SAFE streamlines foreign debt control regime

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On 28 April 2013, the State Administration of Foreign Exchange (SAFE) released its Circular on Administrative Measures for Foreign Debt Registration (Circular 19), which came into effect on 13 May 2013. By abolishing eight sets of old rules while creating clearer rules and guidance for foreign debt control, SAFE simplifies and streamlines its procedural control over foreign debt registration.

Foreign debt refers to loan financing received by a domestic entity from an overseas lender (e.g. a shareholder loan borrowed by the China subsidiary from its foreign mother company). Normally this refers to a foreign exchange loan and a cross-border RMB loan is subject to a different regime of control in practice. Under the regime, a foreign debt transaction — due to foreign debt control — will have to involve SAFE throughout the whole transactional cycle including contract conclusion, account opening, drawdown, conversion into RMB and repayment. Under Circular 19, all these procedures have now been greatly simplified and the SAFE procedure is now only required for loan contract conclusion filing and transaction closing upon full repayment. Responsibility for reviewing and verifying the other transactional steps of a foreign loan deal has been pushed down to banks. In future, banks are supposed to implement more strictly the ‘know your client’ principle as has already been the requirement of SAFE in other foreign exchange control areas (e.g. foreign direct investment)…

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