Approved by Transmission by the State Council

(August 30, 1980)



ISSUE-DATE: 08/30/1980



With the funds it raises from abroad, the Bank of China is ready to provide loans in foreign currency to export-oriented industries and other enterprises in order to boost their foreign exchange earnings on the basis of self-reliance, thereby speeding up the socialist modernization of our country. It is for these purposes that the following regulations are formulated.

I Eligible Borrowers and the Purposes for which Loans are to be Used

[Article 1] Loans are to be granted to export-oriented industries and other enterprises earning foreign exchange income directly or indirectly who can meet the prerequisites for borrowing. The Loans are primarily for encouraging export-oriented industries to tap production potential and renovate obsolete plants and equipment.

[Article 2] The loans are to be used for:

a. financing imports of advanced technology, equipment and materials essential to upgrading the borrower’s productivity and the quality, variety and packaging of export goods;

b. financing imports of raw materials and components to be processed for export;

c. developing transportation and tourism and carrying out engineering projects contracted with foreign firms;

d. supporting the processing of raw materials and assembling of parts supplied by foreign buyers, and supporting compensatory trade; and

e. providing short-term working capital to production that earns foreign exchange directly or indirectly.

II Prerequisites for Borrowing

[Article 3] Applicants must meet the following requirements:

a. Effective productivity of the loan: Preference is given to borrowers who are able to earn more foreign exchange in proportion to the money invested and repay bank loans sooner. Borrowers should be able to run their enterprises efficiently, make the most of the imported advanced technology, equipment and raw materials, tap their production potential, renovate obsolete plants and equipment, enhance the competitiveness of their export goods in the international markets, thereby earning more foreign exchange for the country.

b. Assurance of repayment: Borrowers must give evidence of a reliable source of foreign exchange income and the ability to repay loans plus interest for which they are required to submit a schedule of repayment.

Where loans are granted to the export-goods industry, the increased output attributed to the loan should be primarily for export and not be included in the state domestic marketing plan. The income from the increased output and the export proceeds in foreign exchange should first be set aside for repayment of the bank loan. In case the goods are to be turned over to a foreign trade corporation for export, the borrower should sign a sales contract with this corporation which commits the latter to repay the bank loan in foreign exchange for the borrower.

Enterprises not directly related to the export trade must submit a document of approval signed by the department in charge committing the latter to repay the loan from its own foreign exchange income. When necessary, the bank may demand that some organization that has a regular foreign exchange income stand surety for the borrower.

c. Readiness of domestic factors of production to make imported materials and equipment operational: Domestic factors of production refer to factory buildings, equipment, steam, water, electricity and fuel, raw materials, labour force, technological expertise and counterpart funds in Renminbi requisite to making the imported equipment and materials operational. These items must be duly arranged and approved by the Planning Commission or the authorities in charge who have to list them in their plans or sign contracts with the borrower.

d. With respect to the items mentioned above, borrowers should obtain prior approval of higher authorities for those items that require allotment of funds for capital construction or technological installations.

III Applications for Loans, Examination and Approval of Applications and Drawdowns of the Loans

[Article 4] Applications for loans should be submitted to the Bank of China (or People’s Bank of China where the Bank of China does not exist) together with the following supporting documents: a document evidencing the approval of the proposed project by the department in charge; a list of imports the loan is to finance; a schedule proving the domestic factors of production are in readiness or a copy of the relevant contract; a document approved by the department in charge showing that counterpart funds in Renminbi have been earmarked for repayment of the loan (if the borrower is not directly involved in the export trade); a copy of the sales contract signed with a foreign trade corporation which commits itself to repay the loan in foreign exchange for the borrower (if the borrower is to repay the loan with export proceeds).

[Article 5] Applications for loans by the departments under the State Council shall be examined item by item against the prerequisites for borrowing by the head office of the Bank of China. Applications by local departments and enterprises shall be reviewed by the Bank of China’s regional branches in the provinces, municipalities and autonomous regions within the bounds of their respective loan quotas assigned by the head office. Cases that need to be reviewed by the head office or ministries concerned should be submitted to them for approval. In examining the applications, the bank should keep in touch with the departments in charge and work in cooperation with them.

[Article 6] After the application is approved, the borrower should sign a loan agreement, open a loan account with the Bank of China and place an order for imports. If the borrower fails to sign the loan agreement or submit a list of imports within the specified time, the bank may revoke its approval of the loan. The list of imports must be signed by the bank before the order is placed. Without the approval of the bank, neither the purpose for which the loan is to be used nor the descriptions and quantities of imports should be changed. The borrower should submit to the bank a copy of the contract signed with the foreign trader who provides the goods. The bank should help the borrower to make the most of the loan.

[Article 7] For a substantial loan, the borrower should submit a quarterly withdrawal plan according to which the bank will raise the funds. In case the plan needs to be adjusted because of miscalculation or unexpected changes of circumstances, the borrower should apply to the bank for adjustment a month before the end of the quarter. For failure to carry out the plan, the borrower shall bear additional bank charges on the amount of the withdrawal falling short of, or in excess of, the planned amounts so as to compensate the bank for losses in raising funds from abroad.

IV Term of Loans and Rates of Interest

[Article 8] The term of the loan is to be counted from the day of the withdrawal to the day of repayment. Loans for importing raw materials and components to be processed for export are normally available for one year. Loans for importing equipment or materials to be used in making equipment, and loans for other purposes shall not exceed three years. Where loans take the form of buyers’ credits, the maturity shall not exceed five years.

[Article 9] The interest rates for loans are to be determined and made public by the head office of the Bank of China on the basis of the cost of raising funds on the international money markets plus its handling charges.

V Repayment of Loans

[Article 10] Full repayment must be made on the due date specified in the loan agreement. If the borrower fails to repay, the surety is responsible for repayment. If necessary, the Bank of China or the People’s Bank of China may force repayment by debiting the foreign currency deposit account of the borrower or the surety (or by writing off the foreign exchange quota alloted to the borrower and seizing his counterpart funds in Renminbi earmarked for the purchase of the foreign exchange quota).

[Article 11] A borrower who has a regular foreign exchange income should repay the loan from foreign exchange earnings. A borrower who is not directly involved in the export trade should repay the loan from export proceeds received through a foreign trade corporation. This corporation or some other organization which stands surety for the borrower should issue a certificate to “repay foreign exchange quota” against which the borrower may purchase foreign exchange with Renminbi from the Bank of China to repay the loan. Foreign exchange earnings from the processing of raw materials and assembling of parts provided by foreign buyers or earnings from compensatory trade must first be set aside for repayment of the loan.

[Article 12] Loans made to finance a construction project by a state-owned enterprise may be repaid out of profits derived from the increased output, out of depreciation reserves for fixed assets, or out of charges payable to the government for the use of fixed assets. Enterprises that are authorized to retain a portion of their profits may make repayment from the retained profits after deductions for the staff’s welfare fund and bonus fund. However, deductions for the production development fund and for retention of increased profits are not allowed. Loans to collectively owned urban enterprises may be repaid out of profits derived from the increased output (profits before tax) or from depreciation reserves for fixed assets. The department in charge is not allowed to collect profits or demand payment out of the project financed by the bank loan so long as the loan remains to be repaid.

If the above-mentioned funds are sufficient to repay the loan and a surplus remains, income tax shall be paid on the surplus or a percentage of profits shall be turned over to the government as required. If not, the deficit may, with the consent of the Internal Revenue Bureau, be covered by the industrial and commercial tax on the increased output which would otherwise be collected by the Bureau. When applying for the loan, the borrower should send a copy of the application to the Bureau for its reference.

VI Buyers’ Credits

[Article 13] When loans are provided in the form of the buyers’ credits, the following rules shall apply, apart from other provisions in the regulations:

a. The borrower must abide by the provisions in the buyer’s credit agreement that the Bank of China has signed with a foreign bank and must place orders for imports from the country in which the foreign bank is located.

b. The borrower must indicate in the order for imports that the buyer’s credit is to be used for payment. The sales contract signed between the Chinese foreign trade corporation and the foreign seller should indicate the name of the bank providing the buyer’s credit.

c. At the time the sales contract is signed, the Bank of China shall negotiate with the foreign bank providing the buyer’s credit and sign an agreement on the drawdown of the credit. The agreement shall be signed by the Bank of China head office or by one of its branches with its authorization.

VII Bank Supervision

[Article 14] The Borrower must maximize the effective productivity of the loan by relying on cost accounting. Preference is given to the borrower who earns more foreign exchange in proportion to the amount of the loan granted and makes repayment sooner. The borrower who performs poorly or who is unable to repay his loan upon maturity, will not receive further loans until he shows improvement in management.

[Article 15] Both the bank and the borrower shall abide by the loan agreement: the Bank undertakes to provide the loanable funds; the borrower undertakes to draw on the loan and utilize its productive potential effectively. The bank shall raise the interest by 10-50% for overdue loans counting from the maturity date, and by 100% for loans diverted to uses other than those authorized by the bank.

[Article 16] The bank shall inquire into each project before financing it, examine the borrower’s application before approving it and oversee the performance of the borrower after the loan is granted. The bank has the duty to help the borrower achieve its economic goals. In this way the bank shall fulfil its role of promoting, regulating and supervising the economic activities of the borrower.

For large loans, the bank shall sit in on the negotiations between the borrower and the foreign supplier and make suggestions as to the preferred currency for making payment and the method of payment. The borrower must provide the bank with all necessary information, documents, statistics and a duplicate of the relevant contract.

The borrower shall be held accountable for violation of government decrees and policies; failure to abide by the regulations, the contract or the agreement; dissipation of foreign exchange; or failure to repay the loan when due. At the same time the bank may take such disciplinary actions as suspending or recalling the loan before maturity, raising the interest rate or even suing the borrower in a court of law.

VII Supplementary Regulations

[Article 17] On the date the regulations come into force, “Regulations for Providing Short-term Loans in Foreign Currency,” issued by the Ministry of Finance on September 29, 1978, shall no longer be valid except for loans and loan agreements previously approved and signed. Detailed rules for the enforcement of the regulations shall be formulated separately by the Bank of China.

[short-term loan bank china, small business loan, small business bank, bad credit loan, interest rates loan, hong kong china, line of credit loan, real estate loan, loan mortgage rates, interest rate loan, bank financial services, fha loan, debt loan, bank financial, commercial loan, mortgage loan, term insurance, unsecured loan, china industry, refinance loan, mortgage bank, capital bank, mortage loan, loan companies, mortgages loan, loan broker, wholesale loan, business term, private loan, loan insurance, financial loan, loan financing, china market, commercial bank, loan rates, loan equity, bank industry, lenders loan, lending bank, financial term, loan lender, finance loan, bank insurance, bank finance, loan lending, credit loan, retail bank, funding loan, credit bank, bank deposit, term rates, bank trust, corporate bank, interest loan, bank account, china ltd]