China sets up green channel for foreign loans

As of 30 May 2022, tech firms in 17 provincial or city regions in China have been given a hassle-free channel to raise foreign loans. Following the release of the circular “Facilita­tion of Cross-border Financing for High-tech and Highly-specialised Firms" (Hui-fa [2022] No. 16) issued on 30 May 2022 by the State Administration of Foreign Exchange (SAFE), applicable tech firms are treated exceptionally in that they are no longer governed by the current loan quota tied to capital size or leverage ratio.

According to this new circular, 17 regions are enlisted to join the practice (nine have been added since 2020). They can now apply for a foreign loan quota within the limit of USD 10 million if located in one of the listed nine regions, or USD 5 million if located in the other eight listed regions. At the same time, the types of admissible tech firms have been expanded from just high-tech firms to high-tech firms and highly specialised firms.

Under the new policy, within the limit of either USD 10 million or 5 million (depending on the location), qualified firms can apply for a foreign loan quota based on their own requirements. No further reference is made to capital size or financial gearing as in the case of non-qualifiers. Applicable tech firms can raise foreign loans within the given quota, as a one-off or in instalments, based on the loan amounts stated in the loan agreements. Moreover, the registration procedures for foreign loans are considerably simplified.

The new programme is an encouraging move to support high-tech and highly special­ised sectors, allowing them priority access to international and domestic means of financing. Attention should be paid to the existing loan registration requirement which remains obligatory, and SAFE’s regulations on the use of the loan funds.

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