CHINA LAW
REGULATIONS OF BANK OF CHINA ON PROVIDING LOANS TO
ENTERPRISES WITH FOREIGN INVESTMENT
(Approved by the State Council on April 7, 1987 and Promulgated by Bank of China on April 24, 1987)
SUBJECT: ENTERPRISES WITH FOREIGN INVESTMENT
ISSUING-DEPT: BANK OF CHINA
ISSUE-DATE: 04/24/1987
IMPLEMENT-DATE: 04/24/1987
TEXT:
[Article 1] These regulations are hereby issued with a view to supporting the production and operation activities of the enterprises with foreign investment, expanding international economic and technical cooperation and promoting the development of China’s national economy.
[Article 2] In light with the state policy and under its business principle of safety, benefit and service, Bank of China grants loans to enterprises with foreign investment to finance their construction and operation, with priority export-oriented products and advanced technology.
[Article 3] Foreign investment enterprises, which refer to Chinese-foreign joint ventures, Chinese-foreign co-operative enterprises and wholly-foreign-owned enterprises registered in China (hereinafter called “Enterprise/Enterprises” for short), are eligible to apply to Bank of China for loans, provided that they meet the conditions as specified in Article 7 of these regulations.
[Article 4] In granting loans, Bank of China must sign loan agreements with the borrowing Enterprises and enhance its management of the loans.
[Article 5] Bank of China grants the following kinds of loan to the Enterprises:
(1) Fixed Assets Loan, to finance the construction costs, purchase of technology and equipment, and installation costs in connection with capital construction and technological transformation projects.???? It takes the following forms:
(a) Medium and short-term loan;
(b) Buyer’s credit;
(c) Syndicated loan, and
(d) Project financing.
(2) Working Capital Loan, to meet the funds requirement of the Enterprises in the process of their manufacturing and marketing of products and normal operation.???? It takes the following forms:
(a) Production reserves and revolving funds;
(b) Temporary credit, and
(c) Overdraft on current account.
(3) Renminbi Loan against Mortgage, to be handled by Bank of China, according to the Provisional Measures Of The People’s Bank Of China Concerning The Mortgage By Enterprises With Foreign Investment Of Foreign Exchange For Renminbi Loans.
(4) Stand-by Credit, to be given by Bank of China after its review and approval of application by the enterprises for their special purposes.
[Article 6] Loans can be provided in local and foreign currencies.???? Local currency refers to Renminbi and foreign currencies refer to the U.S. dollar, Pound sterling, Japanese yen, Honkong dollar, Deutsche mark and other convertible currencies acceptable to Bank of China.
[Article 7] An enterprise is qualified to apply to Bank of China for a loan, provided that,
(1) It has obtained a business license issued by the Administration for Industry and Commerce of the P.R.C. and opened account(s) with Bank of China:
(2) It has fully paid up its registered capital at the specified time which has been certified according to relevant regulations;
(3) It has presented the resolution on and power of attorney for the borrowing by its board of directors;
(4) Its capital construction project has been approved by the planning authorities, and
(5) It has the ability to repay the loan and can provide reliable securities for repayment/payment of the principal and interest.
[Article 8] The term of a loan shall start from the date the loan agreement becomes effective and end on the date specified in the loan agreement whereby the principal, interest and charges are to be fully repaid.
[Article 9] The term of a fixed assets loan shall not exceed 7 years.???? However, it can be extended approval of Bank of China, provided that such an extension shall end not later than one year before the expiration of the business license of the Enterprise.
[Article 10] The term of a working capital loan shall not exceed 12 months.
[Article 11] For Renminbi loan, the interest rate shall be either the consolidated interest rate set by Bank of China or the rate agreed upon between the lender and borrower in the light of international market conditions.???? In case foreign buyer’s credit or other credit facilities are involved, the interest rate shall be that as specified in the related agreement plus a margin.
[Article 12] For Renminbi loan, the interest period shall be set and interest calculated according to the regulations of the People’s Bank of China.???? For foreign currency loan, the same shall be effected in accordance with the relevant provisions of the loan agreement.
[Article 13] A loan shall be provided to the Enterprise by Bank of China through the following procedures:
(1) The Enterprise shall file an application to Bank of China with relevant certificates and documents as the case may require, and
(2) Bank of China shall review and examine the application, certificates and documents provided by the applicant.???? Upon its approval, Bank of China shall negotiate and sign loan agreement with the borrower.
[Article 14] The Enterprise shall use the loan at the time, in the amount and for the purposes as stipulated in the loan agreement.
[Article 15] Applying to Bank of China for a loan, the enterprise must provide security(ies) acceptable to Bank of China, if so required.
[Article 16] The Enterprise shall provide Bank of China with securities in the following forms:
(1) Guarantee
The Enterprise shall submit Bank of China an irrevocable letter of guarantee, issued by a financial institution, enterprise and/or unit with good credit standing and debt service capability, for repayment of the principal and interest of the loan.
(2) Mortgage
The Enterprise may mortgage its properties, rights and interests to Bank of China as securities for repayment/payment of the principal and interest of the loan.???? The following items are acceptable as collaterals:
(a) House property, machinery and equipment;
(b) Marketable goods in stock;
(c) Deposits or certificates of deposit in terms of foreign currencies;
(d) Negotiable securities and bills, and
(e) Equity shares and other transferable rights and interests.
[Article 17] When a loan is made with mortgage on its properties, the Enterprise shall sign a mortgage agreement with Bank of China, to be duly notarized by a Chinese public notary office.???? Insurance on the full value of the mortgaged properties shall be effected with the People’s Insurance Company of China.
Both guarantee and mortgage may be required from the Enterprise when Bank of China deems it necessary.
[Article 18] The Enterprise must perform its obligations under the loan agreement to repay the principal, and pay the interest and other relevant monies in good time and full amount.
[Article 19] The Enterprise’s net cash income after tax must be first applied to the repayment of fixed assets loan.
[Article 20] Bank of China is entitled to resort to the following actions against the Enterprise that violates the loan agreement, according to the provisions thereof and seriousness of the case in order to protect its own interests:
(a) Demanding the Enterprise rectify the default within a required time period;
(b) Suspending disbursement of the loan;
(c) Recalling the loan before its maturity, and/or
(d) Calling the guarantor to perform its obligations.
[Article 21] In the event the Enterprise fails to repay the principal and pay the interest of the loan when due, the principal, interest and other relevant monies where a guaranteed loan is involved.???? In case of a loan against mortgage, Bank of China shall be entitled, according to laws and regulations, to the priority to recover the principal, interest and other monies outstanding by disposing of the collaterals at discount value or selling them by auction.
Default interest shall be charged on overdue loan at a rate 20 to 50 percent over the interest rate of the loan agreement as from the due date.
[Article 22] Bank of China has the right to supervise the utilization of the loan by the Enterprise.
Before the loan is fully repaid, the Enterprise must periodically submit Bank of China reports, statements and other materials on the plans and implementations in connection with the construction progress, production, sales and financial; status.???? If any owner of the Enterprise is a separate legal entity, it shall provide its annual financial statements to Bank of China when the Bank of China deems it necessary.
When Bank of China effects its credit supervisions and examinations, the Enterprise must provide correct information and necessary facilities.
[Article 23] Before the loan is fully repaid, all payments and receipts of the enterprise in its operation must be settled through its account(s) maintained with Bank of China, unless Bank of China otherwise agrees, and the funds thereon mustn’t be transferred to any other bank or financial institution.???? Bank of China has the right to require the Enterprise open a “Retention Account” with it when it deems necessary.
[Article 24] Any important resolution and decision on financial matters made by the board of directors or the owners of the Enterprise, and any personnel change of the board of directors shall be notified to Bank of China in time.???? Any material change, amendment and/or supplement to the joint venture contract or co-operative contract as well as articles of association of the Enterprise must be submitted to Bank of China for comments in advance, if the Bank’s interests may be affected thereby.
[Article 25] Unless Bank of China otherwise agrees, Chinese shall be the prevailing language used in the loan agreement, its appendices and other legal documents related thereto, and the governing law shall be the law of the People’s Republic of China.
[Article 26] The detailed rules for the implementation of these Regulations shall be formulated by the Head Office of Bank of China.???? The branches of Bank of China located in the Special Economic Zones may work out and execute detailed rules of their won according to their concrete business conditions, subject to the approval of the Head Office.
[Article 27] These Regulations shall become effective on the date of promulgation, and the previous “Provisional Regulations for Providing Loans to Joint Ventures of Chinese and Foreign Ownership by Bank of China” approved by the State Council and issued by Bank of China on March 13, 1981 shall be nullified at the same time.
Loan agreement signed between Bank of China and Enterprises before the promulgation of these Regulations shall continue to be performed according to their original provisions.
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