Financial Times:

The problems involving onshore guarantee for offshore loans drew considerable attention last year. Do you think the problem is no longer troubling, or will it affect China’s forex policies?

Wang Chunying:

The onshore guarantee for offshore loans is a practice in capital management. After the reform of cross-border guarantees in 2014, it developed rapidly, playing a positive role in lowering costs, diversifying financing channels and improving policies and environments for domestic enterprises involved in overseas financing and investment. 

However, recently, we noticed that there were subtle changes and new problems in the practice. I’ll give you some examples. First, the contract fulfillment rate is rising. Since 2016, both the amount and contract fulfillment rate of onshore guarantee for offshore loans provided by domestic banks and other financial institutions have expanded. Second, some enterprises are taking advantage of the practice to escape market supervision. Since the second half of 2016, relevant policies have been improved, but we discovered that some domestic institutions use the practice to escape domestic market supervision. Last but not least, some domestic banks didn’t have a strong sense of compliance. They did not examine carefully the authenticity of the information they were given, the prospects for contractors being able to fulfill the agreements and the financial backup that enables debtors to pay back their loans. Some banks only checked the information in a formalistic way. We have demanded they correct these wrong practices during the course of our inspections. 

In view of those problems, we have reiterated the responsibilities of the banks in handling relevant business. For example, they are required to confirm the qualifications of concerning parties, find out how the fund will be used, check the background regarding the transactions, ensure the primary source of payment, and evaluate if the contract can be fulfilled. They are also required to intensify the check of collateral, and establish a regular risk evaluation system for contract fulfillment. 

Generally speaking, we have asked the banks to be more responsible when examining the businesses concerned. However, we are not changing our policies. On the contrary, we will continue to support the practice among banks and other market entities. Thank you.

Xi Yanchun:

Thank you, Ms. Wang. That's all for today's press conference. Thank you all.

By Li Xiaohua, Chen Xia, Li Jingrong, Wu Jin, Huang Shan, Yuan Fang, Li Huiru, Zhang Rui, Zhang Liying, Zhang Jiaqi, Cui Can, Xu Lin, Wang Wei, He Shan, Layne Flower, Christopher Georgiou, Geoffrey Murray

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