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Legal: Reform of NDRC on Foreign Debt System
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Reform of NDRC on Foreign Debt System

By Sheky Huang (Associate) and Manuel Torres (Partner and Managing Director of Shanghai Office)

WBT201511_140_Legal__005On September 14th, 2015, the National Development and Reform Commission (“NDRC”) issued the Circular on Promoting the Reform of the Filing and Registration System for Issuance of Foreign Debt by Corporates (“Circular 2044”)...

The circular aims to facilitate Chinese enterprises and financial institutions to obtain overseas financing from the international capital market. We would like to draw your attention to the following key points and impacts that Circular 2044 has made:

Key Points Briefing:

♦Applicable scope

The circular provides a definition on foreign debts, according to which the new administrative system shall be applicable to offshore debt instruments with a matureity term of more than one year (i.e. long/mid term), either RMB denominated or foreign currency denominated, issued by Chinese enterprises and their controlled overseas enterprises or branches, including bonds issued overseas and long and medium term international commercial loans, etc.

WBT201511_140_Legal__001Our observation: based on the above definition, it can be concluded for the purpose of foreign debt control, the overseas subsidiaries and branches controlled by PRC entperprises have been included into the control range. However, as the circular does not further differentiate between domestic enterprises and foreign invested enterprises, the influence on foriegn invested enterprises remains uncertain.

From approval to filing system

Before the issuance of Circular 2044, international commercial loans with long or medium matureity terms (i.e. matureity term of more than one year) borrowed by domestic institutions shall be subject to the approval by the NDRC. This approval procedure was normally deemed as the biggest obstacle for domestic entities to issue offshore bond/loans, as the NDRC would check the application and grant its approval on case-by-case requirements.

Upon the issuance of Circular 2044, the case-by-case approving procedure has been replaced with a pre-registration and post-filing system:

To issue foreign debts, enterprises shall first apply to the NDRC for handling the registration procedure. The applicant shall submit an application report for the issuance of foreign debts and an issuance plan, including the currency, scale/amount, interest rate, maturity of foreign debts, the purpose of the funds raised, and back flow of funds, etc. ;

The NDRC shall decide whether to accept the application within 5 working days of receiving it and shall issue a Certificate for Registration of the Issuance of Foreign Debts by Enterprises within 7 working days of accepting the application;

The issuer of foreign debts shall handle the procedures related to the outflow and inflow of foreign debt funds with said certificate, and shall file relevant information of the offshore bond/loan issuance with the NDRC within 10 working days of completion of each issuance.

Our observation: this pre-registration and post-filing system signals the attitude and policies of governments supporting domestic enterprises and financial institutions to raise funds from the international capital markets, which is an incentive policy to the development of local markets.

Procedural review or substantial check

As commented above, in the past, the NDRC would raise detailed requirements on the issuance of foreign debts on a case-by-case basis, which left the applicant lacking any guidance.

Now, the Circular 2044 expressly sets out the following basic requirements:

The issuer shall have a good credit history, its bonds issued or other debts shall not be in default;

The issuer shall have sound corporate governance, risk prevention and control mechanisms for foreign debts; and

The issuer shall have a good credit standing and relatively strong capability to repay its debts


Our observation: building on Circular 2044, this new system aims to reform the administration method in order to facilitate cross-border financing; the applicant shall be responsible for the authenticity, legality, and completeness of the application materials and information. In this sense, we believe the NDRC intends to change the substantial approving method it previously adopted. However, it is still unclear whether the NDRC will follow a simple procedural review or will raise additional requirements.

National quota limit and favoured industries

According to Circular 2044, based on the overal needs of local markets and enterprises, the NDRC shall determine the total quota of foreign debts on a lump sum basis per year. Enterprises and financial instituions shall submit application of registration within the limit of said annual quota. When the limit of the annual quota is exceeded, the NDRC shall make a public announcement and no longer accept applications for registration.

WBT201511_140_Legal__002Nevetheless, among the applications, the NDRC will grant priority to the investment in certain construction projects and key areas including “One Belt and One Road”, the coordinated development of Beijing, Tianjin, and Hebei province, the Yangtze River Economic Belt, international cooperation on production capacity, and the manufacturing of equipment.

Our observation: taking into consideration the downside risks of economic growth, the NDRC will continue to encourage PRC enterprises and financial instiutions to exploit low-cost overseas funds. In this case, the annual quota shall not be restrictive. However, as Circular 2044 fails to provide details on the priority measurement and method, it leaves the applicant with a lot of uncertainty, espectially privately owned and small-scale enterprises.

Potential impacts

Upon the enforcement of Circular 2044, the following practical implications and potential influences are worthy of attention:

Impact on the existing foreign debts

It is not clear whether the issuer of existing foreign debts will be required to perform the post-filing procedure. We advise that relevant issuers seek further clarification from the NDRC.

PBOC and SAFE procedures

Circular 2044 states that the issuer shall handle the procedures related to the outflow and inflow of foreign debt funds with Certificate for Registration of the Issuance of Foreign Debts obtained after the registration procedures.

Above procedures related to the outflow and inflow of foreign debts funds are mainly referred to the procedures required by the State Administration of Foreign Exchange (“SAFE”) and the People’s Bank of China (“PBOC”). However, at the time of writing, neither the SAFE nor the PBOC has issued relevant regulations to cooperate with Circular 2044. Therefore, the actual implementation of cross-border remittance of proceeds and interests remains to be seen.

Tax implications

According to the PRC laws, the interests to be paid by the issuer to its overseas creditors can be tax-deductible, but the issuer shall withhold 10% enterprise income taxes, around 5.6% business tax and surcharges from the interests payables to overseas creditors, unless preferential treatment can be applied under relevant double tax treaties.

According to our observation, it will normally be agreed by the Parties that all the taxes and expenses arising from the issuance shall be assumed by the issuer. In such cases, tax planning will be required.


The development highlighted above represents a substantial step by the NDRC to open international financing markets to local enterprises and financial institutions and shows the attitude of the Chinese central government to further liberalise the foreign exchange control. Detailed implementation rules can be expected to be published in the future.



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