Français
English 
Español 
Enterprises in China Allowed to Borrow More Money from Abroad
Foreign Debt Management Mode of Foreign-Invested Enterprises – “Investment Gap” vs “Macro-prudential Management”
During the economic recovery period, many foreign-invested enterprises (“FIEs”) have had a problem maintaining or extending their business in China due to cash shortages. Previously, FIEs would choose between the “Investment Gap” mode and the “Macro-prudential Management” mode to apply for foreign debt in order to overcome these difficulties. However, since January 1, 2020, the Shanghai Municipal Commission of Commerce has cancelled the option for FIEs to file receipts, whereas newly established enterprises have been unable to use the « Investment Gap » mode. On March 12, 2020, the People’s Bank of China (PBOC) and the State Administration of Foreign Exchange (SAFE) issued a circular on an adjustment to the Macro-Prudential Policy Parameter for cross-border financing, in which the foreign debt quota raised from 2.0 to 2.5 times the value of their net assets. Thus, more and more “FIEs » with specific fund needs prefer the “Macro-prudential Management” mode.
| Mode | Foreign Debt Quota |
| Investment Gap | The ratio = difference between total investment and registered capital / total investment.
foreign debt quota = the ratio X injected capital. |
| Macro-prudential Management | 1. We must keep risk-weighted debt balance equal or less than risk-weighted debt balance cap
2. Risk-weighted debt balance cap (foreign debt quota) = capital or net assets X cross-border financing leverage ratio X macro-prudential adjustment parameter 3. Risk-weighted debt balance = Σ outstanding debt amount in RMB and foreign currencies X term risk conversion factor X type of risk conversion factor + Σ outstanding debt amount in foreign currencies X currency risk conversion factor At present: The cross-border financing leverage ratio of corporate is 2; the macro-prudential adjustment parameter is 1.25; the term risk conversion factor is 1 for a loan longer than one year, and 1.5 for a loan less or equal to one year; the type of risk conversion factor is 1, and the currency risk conversion factor is 0.5. |
The following example can help you quickly understand how to calculate foreign debt quota under the two modes.
An FIE has paid-in registered capital of 4.5 million USD, a total investment of 9 million USD, and net assets of 5 million USD last year.
A. “Investment Gap” Mode:
Foreign debt quota = 9 million – 4.5 million = 4.5 million
B. “Macro-prudential Management” mode:
Foreign debt quota = 5 million X 2 X 1.25 = 12.5 million
The “Macro-prudential Management” mode allows borrowing of up to 8 million USD more than the “Investment Gap” mode.
Due to the complexity of foreign debt registration, in recent years, the government has been committed to promoting the reform of corporate foreign debt registration management. Many cities responded, such as Beijing, Shenzhen, Shanghai, and Guangzhou. Among these cities, Shanghai took the lead in launching a pilot reform of foreign debt registration management from the Lingang New Area, allowing eligible companies to register for one-off foreign debts. It has tangibly saved time, manpower, and financial costs for the pilot enterprises, as they no longer need to deal with the cumbersome procedures of signing, withdrawing, changing, and deregistering. Pilot enterprises can recycle foreign debt and directly handle the borrowing, use, and repayment of foreign debt in banks. The most important thing is that within the one-time foreign debt registration quota, pilot enterprises can borrow from different overseas entities.
If you have any questions regarding the above, please do not hesitate to leave your inquiry at contact@orbis-alliance.com and a member of our team of experts will get back to you shortly.