| ||||||||||||
| ||||||||||||
| ||||||||||||
| ||||||||||||
|
Country Commercial Guides for FY 2000:
|
CHAPTER VIII. Trade and Project Financing
A. Banking System
China's banking system is changing rapidly under the impetus of economic reforms. At the top of the system is China's central bank, the People's Bank of China (PBOC), which sets monetary and, together with the State Administration of Foreign Exchange (SAFE), foreign-exchange policies. According to the 1995 Central Bank law, the State Council maintains oversight of PBOC policies.
Below the central bank are the state-owned commercial banks:
Bank of China, People's Construction Bank of China, Agricultural Bank of China, Industrial and Commercial Bank of China, and Bank of Communications.
In the midst of the reforms of the 1980s, the government established some new investment banks that engage in various forms of merchant and investment banking activities. Many of the 240 or so international trust and investment companies established by government agencies and provincial authorities, however, experienced severe liquidity problems after the bankruptcy of the Guangdong International Trust and Investment Corporation (GITIC) in late 1998. The largest surviving ITIC is China International Trust and Investment Corporation (CITIC), which has a banking subsidiary known as CITIC Industrial Bank.
Three new government "policy" banks have been established since 1994. These banks will take much of the financial responsibility for financing economic and trade development and state-invested projects included in the government's five-year economic plans. They are the China Development Bank (formerly the State Development Bank of China) and Agricultural Development Bank Export-Import Bank of China.
B. Foreign-Exchange Controls
The PBOC and the SAFE regulate the flow of foreign exchange in and out of the country, and set exchange rates through a "managed float" system. To better control this flow, almost all Chinese enterprises and agencies are required to turn over all foreign- exchange earnings to the banking system, in exchange for renminbi (large exporters were allowed to retain up to 15% of their earnings beginning in late 1997). When foreign exchange is required for import and other authorized transactions, they then apply to designated banks that are members of the interbank foreign-exchange market to purchase the funds.
Foreign-invested enterprises (FIEs) are permitted to keep foreign exchange in forex accounts at commercial banks. The Chinese government has eliminated the foreign-exchange swap centers on which FIEs used to trade among themselves, and FIEs have been integrated into the formal banking system.
Since 1995 China has required that FIEs submit an annual report on their foreign-currency transactions, known as the Foreign-Exchange Examination Report. This report must be prepared by a certified public accountant registered in China and approved by SAFE and is necessary to qualify for foreign-exchange privileges. The purpose of the report is to ensure that FIEs' foreign-exchange earnings from exports are sufficient to meet their own requirements as well as any obligation to repatriate profits. Once the report is approved, firms are provided a stamped Foreign Exchange Registration Certificate, which will enable them to obtain foreign exchange. China's goal of achieving a fully convertible currency by the year 2000 has been pushed back because of the Asian financial crisis.
On July 1, 1996, China began to allow all FIEs in China to buy and sell foreign currency and exchange the renminbi in authorized banks for trade and services, debt payment and profit repatriation. The PBOC has lifted limits on exchanging and remitting currency for non-trade purposes and raised the ceilings for the amount of foreign exchange for private use. In mid-1998, however, SAFE cracked down on the pervasive practice of exploiting loopholes and lax enforcement procedures to get around the controls on capital transactions. Since then, traders have complained of delays as their underlying documentation is screened more closely by SAFE and other regulatory authorities, including the tax administration. SAFE has been responsive to appeals that it streamline its system.
Foreign banks, their branches and Sino-foreign joint ventures are allowed to act as authorized banks, buying or selling foreign exchange from, or to, foreign-funded ventures. But foreign-funded banks are not allowed to accept renminbi deposits or make renminbi loans except in the experimental zones of Shanghai's Pudong district and Shenzhen. Elsewhere, foreign branches are prohibited from accepting RMB deposits (liabilities) but can maintain RMB accounts to provide foreign-exchange conversion for their customers. China has pledged to expand the scope of renminbi business gradually and to eliminate geographical restrictions.
C. General Financing Availability
The sources of financing available for U.S. exporters and investors are:
The World Bank: The World Bank, based in Washington, D.C., maintains a large loan program in China. The world Bank's purpose is to help borrowers reduce poverty and improve living standards through sustainable growth and investment. China represents the World Bank's second largest commitment worldwide. The Bank's program policies in China continue to shift away from key infrastructure projects in transportation and energy toward environmental and agriculture support. The World Bank publishes bidding opportunities in the United Nations publication "Development Business." This is available by subscription from United Nations, P.O. Box 5850, Grand Central Station New York, New York 10163-5850.
The World Bank conducts procurement by the rules of international competitive bidding through Chinese tendering organizations; nonetheless, successful bidding requires close coordination with the Chinese government entity responsible for developing a project at the consulting stage, when specifications are being established.
The International Finance Corporation (IFC): IFC has become increasingly active in China. It is mandated to assist joint-venture and share holding companies with substantial non-state ownership to raise capital in the international markets. The IFC takes equity positions in these companies. IFC's core business is "project finance" and it currently has over US$ 1.2 billion invested in "project finance" undertakings in China. These are projects with anticipated cash flows that can cover debt-service repayment to lenders and payment of dividends to shareholders. They are without government guarantees. IFC can be contacted through its Washington, D.C. Headquarters at (202) 473-0631 or at its Beijing office (Fax: (86-10) 6501-5176).
The Asian Development Bank (ADB): China continues to be one of ADB's largest borrowers. Loans are largely for infrastructure and environmental projects. Once a project is initially approved by the ADB and the Chinese government, it is included in a monthly publication called "ADB Business Opportunities" which is available by subscription from the Publications Unit, Information Office, ADB, P.O. Box 789, Manila, Philippines, Fax: (632) 632-5122 or 632-5841. The Commerce Department has established a Multilateral Development Bank Operations Office (Fax: (202) 273-0927) which publishes information to assist companies in winning such contracts.
The Overseas Economic Cooperation Fund (OECF) of Japan: The OECF is a Japanese government organization which extends long-term, below-market interest rate loans to China. In the 1997-1999 period some US$1.4 billion will be available for 130 projects under the Fourth Yen Loan. These projects are described in the "OECF Quarterly Report Supplement" available from the Public Relations Division of the OECF in Tokyo at (81) 3 3215-1307.
Many U.S. companies have been successful in obtaining contracts under these loans either on their own or by working in conjunction with large Japanese trading firms. Potential bidders must begin working with Chinese ministries and end-users at the consultant (pre-feasibility study) stage when specifications are being developed for the project. This is usually a year or two before the tender is formally published. OECF projects tend to be in infrastructure, environmental and agricultural sectors.
The Japanese Export Import Bank also offers untied credits which are medium- or long-term loans at market interest rates. Approximately 30% of JEXIM's credits are untied and these are also subject to international competitive bidding.
Bilateral government loans: The Chinese actively seek low- interest, long term loans, particularly from European countries. These soft loans are designed to support their country's exporters and are usually offered under annual government-to- government protocols not tied to particular projects. U.S. firms, otherwise competitive on price and quality, sometimes lose contracts because they can not compete with such loans.
The U.S. Export Import Bank (Eximbank) has established a procedure whereby it can consider matching competitors' soft loan terms, once there is proof of such an offer. Eximbank will not initiate a soft-loan offer. A U.S. firm should consult with a Commercial Service officer if it believes it is competing against a soft loan.
Export credits: Chinese end-users have become more interested in using foreign export credits to finance imports. Eximbank offers a full range of loans, guarantees, and insurance for firms exporting products with at least 51% U.S. content. Eximbank works with the Bank of China and the State Development Bank, and will work with other banks, including China Construction Bank, Industrial and Commercial Bank of China and Bank of Communication, assuming full faith and credit guarantees are available from the Chinese government. The rates and terms of such financing are governed by the OECD arrangements on export credits. Lending rates are set by the OECD and are called Commercial Interest Reference Rates (CIRRs).
D. Terms of Payment
In China's liberalized economic regime, there are many ways to finance imports. The most commonplace are the letter of credit and "documents against payment." Under these methods, foreign exchange is allocated by the central government for an approved import.
Letters of credit: Although the Bank of China dominates China's trade-finance business, several banks, other major Chinese banks have the authority to issue letters of credit for Chinese imports. These include the China Construction Bank, industrial and Commercial Bank of China, Agricultural Bank of China and CITIC Industrial Bank. Foreign banks with branch or representative offices in China (see Appendix D) can also issue letters of credit.
There are a few peculiarities about letters of credit issued by Chinese banks. First, local Chinese courts have issued injunctions, from time to time, barring Chinese banks from clearing letters of credit whose underlying documentation has been challenged. The central government has issued guidance against this practice, which should gradually disappear. Second, China is not a member of the International Chamber of Commerce and, therefore, is not subject to the Unified Customs and Practices (UCP) 400 code regarding international trade payments. Thus, in Chinese practice, terms and conditions are generally negotiable and set on a transaction-by-transaction basis in the form of a "silent" confirmation. Banks can generally be found to take this modest risk.
Documents against payment: This method of payment is similar to a letter of credit, but less formal and more flexible. Just as with letters of credit, the exporter submits a full set of trade documents for payment collection to the bank designated in the contract. The Chinese bank will send the documents to the home office, which examines them and, in some cases, passes them to the buyer for further examination. Payment is made after the documents have met the approval of all parties. This method of payment provides rather thin coverage against default. It can be considerably less expensive than a letter of credit, but should be used with caution.
Other methods: Bank or Enterprise Loans: Many Chinese companies have relationships with local banks or other enterprises which will loan funds for the purchase imports.
Foreign Supplier Loan: The supplier helps to finance, on behalf of the Chinese buyer, the purchase of its equipment.
Proceeds sharing/cooperative joint venture: Some suppliers enter into a cooperative joint venture to ensure the sale and financing of their equipment.
E. Insurance
Insurance: The China operations of the Overseas Private Investment Corporation (OPIC) have been under suspension since the Tiananmen incident of 1989 (see section VII M. above). The U.S. Ex-Im Bank has programs which provide guarantees and credit risk insurance to exporters. Contact Ex-Im at (800) 565-EXIM. Some private companies, such as American International Group, also offer export credit insurance policies for China.
F. Project Financing
Chinese officials have for years been experimenting with various limited-recourse project financing schemes. Long awaited Build-Operate-Transfer (BOT) laws have been delayed, however, and the overall private finance climate has cooled off during the past year. The U.S. Ex-Im Bank is seeking to implement a limited-recourse project-financing program in China. Such a project is one in which anticipated cash flows can cover debt service repayment to lenders and payment of dividends to shareholders, and is without government guarantees. Loans under this program will be available to companies operating investment projects which require imports from the U.S. Project financing is also available from the various multilateral financial institutions as described in Section C above.
|
[end of document] Note* International Copyright, United States Government, 1998 (or other year of first publication). All rights under foreign copyright laws are reserved. All portions of this publication are protected against any type or form of reproduction, communications to the public and the preparation of adaptations, arrangement and alterations outside the United States. U. S. copyright is not asserted under the U.S. Copyright Law, Title17, United States Code.
Next Chapter | Table of Contents
|
