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.

Everyday Economic News Reporter | Li Yuwen Everyday Economic News Editor | 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’ Outbound Loans” (hereinafter referred to as the “Notice”), which further supports and standardizes domestic enterprises’ outbound lending activities and will be implemented from April 20, 2026.

The “Notice” clarifies that the maximum balance of outbound loans for domestic enterprises is linked to their equity, supporting domestic enterprises to apply for outbound loans within the limit. Specifically, the maximum outbound loan balance = the most recent audited equity of the lender × macro prudential adjustment factor.

The Daily Economic News reporter noted that compared to the previous draft for comments, the “Notice” increased the macro prudential adjustment factor from 0.5 to 0.6, overall raising the outbound loan balance limit to better meet enterprises’ cross-border operational funding needs.

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

“The issuance of the Measures for the Administration of Outbound Loans for Domestic Enterprises is essentially a response to the changing ways enterprises operate cross-border funds and the requirements of macro prudential management,” said Wang Zhiyi, President of the Cross-Border Financial Research Institute, in an interview with the Daily Economic News.

Increase in macro prudential adjustment factor amplifies enterprises’ outbound loan limits

Outbound loans for domestic enterprises refer to the behavior where non-financial enterprises within China provide funds to qualified foreign enterprises across borders according to contractual agreements on 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 loan limits, the “Notice” specifies that the maximum outbound loan balance is linked to the enterprise’s equity, i.e., maximum outbound loan balance = the most recent audited equity of the lender × macro prudential adjustment factor.

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

Wang Zhiyi told the Daily Economic News that “raising the macro prudential adjustment factor from 0.5 to 0.6 directly increases the maximum outbound loan limit for enterprises. For companies with overseas subsidiaries, projects, or regional fund transfer needs, the support from domestic funds for overseas operations is greater, which is a real benefit for manufacturing companies going abroad, cross-border trade, and overseas construction enterprises.”

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

It is also worth noting that the “Notice” emphasizes the use of the domestic currency first, setting currency conversion factors and encouraging the use of RMB for outbound loans.

Specifically, the outbound loan balance = sum of lender’s foreign currency and RMB outbound loan balances + sum of lender’s foreign currency outbound loan 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 macro regulation needs to maintain orderly cross-border capital flows.

Unified management of RMB and foreign currency outbound loans for domestic enterprises

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

Currently, China’s management of outbound loans for domestic enterprises mainly relies on documents such as the “Notice on Foreign Exchange Management Issues Concerning Outbound Loans for Domestic Enterprises” (Huifa [2009] No. 24), the “Notice on Further Clarifying Matters Related to RMB Outbound Loans for Domestic Enterprises” (Yinfa [2016] No. 306), and the “Notice on Further Optimizing Cross-Border RMB Policies to Support Stable Foreign Trade and Foreign Investment” (Yinfa [2020] No. 330).

Overall, the regulatory framework for both domestic and foreign currency outbound loans is consistent, but there are differences in management requirements regarding funding sources, loan terms, and extension management. For example, previously, foreign exchange outbound loans had no strict requirement on the term (within 5 years), and funding sources could include domestic or foreign exchange loans, but RMB loans could not be debt-based.

Therefore, the “Notice” consolidates the management of RMB and foreign currency outbound loans, enabling enterprises to conduct these activities more efficiently under the same rules.

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 outbound loans and must not use personal funds or debt financing to provide funding sources.

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

Loan terms should follow commercial principles, generally between 6 months (inclusive) and 5 years (inclusive). In principle, extensions for the same outbound loan should not exceed once.

After signing the outbound loan agreement, before disbursing funds to the borrower, the lender must register with the local foreign exchange bureau branch in the registration country. The registered outbound loan amount should be used within 2 years (inclusive); any untransferred amount after 2 years will automatically expire.

The “Notice” clarifies that domestic banks and enterprises involved in outbound loans are responsible for fund management, specific situation reporting, and data submission. Local branches of the People’s Bank of China and the State Administration of Foreign Exchange should strengthen statistical monitoring, conduct off-site checks and on-site inspections as needed, and effectively prevent cross-border capital flow risks.

Wang Zhiyi believes that while the document generally supports the industry, it does not necessarily make business easier. In fact, subsequent bank operations, 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 has been relaxed, the documentation and compliance requirements may increase.

“On one hand, as enterprises ‘go global’ into deeper waters, outbound loans have shifted from auxiliary tools to important means of internal fund transfer and overseas financing replacement, even partially replacing ODI, with demand clearly rising. On the other hand, such activities can also become potential channels for capital outflows and arbitrage tools, and the existing fragmented system and inconsistent standards make comprehensive risk oversight difficult,” Wang said.

He added that the new regulations, through integration of foreign currency and RMB management, foreign exchange registration and validity, source and purpose restrictions, and responsibilities of lenders and agents, systematically clarify and standardize the existing framework. Essentially, they recognize 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 outbound loans for domestic enterprises. For existing outbound loans that are still within the registration validity period 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 banks and enterprises in managing both existing and new activities.