Yanting Pei and Teresa Huang
The National Development and Reform Commission (hereinafter referred to as the “NDRC”) issued the Administrative Measures for the Review and Registration of Mid- to-Long Term Foreign Debts of Enterprises (Draft for Comments) (hereinafter referred to as the “Administrative Measures (Draft for Comments)”) on August 26, 2022 for public comments, with the deadline for feedback being September 26, 2022. Since 2015, any domestic enterprise borrowing a foreign debt with a maturity of more than one year shall undergo recordation and registration formalities in accordance with the Notice on Promoting the Administrative Reform of the Recordation and Registration System for Enterprises’ Issuance of Foreign Debts (Fa Gai Wai Zi  No. 2044, hereinafter referred to as the “Notice”) issued by the NDRC. Compared to the Notice, the Administrative Measures (Draft for Comments) not only continues the existing administration practices, but also clarifies and refines the recordation and registration in the form of regulation with a higher legal hierarchy, making the recordation and registration of medium and long-term foreign debts more standardized. Specifically, the main points of the Administrative Measures (Draft for Comments) are as follows:
1. Further clarifying the main body of declaration
According to the Notice, debt instruments with a term of one year or more that are borrowed from overseas by domestic enterprises and overseas enterprises or branch offices controlled by them, denominated at home or foreign currencies, and of which principal with interest are repaid as agreed, shall be registered as foreign debts, but there is no further explanation for the enterprises and control. The Administrative Measures (Draft for Comments), together with the FAQs previously published by the NDRC on its website, clarifies that enterprises include various types of non-financial enterprises and financial enterprises, and further clarifies that the so-called “control” refers to the direct or indirect holding of more than half of the voting rights of an enterprise or the capability of dominating the operation, finance, personnel, technology, and other major matters of the enterprise though not holding more than half of the voting rights. At the same time, the Administrative Measures (Draft for Comments) also further indicates that the Administrative Measures (Draft for Comments) shall also apply to foreign debts indirectly borrowed by domestic enterprises outside China, that is, any bonds issued or any commercial loans borrowed abroad by an enterprise whose principal business are in the Chinese mainland, in the name of an enterprise registered aboard, based on the equity, assets, income or other similar interests of domestic enterprise(s) shall also be subject to such registration.
Therefore, if an enterprise is a red chip structure or VIE structure, any foreign debt borrowed by it through its overseas parent company shall be registered accordingly. However, it should be noted that the main body of registration shall still be the enterprise mainly engaged in actual business in China. In addition, the Administrative Measures (Draft for Comments) also clarifies that if an enterprise is a group-type company, its foreign debts shall be declared by the headquarters (head office, etc.) of the domestic holding company. As for a foreign-invested enterprise or an investment companies registered as a limited partnership, according to the FAQs of the NDRC and the “various types of enterprises” specified in the Administrative Measures (Draft for Comments), if it borrows any mid- to long-term foreign debt with a maturity of one year or more, it shall also make a declaration.
On the other hand, the Administrative Measures (Draft for Comments) also makes it clear that an enterprise borrowing any foreign debt shall meet the following basic conditions:
(1) It is an enterprise duly organized, validly existing, and operating in a compliance manner, with a sound and well-functioning organizational structure;
(2) It is in good credit standing, has the ability to repay debts, and its issued bonds or other debts are not in default and without any delayed payment of the principal and interest;
(3) It has a reasonable demand for foreign debt funds, of which the use is consistent with the aforementioned provisions, and it has a sound foreign debt risk prevention and control mechanism;
(4) None of the enterprise, its controlling shareholders or de facto controller shall have, in the recent three years prior to the application, committed criminal offenses relating to corruption, bribery, illegal possession of assets, misappropriation of assets, sabotage of the socialist market economic order, or be currently under formal investigation on suspicion of other offenses, or currently under formal investigation on suspicion of material violations of laws and regulations.
2. Further clarifying the meaning of foreign debts
For foreign debts that needs to be declared, the original Notice simply described them as debt instruments, but the Administrative Measures (Draft for Comments) clearly states that debt instruments include but are not limited to senior debts, perpetual debts, capital debts, medium-term notes, convertible bonds, exchangeable bonds, preferred shares, financial leasing and commercial loans, etc. According to the FAQs of the NDRC, the debt instruments also include non-publicly issued or directionally issued convertible bonds.
3. Further clarifying the use of foreign debts
The original Notice stipulates that the funds borrowed by an enterprise through the issuance of foreign debts shall be preferentially used to support the Belt and Road Initiative, the coordinated development of the Beijing-Tianjin-Hebei Region, the Yangtze River Economic Belt and the international production capacity and equipment manufacturing cooperation and other major projects and investments in key areas, but does not specify the prohibited areas. However, the Administrative Measures (Draft for Comments) clearly provides that the use of foreign debts by any enterprise must meet the following conditions:
(1) Not violating China’s laws and regulations;
(2) Not threatening or damaging China’s national interests and economic and information data security;
(3) Not breaking the macroeconomic regulatory and control goals of China;
(4) Not violating China’s relevant development plans and industrial policies, and not adding hidden debts of local governments;
(5) Not being used for making up losses or speculation, etc.; and not being transferred to others except for banking-type financial enterprises.
4. Further clarifying the time limit for recordation and registration
The original Notice only stipulates that an enterprise that plans to issue foreign debts shall apply to the NDRC in advance for undergoing recordation registration formalities, but does not clarify whether the so-called “in advance” is before signing the contract or before withdrawal of funds. However, the Administrative Measures (Draft for Comments) makes it clear that the “before borrowing a foreign debt” referred to in the Measures means before the enterprise’s exercise of the right to withdraw foreign debt funds (i.e., completing the delivery of the foreign bond or the first withdrawal of the commercial loan). That is, the enterprise can make the corresponding declaration at the same time after signing the contract.
5. Further clarifying the legal responsibilities of all parties
Compared with the Notice, the Administrative Measures (Draft for Comments) more clearly defined the legal responsibility of the relevant parties for failure to make recordation or registration in accordance with the law. For any enterprise who shall declare a foreign debt borrowed by it fails to do so before borrowing the foreign debt, such enterprise and its main responsible persons shall be interviewed, publicly warned or suspended from carrying out or participating in the enterprise foreign debt business and imposed other disciplinary measures by the review and registration authority according to the seriousness of circumstances. For any enterprise whose application materials and disclosed information contain any concealment, false record, misleading statement or material omission, the review and registration authority shall warn such enterprise and its main responsible persons. If an enterprise obtains a Certificate of Review and Registration through concealment, deception, bribery and other improper means, the review and registration authority will also revoke the Certificate of Review and Registration. For an enterprise who shall submit the information on its borrowed foreign debt and the use of foreign debt funds after the approval but fails to do so, the Administrative Measures (Draft for Comments) also provides that the enterprise and the main responsible persons will be required to correct the situation within a limited time, failing which it will be warned.
In addition, for intermediaries, if an intermediary provides intermediary services for any enterprise’s borrowing of foreign debt that should be declared but fails to declare, or if a written verification report and opinions issued by an intermediary and related disclosed information contain any concealment, false record, misleading statement or material omission, the review and registration authority will report the violations and penalize such intermediary and relevant responsible persons in accordance with laws and regulations.
On top of that, the review authority will also publicize the violations of enterprises and intermediaries through the “Credit China” website and the National Enterprise Credit Information Publicity System. Of course, if any violation constitutes a crime, the relevant clues will also be transferred to the judicial authorities for investigation of legal responsibility.
It is worth noting that, for any enterprise’s borrowing of foreign debt involving external reporting and disclosure matters, the Administrative Measures (Draft for Comments) also requires the enterprise to comply with national security and information confidentiality system, and not to damage national security and public interest because of borrowing foreign debts. This is also a new content compared to the Notice.
Overall, the Administrative Measures (Draft for Comments) is not particularly different from the current administration practices, but it clarifies that all kinds of foreign debts borrowed shall be registered in accordance with the law, which in fact increases the intensity of supervision. For enterprises, if the Administrative Measures (Draft for Comments) is implemented, they should pay more attention to the registration obligations arising out thereof, so as not to produce a bad credit record and affect the qualification for future domestic and foreign financing.
 FAQs 1, 31, 34 and 39 in the Service Guide concerning the Recordation and Registration for Enterprises’ Issuance of Foreign Debt https://services.ndrc.gov.cn/ecdomain/portal/portlets/bjweb/newpage/guide/guidService.jsp?idseq=420213852556456b80bae74e519d4673&code=&state=123
 FAQ 39 in the Service Guide concerning the Recordation and Registration for Enterprises’ Issuance of Foreign Debt https://services.ndrc.gov.cn/ecdomain/portal/portlets/bjweb/newpage/guide/guidService.jsp?idseq=420213852556456b80bae74e519d4673&code=&state=123
 FAQ 10 in the Service Guide concerning the Recordation and Registration for Enterprises’ Issuance of Foreign Debt https://services.ndrc.gov.cn/ecdomain/portal/portlets/bjweb/newpage/guide/guidService.jsp?idseq=420213852556456b80bae74e519d4673&code=&state=123
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