Borrowing in China

What regulatory restrictions are there on foreign currency borrowing?

Generally speaking, borrowed funds must not be used to conduct stock transactions, and the borrowing term for a bank loan shall not exceed 10 years. The borrower needs to ensure that there is adequate headroom within their borrowing gap to undertake the required foreign debt registration when cross-border guarantees are realised.

How much of my investment must be in the form of equity, and how much can be debt?

Regulations state what proportion of the total investment must be in the form of registered capital, as set out in the table below.

The difference between the registered capital and total investment is sometimes referred to as the 'borrowing gap'.

Total investment	Ratio of registered capital:total investment	Percentage of registered capital:total investment
Up to US$3m	At least 7:10	70%
Between US$3m and US$10m	At least 1:2	50%
Between US$10m and US$30m	At least 2:5	40%
More than US$30m	At least 1:3	33%

Can I freely convert foreign currency loans into RMB?

With the exception of export negotiation, foreign currency loans, including packing credits, cannot be converted into RMB.

What regulatory restrictions are there on RMB borrowing?

RMB facilities can only be offered by licensed branches of foreign banks within the RMB catchment area.

The lending base rate is fixed by the People's Bank of China ("PBoC"), and banks are permitted to lend not lower than 90% of the base rate.

Foreign enterprises can also get RMB funding through Entrusted Loans: please contact HSBC for more details on these products

Can I secure RMB borrowings with guarantees from offshore parties, such as a parent company?

RMB loans of a foreign-invested enterprise can be secured by guarantees from non- PRC entities.

The sum of the cumulative medium and long term foreign debts, the outstanding balances of short term foreign debts and the amount of the foreign guarantees should not exceed the borrowing gap (i.e. the surplus of the FIE's approved total investment over its registered capital).The calculation of foreign guarantees is now based on actual outstanding instead of the limit. Upon realization of the foreign guarantee, the borrower should register the claim as foreign debt with SAFE within 15 days from the date of the realization of the guarantee provided that there is a sufficient borrowing gap.