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Business in China
The
Agency System in Foreign Trade
Foreign trade agency system is also called "import and
export agency system." It is a form in which the foreign
trade enterprises offer services to domestic commodity suppliers
and recipients, that is, representing the productive enterprises
and domestic recipients in handling import and export. Foreign
trade agency system is an important measure that China has
adopted in its foreign trade reform.
For a
long time, China had mainly employed the purchasing system
in its import and export trade. Since 1979, along with the
continuous development of the foreign trade reform, the purchasing
system can no longer fit the requirement of the economic development.
In 1984, China began to introduce the foreign trade agency
system, first making the recipients of imported equipment
and goods responsible for their own profits and losses. And
in 1988 the foreign trade agency system was fully practiced.
As the
foreign trade agency system is not adopted to counter specifically
the state monopoly of foreign trade or the foreign trade purchasing
system, it existed side by side with other forms of operation
as new forms of foreign trade. In August 1991, the Ministry
of Foreign Trade and Economic Relations (now the Ministry
of Foreign Trade and Economic Cooperation) issued the "Interim
Regulations Concerning the Foreign Trade Agency System,"
and later it issued an interpretation to Article 24 of this
document to standardize the foreign trade agency system.
After
1995, the "Ninth Five-Year Plan for National Economic
and Social Development and the Long-Term Target Through the
Year 2010" stipulated that China's economic restructuring
has achieved further progress, and the import and export in
foreign trade, which primarily based on purchasing, has lost
the objective foundation for existence, and a foreign trade
agency system has developed under the guidance of state policies.
Foreign
Finance Regulatory Regime of China
International
Commercial Loan
International Commercial Loan refers to the loan borrowed
from banks or other financial institutions, enterprises, individuals
outside China or foreign-funded banks, Chinese-foreign joint
venture banks or other foreign-funded, Sino-foreign funded
financial institutions in China by domestic institutions who
assume the contractual obligations of repayment in foreign
currencies.
Domestic
Institutions Authorized for External Finance
Financial Institutions running offshore borrowing business,
approved by the State Administration of Exchange Control.
Approved
industrial and trade enterprises or groups of enterprise.
Procedure
for external finance
For these domestic institutions mentioned above, the action
of borrowing is valid only when it has been subject to due
procedure and has been approved by authorized organs.
Approving
Organ
The People's Bank of China is the approving organ for international
commercial loan that authorizes the State Administration of
Exchange Control and its branches to be in charge of the approval,
supervision and administration on International Commercial
Loan.
Application
For external borrowing, domestic institutions need to apply
to the department of exchange control, and to submit relevant
evidential documents required by the department of exchange
control, including:
Evidential
documents for external borrowing that has been taken into
the State Program of foreign investment application;
Approval documents for the establishment of borrowing project,
including loan purpose, and the carrying-out of counterpart
funding in RMB;
Memorandum on terms of loan, including name of creditor, volume
of credit and currency category, interest rate, other fees,
grace period, intent on prepayment and other financial terms;
Financial resources for repayment and repayment planning;
Other relevant materials required by the department of exchange
control.
Registration
of External Debt
After execution of the agreement of international commercial
loan, the domestic institution shall go through the formalities
for external debt registration, transfer in the borrowed intentional
commercial loan, and shall not keep the loan abroad or use
it directly in foreign countries without consent from department
of exchange control.
Regulations
on Enterprise with Foreign Investment
Enterprise with foreign investment can borrow and use international
commercial loan directly with registration of the foreign
debt with the department of exchange control. Other relevant
regulations on Chinese-funded enterprises are not applicable.
External
Guarantee
Definition
and Content of External Guarantee
External guarantee means that the domestic institution (excluding
foreign-funded financial institutions in China) provides the
guarantee in form of Letter of Guarantee, Standby L/C, promissory
note, bill of exchange and etc. or undertakes to bear the
responsibility of repayment to the institutions abroad or
foreign-funded financial institutions in China (i.e. creditor
or beneficiary) when the debtor fails to repay the debt when.
The content of external guarantee includes:
Financing Guarantee;
Financial Leasing Guarantee;
Guarantee under Compensation trade;
Guarantee in offshore project contracting;
Other Guarantee with the nature of external debt.
Regulatory
Organ
The State Administration of Exchange Control and its branches,
authorized by the People's Bank of China is the regulatory
organ for External Guarantee.
Guarantor
Guarantor shall be a financial institution (excluding foreign-funded
financial institution) authorized to run external guarantee
business or a legal person of non-financial enterprise capable
of repaying the debt for the debtor including domestic enterprise
and enterprise with foreign investment.
Relevant
Requisition for External Guarantee
Guarantors shall not offer external guarantee to losing propositions;
The external guarantee offered by the guarantor must be approved
by the Administration of Exchange Control;
After offering external guarantee, the guarantor shall go
to the local Administration of Exchange Control to register
the guarantee. The foreign currency needed to pay for the
fulfillment of the guarantee can be remitted out only when
it is approved by local Administration of exchange Control
after checking the balance of guarantee and debt;
For offering external guarantee, the guarantor shall make
a written contract with creditor and applicant;
The guarantee contract offered by a guarantor without any
approval is invalid. The guarantor is to be warned and criticized
with a circulated notice, and its qualification for external
guarantee is to be suspended or revoked respectively if the
guarantor offers an unauthorized external guarantee or the
guarantor offers an external guarantee without registration.
This information
is designed to provide a summary of aspects of subject matter
covered herein and it doesn't purport to be elaborate or to
render legal opinion. Please inquire local lawyers if you
need further information. Chinese Lawyers advice should also
be obtained before applying any contents hereof due to the
rapidly variation of Chinese law.
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