New regulations on overseas lending are here! The balance limit has been raised, and experts say the substitution effect on corporate overseas financing will become more evident.

How will the new regulations specifically impact the substitution effect of enterprises’ overseas financing?

By Li Yuwen, Daily Economic News; Edited by Liao Dan

On March 20, the People’s Bank of China and the State Administration of Foreign Exchange jointly issued the “Notice on Printing and Distributing the Measures for the Administration of Domestic Enterprises’ Overseas Lending” (hereinafter referred to as the “Notice”), further supporting and regulating domestic enterprises’ overseas lending activities, which will take effect from April 20, 2026.

The “Notice” clearly links the upper limit of overseas lending balances for domestic enterprises to their equity, supporting domestic enterprises to apply for overseas loans within the limit. Specifically, the maximum overseas lending balance = the most recent audited equity of the lender × macro prudential adjustment factor.

Daily Economic News reporters note that compared to the previous draft for comments, the “Notice” raised the macro prudential adjustment factor from 0.5 to 0.6, generally increasing the overseas lending balance limit to better meet enterprises’ cross-border operational funding needs.

Additionally, the “Notice” consolidates the management of domestic enterprises’ RMB and foreign currency overseas lending into a unified framework, facilitating efficient cross-currency lending under the same rules. It also clarifies management requirements and fund usage for domestic banks and enterprises handling overseas loans, effectively preventing risks.

“The issuance of the Measures for the Administration of Domestic Enterprises’ Overseas Lending essentially results from the combined effects of adapting to changes in cross-border capital operations and macro prudential management requirements,” said Wang Zhiyi, Director of the Cross-Border Financial Research Institute, in an interview with Daily Economic News.

Raising the macro prudential adjustment factor amplifies enterprises’ overseas lending capacity

Overseas lending by domestic enterprises refers to the behavior where non-financial enterprises within China provide funds to qualified overseas companies across borders according to contractual terms such as amount, interest rate, term, and purpose.

According to the “Notice,” the lender and borrower must have a direct or indirect shareholding relationship, or be under the same parent company, directly or indirectly. They must also meet relevant conditions regarding registration time and operational compliance.

Regarding lending limits, the “Notice” explicitly links the maximum overseas lending balance to the enterprise’s equity, i.e., maximum overseas lending balance = the most recent audited equity × macro prudential adjustment factor.

The “macro prudential adjustment factor” has been raised from 0.5 to 0.6.

Wang Zhiyi told Daily Economic News, “Increasing the macro prudential adjustment factor from 0.5 to 0.6 directly raises the maximum overseas lending balance for enterprises. For companies with overseas subsidiaries, international projects, or regional fund transfer needs, domestic funding support for overseas operations has greater room. This is especially beneficial for manufacturing companies going abroad, cross-border trade, and overseas construction enterprises.”

“The substitution effect of overseas financing will become more apparent,” Wang said. For some enterprises facing high financing costs, insufficient credit, or unfavorable local financing conditions abroad, support from the domestic parent company through overseas loans may be more cost-effective and controllable than borrowing directly from foreign entities. In the future, overseas loans are likely to continue replacing some foreign bank loans and even some funding arrangements previously planned through ODI (Overseas Direct Investment).

It is also noteworthy that the “Notice” emphasizes the use of the domestic currency first, setting currency conversion factors and encouraging the priority use of RMB for overseas lending.

Specifically, the overseas lending balance = sum of lender’s foreign currency and RMB overseas lending balances + sum of lender’s foreign currency overseas lending balances × currency conversion factor, with the conversion factor set at 0.5.

Officials from the People’s Bank of China and the State Administration of Foreign Exchange stated in response to questions that the macro prudential adjustment factor and currency conversion factor can be adjusted in a timely manner based on the balance of payments and macroeconomic regulation needs to maintain orderly cross-border capital flows.

Unified management of RMB and foreign currency overseas lending for domestic enterprises

The “Notice” adheres to the principle of “same business, same rules,” unifying the regulations for RMB and foreign currency overseas lending by domestic enterprises, facilitating enterprises to conduct overseas lending reasonably based on operational financing needs, and reducing financing and management costs.

Currently, China’s management of overseas lending by domestic enterprises mainly relies on documents such as the “Notice on Issues Concerning the Foreign Exchange Management of Domestic Enterprises’ Overseas Lending” (Hui Fa [2009] No. 24), the “Notice on Further Clarifying Matters Related to RMB Overseas Lending by Domestic Enterprises” (Yin Fa [2016] No. 306), and the “Notice on Further Optimizing Cross-Border RMB Policies to Support Stable Foreign Trade and Foreign Investment” (Yin Fa [2020] No. 330).

Overall, the regulatory frameworks for domestic and foreign currency overseas lending are quite consistent, but differ in aspects such as funding sources, loan terms, and extension management. For example, previously, foreign currency overseas loans had no strict term requirement (within 5 years), and funding could come from domestic or foreign exchange loans, but RMB loans could not be debt-based.

Therefore, the “Notice” consolidates the management of RMB and foreign currency overseas lending, enabling enterprises to operate under the same rules more efficiently.

Clear operational requirements to effectively prevent risks

The “Notice” stipulates that lenders should use their own funds (own RMB, own foreign currency, or own RMB purchase funds) for overseas lending and must not use personal funds or debt financing to provide funding.

Regarding fund usage, it must comply with the terms of the lending agreement, and funds should not be used beyond the agreed scope, to evade foreign direct investment regulations, or violate anti-money laundering rules.

Loan terms should be commercially reasonable, generally between 6 months (inclusive) and 5 years (inclusive). Usually, extensions should not exceed once per loan.

Before disbursing funds to the borrower, the lender must register with the local foreign exchange bureau where the enterprise is registered. Registered overseas loans must be used within two years; any unused portion after two years will automatically expire.

The “Notice” clarifies that domestic banks and enterprises handling overseas loans are responsible for fund management, specific situation reporting, and data submission. Local branches of the People’s Bank of China and foreign exchange bureaus should strengthen statistics and monitoring, conduct non-physical and on-site inspections as needed, and effectively prevent cross-border capital flow risks.

Wang Zhiyi believes that while the document generally supports the business, it does not necessarily make operations easier. In fact, subsequent bank practices, business guidelines, and local standards are likely to be further detailed. Enterprises will need to provide more comprehensive explanations on why they are making loans, the source of funds, the destination, the relationship with the borrower, and whether it aligns with genuine business needs. In other words, while the quota is relaxed, the documentation and compliance requirements may increase.

“On one hand, as enterprises ‘go global’ into deeper waters, overseas lending has shifted from an auxiliary tool to an important means of internal capital transfer and overseas financing substitution, even partially replacing ODI. The demand has indeed increased significantly. On the other hand, such activities can also become potential channels for capital outflows and arbitrage tools, and the existing fragmented regulations and inconsistent standards make it difficult for regulators to fully monitor risks,” Wang said.

He believes that this new regulation, through integration of foreign currency and RMB management, registration and validity periods, source and use restrictions, and accountability for lenders and operators, systematically clarifies and standardizes the existing framework. Essentially, it recognizes legitimate needs while bringing cross-border capital flows back into a controllable scope.

Officials from the People’s Bank of China and the State Administration of Foreign Exchange stated that the “Notice” mainly regulates new overseas lending by domestic enterprises. For existing overseas loans that are still within registration validity and do not involve registration changes, extensions, or cancellations, enterprises can continue to operate based on the original registration information. A transition period is reserved to facilitate the connection between existing and new business activities.