How to Borrow from Chinese Entities

Gavin Wang
Run Ming Law Office
[email protected]

In 1998, China launched its strategy of “going outside. Since then an increasing number of Chinese companies have invested outside of China. It has been reported that as of the end of 2007, accumulated non-financial outbound direct investment reached US$92.05 billion, of which US$18.72 billion was invested in the year 2007 alone. Compared with strong industrial investment, the activities of Chinese banks and enterprises to “lend outside”, has apparently fallen behind.

Chinese banks are permitted to provide cross-border loans to foreign borrowers if the bank has obtained approval to conduct business of “lending in foreign exchange” either from the People's Bank of China (PBOC) before March 2003 or the China Banking Regulatory Commission (CBRC) thereafter. This is for standard cross-border lending. The terms and conditions can be agreed upon by the parties based on international financial practices.

From 2004, Chinese banks' offshore branches or subsidiaries have been permitted to extend umbrella loans to those offshore subsidiaries of Chinese enterprises under the global credit facility granted by the bank's head office in China to the Chinese parent of offshore enterprises.

However as the Chinese state-controlled banks have long preferred to lend to those big state-owned enterprises and their offshore subsidiaries, only limited large private companies' offshore subsidiaries have opportunities to be financed by such means.