The National Development and Reform Commission ("NDRC") and the Ministry of Finance ("MOF") have recently issued the Circular on Improving the Market Restraint Mechanism and Taking Strict Precautions Against Foreign Debt Risks and Local Debt Risks (the "Circular").
The Circular outlines arrangements in eight aspects, stating that, among others, "an enterprise that intends to borrow medium- and long-term foreign debts is required to establish the thorough and standardized corporate governance structure, the decision-making management mechanism and the financial management system", "it is necessary to form the market-oriented investment return mechanism and create sustainable, stable and feasible expected financial yields, for fundraising-based investment projects financially aided by funds of foreign debts" and "an enterprise that intends to borrow medium- and long-term foreign debts is required to standardize its information disclosure". In particular, the Circular provides that enterprises (including financial institutions) intending to borrow medium- and long-term foreign debts shall have concrete business in fact, raise funds in a market-oriented way in compliance with laws and regulations, and meanwhile, work out a plan for the repayment of the principal and interest of foreign debts according to their respective credit status, and implement safeguards for the repayment of debts. Furthermore, any enterprise is banned from, in any name, requesting the local government or a department affiliated thereto to provide guarantee or undertake liability for debt repayment for its market-oriented fundraising or accepting the guarantee provided or debt repayment promised by such local government or department.