financial institution, the foreign institution may perform the contract to the financial institution in accordance with the stipulations in the contract on foreign exchange guarantee; the performance foreign exchange obtained by the financial institution may not be converted into RMB, and can be uniformly used to purchase RMB operational capital at a proper future time; all branches may handle the registration of foreign debts incurred from the guarantors' performance for debtors after imposing proper punishments on the financial institutions and debtors that have violated the provisions on the administration of foreign exchange, no matter whether they are within the difference between the investment amount and the registered capital.

IV. DATE OF IMPLEMENTATION

The Notice prescribes that the relevant provisions on foreign exchange guarantees for RMB loans shall come into force as of April 1, 2005. If the date when the contract on foreign exchange guarantee is concluded, the date when the contract on RMB loans takes effect and the date when the money is drawn conflict, the date when the contract on foreign exchange guarantee is concluded shall prevail.

V. FOREIGN INSTITUTIONS' GUARANTEES FOR FOREIGN EXCHANGE LOANS

After April 1, 2005, a domestic financial institution may grant foreign exchange loans to foreign-funded enterprises, which may be handled by referring to the relevant provisions prescribed by the Notice on the foreign institutions' guarantees for RMB loans, namely, the guarantees provided by foreign institutions and foreign natural persons may be accepted, but a debtor shall handle the registration of contingent debts at the local foreign exchange bureau in advance. When handling the registration formalities, the foreign exchange bureau shall examine whether the foreign-funded enterprise is in line with the relevant provisions on the difference between the investment amount and the registered capital, namely, the short-term foreign debts, medium and long-term foreign debts and loans under the foreign institutions' guarantees lent by that foreign-funded enterprise may not exceed the difference between its investment amount and its registered capital. In the case of inconformity with the provisions, no registration of contingent debts may be handled. After a foreign institution performs the contract on commission, each branch may handle the registration of foreign debts for the debtor that has gone through the registration formalities on contingent debts. If the debtor has not gone through the registration formalities on contingent debts at the local foreign exchange bureau, or illegally gone through the registration formalities, the warrantee may not illegally repay capital with interest after the foreign institution performs the contract on commission. The foreign exchange bureau may go through the registration formalities on foreign debts after imposing proper punishments on the financial institution and debtor that have violated the provisions on the administration of foreign exchange. No matter what the aforesaid circumstance it is under, the foreign exchange paid by foreign institutions for the performance may not be settled.
Please implement the aforesaid Notice accordingly. Any problem encountered in the work shall be promptly fed back to the State Administration of Foreign Exchange.