New Regulations on Foreign Debt Registration

The State Administration of Foreign Exchange (“SAFE”) issued a circular (Hui Fa [2013] No. 19) on 28 April 2013 to release the Measures on the Administration of Foreign Debt Registration and the Practice Guidelines for Foreign Debt Registration (“Circular 19”). Circular 19, effective 13 May 2013, simplifies the administrative procedures for foreign debt registration and represents another step in a broader series of reforms involving China’s foreign exchange control regime (Please click here for more information on the reforms). Under the new regime, enterprises are required to carry out the foreign debt registration process with a local SAFE, while the procedures to open or close a foreign debt account, to withdraw foreign debt proceeds, to convert foreign exchange, and to repay a foreign debt no longer require SAFE approval and can be completed at a designated foreign exchange bank. Circular 19 also clarifies the rules on incurring and using a foreign debt. For example, it is no longer necessary to register an advance or deferred payment pursuant to a foreign trade transaction as a foreign debt. A foreign invested enterprise (“FIE”) may incur a foreign debt after its foreign investors have contributed the first installment of the FIE’s registered capital, but the amount of foreign debt is capped at an amount equal to the ratio of paid-in capital, multiplied by the FIE’s foreign debt quota, i.e. the difference between the FIE’s amount of total investment, less its registered capital. An FIE may use the proceeds of a foreign debt for goods and services within its business scope and for other purposes, such as debt restructuring and equity investment under limited conditions. More…