On January 14, 2003, the State Development Planning Commission (“SDPC”), the Ministry of Finance (“MOF”), and the State Administration of Foreign Exchange (“SAFE”) jointly issued new rules that offer guidance to enterprises who utilize foreign debt to manage their growth and capitalization. The Provisional Rules on the Management of Foreign Debt (the “Rules”) became effective 1 March 2003.
The Rules set forth definitions of terms and the approvals required by certain authorities for the issuance of bonds. They also delineate the usage of foreign debt raised and provisions for debt repayment. Among the terms defined are the three types of loans: foreign government loans, international financial institution loans, and international commercial loans. The Rules also apply definition to sovereign and non-sovereign debt.
　　The State plan for the borrowing of foreign debt will be formulated by the SDPC. The SDPC, MOF and other applicable authorities will devise plans on candidate projects for loans from the World Bank, the Asian Development Bank, the United Nations Agricultural Development Foundation, and loans from foreign governments. Negotiations and consultations with foreign parties and the signing of loan agreements will be organized by the MOF, who will directly or through financial institutions transfer such loans to domestic debtors. State Council approval is necessary for plans for candidate loans from the organizations mentioned above.
In addition, MOF’s issuance of bonds outside the territory of the PRC will need State Council approval. SAFE approval is required for short-term bonds issued by domestic enterprises outside the territory of the PRC. If the issuance of such short-term bonds by a domestic company is on a rolling issuing plan, SDPC approval will also be necessary. SAFE, SDPC and State Council approvals are requirements for the issuing by domestic entities of long and medium term bonds outside the territory of the PRC.
　　The borrowing of medium and long-term international commercial loans by domestic PRC invested enterprises and similar entities must be approved by the SDPC. Also, foreign invested enterprises can issue overseas bonds if the total amount of foreign debt raised and its registered capital do not surpass its approved total investment amount.
　　With respect to the utilization of loans, medium and long term foreign preferential loans are to be used primarily on infrastructure and public welfare construction projects while medium and long term international commercial loans should be utilized with the intent of introducing advanced technologies and equipment, and on making adjustments to the industrial structure and foreign debt structure. Short-term foreign debt funds raised by domestic enterprises are to be used mainly as liquid capital and not for medium and long-term purposes such as fixed asset investment. Medium and long-term foreign debt raised by domestic enterprises must be used according to their approved purposes, and must not be transferred for other uses.
The Rules also provide guidelines for taking risk and for debt repayment, and prohibits the raising of foreign debt by domestic entities through such means as guaranteeing a fixed return on foreign direct investment.

─Linus Zhu