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| Codes
& Statutes----Civil and Commercial Law |
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Measures for the Control
of Provision of Security to Foreign Parties by Organizations
within the People's Republic of China
(Promulgated by the People's Bank of China on September 25,
1996)
Article 1
These Measures are formulated in accordance with the Law of
the People's Republic of China on Security and the provisions
of the relevant administrative regulations on foreign exchange
control of the State in order to promote foreign economic and
technological cooperation, to support development of foreign
trade, to promote export of labor and import of advanced foreign
technology, equipment and funds, to ensure the smooth development
of foreign-related financial activities, to define the ambits
for the provision of security to foreign parties and to strengthen
the control over provision of security to foreign parties.
Article 2
Provision of security to foreign parties as mentioned herein
refers to the provision by organizations within the People's
Republic of China (except foreign-invested financial institutions
within the People's Republic of China, hereinafter referred
to as the "Security Provider") of guarantees in the
form of letters of guarantee, standby letters of credit, promissory
notes and bills of exchange, of mortgages of property stipulated
under Article 34 of the Law of the People's Republic of China
on Security, of pledges of moveable property stipulated under
Section 1 of Chapter 4 of the Law of the People's Republic of
China on Security and of the rights stipulated under Article
75of Section 2 of the Law of the People's Republic of China
on Security, to organizations outside the People's Republic
of China or foreign-invested financial institutions within the
People's Republic of China (creditor or beneficiary, hereinafter
referred to as the "Creditor")as undertakings that
when the debtor (hereinafter referred to as the "Secured
Party") fails to repay its debts as provided for in a contract,
the Security Provider will perform its obligation to repay the
debts. Security to foreign parties include:
(i) finance security;
(ii) finance lease security;
(iii) security under compensation trade arrangements;
(iv) security in connection with contracted projects outside
the People's Republic of China;
(v) other security with a foreign debt nature. A Security Provider
shall not grant security to foreign parties in the form of lien
or deposit .Security provided to foreign-invested financial
institutions within the People's Republic of China shall be
deemed as security to foreign parties.
Article 3
The People's Bank of China authorizes the State Administration
of Foreign Exchange and its branches and sub-branches (hereinafter
referred to as "SAFE") as the authority for the control
of provision of security to foreign parties. SAFE shall be responsible
for the examination and approval, control and registration of
security to foreign parties.
Article 4
The Security Providers stipulated by these Measures are:
(i) financial institutions (excluding foreign-invested financial
institutions) approved with the authority to engage in business
of providing security to foreign parties;
(ii) non-financial enterprises with the status of legal persons,
including domestic enterprises and foreign investment enterprises,
which have the ability of repaying debts in place of the debtors.
Except as approved by the State Council in order to utilize
loans from foreign governments or international economic organizations
for on-lending purposes, State organizations and units shall
not provide security to foreign parties.
Article 5
The aggregate sum of the outstanding amount under security to
foreign parties, the outstanding amount under security in foreign
exchange within the People's Republic of China and the outstanding
amount of foreign exchange debts of a financial institution
shall not exceed 20 times the amount of its own foreign exchange
funds.
The outstanding amount under security to foreign parties provided
by a non-financial enterprise-legal person shall not exceed
50%of its net assets and shall not exceed its foreign exchange
income of the preceding year.
Article 6
A domestic enterprise may only provide security to foreign parties
for foreign debts of its direct subsidiaries or for foreign
debts of an enterprise in which it has a share holding up to
the proportion of its investment in such enterprise.
When a trade type domestic enterprise provides security to foreign
parties, the ratio of its net assets to total assets shall not
in principle be less than 15%.
When a non-trade type domestic enterprise provides security
to foreign parties, the ratio of its net assets to total assets
shall not in principle be less than 30%.
Article 7
A Security Provider shall not provide security to foreign parties
for enterprises which incur losses in respect of their operations.
Article 8
When a Security Provider provides security to foreign parties
for foreign investment enterprises (excluding wholly foreign-owned
enterprises), it shall insist on the principle of sharing risk
and profit, at the same time the application of the foreign
loan being secured shall comply with the State industrial policy
and the foreign loan shall not be converted into Renminbi* for
use without approval.
A Security Provider shall not provide security to foreign parties
in respect of foreign patties' capital contribution to the registered
capital of foreign investment enterprises.
Save for foreign investment enterprises, a Security Provider
shall not provide security to foreign parties for the foreign
debts in respect of its part of investment owed by foreign in
vestment enterprises.
Article 9
When examining and approving the provision of security to foreign
parties by a Security Provider for a trade type enterprise outside
the People's Republic of China, SAFE shall examine and investigate
the ambit of trade, the asset-debt ratio and the profit and
loss situation of the Secured Party to ascertain the upper limit
of security to foreign parties that shall be accept able to
the Secured Party.
When examining and approving the provision of security for foreign
parties by a Security Provider for a contracted project type
enterprise outside the People's Republic of China, SAFE shall
examine and investigate the quantity of the contracted project,
the risk of the project, the asset-debt ratio and the profit
and loss situation of the Secured Party, to ascertain the upper
limit of security to foreign parties that shall be acceptable
to the Secured Party.
Article 10
The limits of the authority to examine and approve security
to foreign parties:
1. the provision of security to foreign parties for domestic
enterprises within the people's Republic of China and the provision
of security to foreign parties for foreign investment enterprises
of a term of up to one year (including one year )shall be submitted
to and examined and approved by SAFE of the province, autonomous
region, municipality directly under the Central Government,
municipality with independent planning power or special economic
zone where the Security Provider is located;
2. the provision of security to foreign parties for foreign
investment enterprises for a term of more than one year (excluding
one year )and the provision of security to foreign parties for
organizations outside the People's Republic of China shall be
submitted to and pre-examined by the branch of SAFE of the province,
autonomous region, municipality directly under the Central Government,
municipality with independent planning power or special economic
zone where the Security Provider is located and then be submitted
by that branch of SAFE to the State Administration of Foreign
Exchange for examination and approval.
Article 11
When a Security Provider conducts the application procedures
for security examination and approval, it shall provide the
following materials or part thereof to SAFE:
(1)the approval documents for the feasibility study report of
the secured project and other approval documents;
(2)a balance sheet of the Security Provider which has been audited
by a registered accountant(if the Security Provider is a group
company, it shall provide the consolidated balance sheet and
its own balance sheet);
(3)a balance sheet of the Secured Party which has been audited
by a registered accountant;
(4)a letter of intent in respect of the contract of security;
(5)the contract or the letter of intent in respect of the principal
debt under the secured project and other related documents;
(6)the materials stipulated under Article 8 and Article 9 of
these Measures;
(7)other materials required by SAFE.
Article 12
A Security Provider may provide security to foreign parties
only after examination by and approval of SAFE.
Article 13
When a Security Provider provides security to foreign parties,
it shall enter into a written contract with the Creditor and
the Secured Party to stipulate the following rights and obligations
of the Security Provider, the Creditor and the Secured Party:
(1)the Security Provider has the right to monitor the financial
and asset conditions of the Secured Party;
(2)after the provision of security to foreign parties by the
Security Provider, if the Creditor and the Secured Party need
to amend the contract being secured, the consent of the Security
Provider shall be obtained and the Security Provider shall report
the amendments to SAFE for examination and approval; in the
absence of the consent of the Security Provider and the approval
of SAFE, the Security Provider shall be released automatically
from its security obligations;
(3)after the provision of security to foreign parties by the
Security Provider and within the validity period of the contract
of security, the Security Provider shall perform its obligations
in accordance with the contract of security. After the Security
Provider has performed its obligations, it shall have the right
to seek compensation from the Secured Party;
(4)after the provision of security to foreign parties by the
Security Provider and within the validity period of the contract
of security, if the Creditor fails to perform its obligations
in accordance with the provisions of the debt contract, the
Security provider shall automatically be released from its security
obligations;
(5)the Security Provider has the right to demand the Secured
Party to implement counter-guarantee measures or to provide
corresponding security over assets;
(6)the Security Provider has the right to receive the agreed
security fee.
Article 14
After the provision of security to foreign parties by the Security
Provider, the Security Provider shall register the security
with SAFE of the place where it is located.
After provision of security to foreign parties by a non-financial
institution, it shall, within 15 days from the date of establishment
of the contract of security, complete the "Provision of
Security to Foreign Parties Registration Form" at the SAFE
of the place where it is located and obtain "Certificate
of Registration for the Provision of Security to Foreign Parties";
in respect of the foreign exchange required to be paid for the
performance of the contract of security, the remittance of which
shall be verified by SAFE of the place where it is located and
the outstanding amount of the security and the outstanding amount
of the debt shall be reduced.
For financial institutions, a system of periodic monthly registration
shall be implemented; financial institutions shall within 15
days after the end of each month complete "Feedback Forms
for Provision of Security to Foreign Parties" to report
the security obligations in the preceding month.
Article 15
If an extension is required upon the expiry of the security
period, the Security Provider shall, within 30 days prior to
the maturity date of the debt, conduct application procedures
for extension at SAFE of the place where it is located. SAFE
shall conduct examination and give approval within the limits
of authority stipulated in Article 10 of these Measures.
Article 16
A Security Provider which is a non-financial institution shall,
within 15 days of the date on which the debt being secured has
matured or the security obligations having been fully performed
or the date of occurrence of any event terminating the contract
of security, return the "Certificate of Registration for
the Provision of Security to Foreign Parties" to the issuing
SAFE and conduct cancellation procedures. A financial institution
shall conduct cancellation procedures one monthly basis.
Article 17
If a Security Provider provides security to foreign parties
without approval, the contract of security shall be invalid.
If a Security Provider provides security to foreign parties
without approval or the Security Provider fails to register
the security after its provision of security to foreign parties,
SAFE shall, according to circumstances, give warnings, circulate
notices of criticism of, or suspend or revoke the Security Provider's
business of providing security to foreign parties.
Article 18
These Measures shall apply to the provision of counter-guarantees
to foreign parties.
Article 19
These Measures shall be in force from lst October 1996.At the
same time, the Measures for the Control of the Provision of
Foreign Exchange Guarantees to Foreign Creditors by Organizations
within the People's Republic of China promulgated on the 26th
of September 1991 shall be repealed. The State Administration
of Foreign Exchange shall be responsible for the interpretation
of these Measures. |
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