Leaf Leaf

Under PRC FIE legal regime, debt financing shall be subject to an upper limit which is allowed to borrow under the PRC laws.

FIEs cannot borrow more than the amount exceeding an upper limit. He is also known as the quota of foreign debt (“Foreign Debt Quota”). And there are two models to determine the Foreign Debt Quota :

Model of “Borrowing Gap”

Based on the amount of the registered capital, the FIE shall be allowed with a maximum “total investment amount”. The “registered capital-to-total investment ratio” varies from 33% to 70%. The difference between the total investment amount and the registered capital (“Borrowing Gap”) represents the capacity of the FIE to borrow foreign loan and/or benefit from foreign securities.

Model of “Full-coverage”

Under this model, the Foreign Debt Quota will be calculated as follows:

Foreign Debt Quota = Capital or Net Assets * Leverage Ratio * Macro-prudential Adjustment Parameter

As the Foreign Debt Quota to be calculated under this model is based on the financial reports, in practice, the local SAFE or its authorized bank may raise queries and lower the actual amount of the Foreign Debt Quota if the figure in the financial reports looks not reliable.

Nevertheless, like PRC domestic companies, FIEs are not restricted from borrowing money from entities (i.e. banks, other corporate entities, etc.) in China.

-> This article may also be of interest to you : Private: Foreign Invested Partnerships in China – Investment Options

To know more, download our legal handbook related to setting up a business structure in China …

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