To increase the control of Forex debt, the new regulations have also tightened the registration procedure of FIE Forex loans. Previously, FIE Forex loans were not subject to SAFE approval. A FIE needed only to register the Forex loan agreement with SAFE within 15 days of its execution. The function of this registration was to monitor external debt, not to approve the loan.
Now, in addition to producing its Business License, capital contribution certificate (the borrower must have paid in all registered capital due under its payment schedule) and loan agreement, an FIE must satisfy two further SAFE requirements when applying for Forex loan registration: (i) that the aggregation of the borrower's medium and long-term Forex debt shall not exceed the balance between the approved total investment and registered capital; and (ii) the interest rate of the loan is not higher than the prevailing rate in the international finance market for a similar loan.
The new rules have granted SAFE the power to refuse registration if FIEs fail to meet these additional requirements. SAFE's refusal will practically void the Forex loan because repayments of the principal and the interest cannot be made without such registration. Therefore, SAFE's review process now is an approval process instead of a simple registration process.
