An official with the State Development Planning Commission (SDPC)
responds to questions on the Provisional Regulation Governing
Foreign Debt Management which was jointly issued by SDPC, Ministry
of Finance and State Administration of Foreign Exchange recently .
The Provisional Regulation Governing Foreign Debt Management
(abbreviated as Provisional Regulation) was jointly issued by the
State Development Planning Commission (SDPC), the Ministry of
Finance and the State Administration of Foreign Exchange
recently.
The new regulation is believed to improve the legal framework of
foreign debt, strengthen its management, standardize foreign
capital borrowing, increase the transparency of foreign debt
management and raise foreign capital's utility efficiency as well
as reducing foreign debt-related risks.
An
official with the Foreign Investment Department of the SDPC
recently answered the questions on the new regulation from Xinhua
News Agency.
Question: What's the purpose of strengthening and improving
foreign debt management?
Answer: International practice has shown that the management
of foreign debt, as an important factor of economic security, has a
direct bearing on the healthy operation of a national economy and a
stable financial mechanism. Financial crises in Asia and turbulence
in South American finance are closely connected to the
out-of-control state of debt-volume and its structure. China's
entry into the WTO shows that it has entered a new era of openness.
It will continue to use foreign investment, improve foreign debt
management, and keep a balance of its international payments. On a
request to strengthen foreign debt management from the State
Council, the SDPC, as well as the Ministry of Finance and State
Administration of Foreign Exchange communicated the Provisional
Regulation.
Question: What are the characteristics of the Provisional
Regulation?
Answer: The Provisional Regulation was formulated on the
basis of over 20 years of foreign debt management experience and is
in accordance with the stability and continuation of current
policy. The new characteristics to the regulation are as
follows:
First, Provisional Regulation is the first of its type to manage
all foreign debt. It strengthens continuation and transparency and
makes the handling of foreign debt volume, and other aspects of
foreign debt, easier.
Second, Provisional Regulation manages by classification. For
example, for state sovereignty debt, the final borrowers should pay
off the loan according to a re-loan deal. For international
commercial loans, the classification of state-owned commercial
banks, Chinese enterprises, foreign-funded enterprises and
foreign-funded financial institutions determine their particular
management.
Third, Provisional Regulation strengthens foreign debt control.
Although China's total foreign debt volume is kept at a suitable
level, some domestic institutions continue to illegally raise debts
and offer guarantees to dodge legal supervision. Provisional
Regulation stipulates that all foreign debt, no matter what kind,
should be monitored.
Question: Why does Provisional Regulation specially have a
chapter for "foreign debt repayment and risk management"?
Answer: In recent times, our domestic capital has grown in
size and is now abundant. Thus, China has tightened control over
foreign loans, especially with international commercial loans, and
encouraged enterprises to borrow for forex activities from domestic
banks. Currently, the principal and interest paid for former
foreign loans has exceeded the volume of newly borrowed foreign
debt and so it is very important to strengthen foreign-debt
repayment and risk management. Provisional Regulation stipulates
that state sovereignty debt should be paid off by the final
borrowers. Provisional Regulation asks that all foreign debt
borrowers strengthen the risk management of their foreign
debts.
Question: Why should the sum of long, medium and short-term
foreign debt volume, borrowed by foreign-funded enterprises, be
controlled within the difference between the total investment of a
project and its registered capital?
Answer: Currently, foreign debts of foreign-funded
enterprises accounts for one fourth of China's total debt, so
foreign debt needs to be monitored. At the moment, foreign funded
enterprises can borrow foreign debt according to the difference
between total investment and registered capital instead of waiting
for approval. This illustrates the working combination of a
nation's macro-economic control and enterprise independence.
Question: How do we understand the sentence: "macro-control
the foreign debts borrowing of the domestic foreign-funded
financial institutions"?
Answer: Recently there has been a new type of foreign debt
management problem appearing in foreign-funded financial
institutions. Initially, China had adjusted the registration of
foreign debt in 2001, and the foreign debt of domestic financial
institutions with foreign investment was closely watched. The debts
which domestic institutions borrowed from domestic foreign-funded
enterprises were no longer calculated as foreign debt. Second,
China became a member of the WTO in 2001 and lifted bans regarding
location and clients of foreign banks in China. Foreign banks can
now lend directly for forex activities to Chinese enterprises.
Provisional Regulation insists that foreign debt refer to the
foreign exchange debt which domestic institutions owe to
non-citizens and the debt which foreign-funded financial
enterprises in Chinese territory borrow from non-citizens.
Government can then conduct macro-economic control over the two
kinds of debt.
For the specialty of management over foreign-funded financial
companies' foreign debts, special regulations will apply. The basic
principle being that foreign debt volume control is monitored and
in the meantime, it is convenient for forex activity loans from
foreign-funded financial institutions.
Question: According to the definition of foreign debt in
Provisional Regulation, debts which domestic institutions owe to
non-citizens, in foreign currencies, are classified as foreign
debts. What about these debts in Renminbi?
Answer: Foreign debt that is measured in foreign currency,
and in its national currency, falls within foreign debt management.
Since the advent of economic reform and greater openness in China,
nearly all its foreign debts are foreign currency debts. Thus,
foreign debt in Renminbi is not regulated by Provisional
Regulation. However, as reform continues, debt in Renminbi will not
be so unusual. For example, approved qualified foreign
institutional investors can invest in the domestic stock market and
the bonds that they buy will belong to Renminbi debt. Domestic
financial assets management companies will also have foreign debts
when transferring non-performing debt. For these and other
relatively new problems, we will research and issue regulations
accordingly.
(China.org.cn translated by Tang Fuchun, February 21, 2003)