全球法律实务指南：银行与融资2023

CHINA

LawandPractice

Contributedby:

MaFeng,LVYinghao,Xiaoxue(Stella)WangandQiuLiang

King&WoodMallesons

Contents

1.LoanMarketoverviewp.6

1.1TheRegulatoryEnvironmentandEconomicBackgroundp.6

1.2ImpactoftheUkraineWarp.6

1.3TheHigh-YieldMarketp.7

1.4AlternativeCreditProvidersp.7

1.5BankingandFinanceTechniquesp.7

1.6ESG/Sustainability-LinkedLendingp.7

2.Authorisationp.8

2.1ProvidingFinancingtoaCompanyp.8

3.StructuringandDocumentationp.8

3.1RestrictionsonForeignLendersProvidingLoansp.8

3.2RestrictionsonForeignLendersReceivingSecurityp.8

3.3RestrictionsandControlsonForeignCurrencyExchangep.8

3.4RestrictionsontheBorrower’sUseofProceedsp.9

3.5AgentandTrustConceptsp.9

3.6LoanTransferMechanismsp.9

3.7DebtBuy-Backp.9

3.8PublicAcquisitionFinancep.9

3.9RecentLegalandCommercialDevelopmentsp.10

3.10UsuryLawsp.10

3.11DisclosureRequirementsp.10

4.Taxp.11

4.1WithholdingTaxp.11

4.2otherTaxes,Duties,ChargesorTaxConsiderationsp.11

4.3ForeignLendersorNon-moneyCentreBankLendersp.11

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5.GuaranteesandSecurityp.11

5.1AssetsandFormsofSecurityp.11

5.2FloatingChargesand/orSimilarSecurityInterestsp.13

5.3Downstream,UpstreamandCross-StreamGuaranteesp.13

5.4RestrictionsontheTargetp.14

5.5otherRestrictionsp.14

5.6ReleaseofTypicalFormsofSecurityp.14

5.7RulesGoverningthePriorityofCompetingSecurityInterestsp.15

5.8PrimingLiensp.15

6.Enforcementp.16

6.1EnforcementofCollateralbySecuredLendersp.16

6.2ForeignLawandJurisdictionp.16

6.3ForeignCourtJudgmentsp.17

6.4AForeignLender’sAbilitytoEnforceItsRightsp.17

7.BankruptcyandInsolvencyp.18

7.1ImpactofInsolvencyProcessesp.18

7.2WaterfallofPaymentsp.18

7.3LengthofInsolvencyProcessandRecoveriesp.19

7.4RescueorReorganisationProceduresotherThanInsolvencyp.19

7.5RiskAreasforLendersp.19

8.ProjectFinancep.19

8.1RecentProjectFinanceActivityp.19

8.2Public-PrivatePartnershipTransactionsp.20

8.3GoverningLawp.20

8.4Foreignownershipp.21

8.5StructuringDealsp.21

8.6CommonFinancingSourcesandTypicalStructuresp.21

8.7NaturalResourcesp.22

8.8Environmental,HealthandSafetyLawsp.22

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Contributedby:MaFeng,LVYinghao,Xiaoxue(Stella)WangandQiuLiang,King&WoodMallesons

King&WoodMallesonshasanaward-winningandindependentlyrecognisedbankingandfi-nancelegalteam,whichisactiveinfindinginnovativefinancesolutionsforthemarket’smostcomplexandsophisticatedtransactions.

Theteamofalmost30partnersandmorethan130associatesisattheforefrontofthishighlyevolvingmarket,handlingbankingandfinancetransactionsacrossGreaterChinaandprovid-ingclientswiththelatestindustryinsightsandknow-how.Itofferscomprehensivelegalservic-

esacrossthefullspectrumoffinancialproducts,includingaircraft/vesselandotherassetfinanc-ing/leasing,projectfinancing,M&Afinancing,tradefinance,realestatefinancing,pre-IPOandprivatisationfinancing,syndicatedloans,debtcapitalmarkets,asset-backedsecuritisa-tionandstructuredfinance,non-performingas-setsaleandpurchase,debtrestructuring(outofcourt),derivatives,fintech,bankcardclearingandthird-partypayment.

Authors

MaFengisapartneratKing&

WoodMallesons.MaFeng

specialisesinbanking,domesticandinternationallending,projectfinancing,M&Afinancing,assetfinancingandleasing,and

establishmentandriskmitigationoffinancial

institutions.MaFengprovidesafullrangeof

servicestodomesticandoverseaslessors,

financiersandairlinesinfinancingandleasingofaircraft,shipsandequipment.MaFengalsorepresentsclientsininvestmentsinand

establishmentofvariousfinancialinstitutionsincludingcommercialbanks,financialleasingcompanies,andautofinancingcompanies.

Withextensiveexperiencewithfinancialinstitutions,MaFengassistsfinancial

institutionsinformulatingandimplementingtargetedriskmitigationsolutionstoexistingandpotentialchallenges,andimprovingtheirinternalgovernance.

LVYinghaoisapartneratKing&WoodMallesons.Yinghao

specialisesinbankingandfinanceandrepresents

internationalandChinese

commercialbanks,investmentbanks,investmentfundsandindustrial

businessesinawidevarietyoffinancing

transactions,withaparticularfocusonprojectfinancing,acquisitionfinance,tradefinance

andassetfinance.Yinghaohasactedfor

clientsintransactionsacrossmainlandChina,HongKong,SoutheastAsia,Africa,Australia,EuropeandLatinAmerica,wheretheprojectsinvolveminerals,energy,power,infrastructuremanufacturing,agriculture,hospitalityand

informationtechnologysectors.Hisextensiveexperienceandinnovativeexpertisehavewonhimwideacclaimfromhisclients.

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Xiaoxue(Stella)Wangisa

partneratKing&Wood

Mallesons.Xiaoxuespecialisesinbankingandfinanceandhasprovidedall-roundlegalservicesformanydomesticandforeign-

fundedbanksandotherfinancialinstitutions,includingregulatoryadviceandfinancing

transactions,suchassyndicatedloans,realestatefinancing,structuredtradefinancing,

pre-listingfinancing,andprivatisation

financing.Xiaoxuehasalsoactedforprivate

equityfunds,realestatefunds,multinational

corporations,andstate-ownedenterprisesontheirM&Afinancingtransactions.Xiaoxuealsohasextensiveexperienceinprovidinglegalandregulatoryadvicetoforeigncreditfundsand

assetmanagementcompanies.Shehas

advisedanumberofforeigninstitutionsontheirdebtorequityinvestmentinChinaviaQFII,CIBMDirect,QFLPchannel,etc.

QiuLiangisapartneratKing&WoodMallesons.QiuLiang

specialisesinbankingand

finance,focusingongeneralbankingbusiness,project

financing,M&Afinancing,

structuredfinancing,realestatefinancing,

disposalandrestructuringofnon-performing

assets,tradefinancing,domesticand

internationalsyndicatedloans,assetfinancing,financialleasing,foreignexchangeand

financialderivativesetc.QiuLianghas

representeddomesticandinternationalbanks,syndicates,state-ownedenterprises,joint

ventures,projectcompaniesandotherclientsinanumberofprojectfinancingsand“BeltandRoad”projects,involvingindustriesincluding

windpower,thermalpower,photovoltaics,mining,andmanufacturing.

King&WoodMallesons

18thFloor

EastTower

WorldFinancialCenter

No.1DongsanhuanZhonglu

ChaoyangDistrict,Beijing100020

P.R.China

Tel:+861058785588

Fax:+861058785566

Email:markets@

Web:/zh/cn

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1.LoanMarketoverview

1.1TheRegulatoryEnvironmentandEconomicBackground

TheNationalDevelopmentandReformCommis-sionofthePRC(NDRC)publishedtheAdmin-istrativeMeasuresfortheReviewandRegistra-tionofMediumandLong-TermForeignDebtofEnterprises(企业中长期外债审核登记管理办法)(FaGaiLing[2023]No56)on5January2023(the“Measures”).Comparedwiththepreviouscir-cularpublishedbytheNDRCin2015,thenewMeasuresstrengthentherequirementsonfor-eigndebtby,interalia:

•introducingtheconceptof“indirectforeign

debt”whichencompassesround-chipcom-panieswhosemainassetsarelocatedonthemainland;thisraisesquestionsaboutwhetherforeignfundmanagerswouldrequireNDRC

approvalforborrowingoffshoretoinvestinmainlandassets;and

•stipulatingathree-monthperiodforNDRC

review,contingentonsatisfactoryapplicationdocumentation;asNDRCapprovalismanda-torybeforethefirstdrawdown,timinghas

emergedasasignificantconcern,particularlyforrefinancingdeals,sopartiesinvolved

shouldfactorthisdurationintotheirfinancial

planning.

China’srealestatemarkethasnotrecoveredasexpected.Althoughexistingfinancialmeasuresappearfavourableonthesurface,theydispro-portionatelybenefittop-tierrealestatefirms.Consequently,thebroaderfinancingenviron-mentfortherealestatesectorremainsdecid-edlychallenging.Moreover,severalrealestateenterprisesareonthebrinkofdelisting,exacer-batingaviciouscyclecausedbyalackofmar-ketconfidenceandcashflowdifficulties.Againstthebackdropofongoingindustryrisksandwith

marketconfidencenotyetfullyrestored,themajorityofprivaterealestateenterprisesstillfacechallengesregardingdifficultandexpensivefinancing,whichremaintobeaddressed.

Inaglobalcontext,theU.S.FederalReservehasrepeatedlyincreasedthedollarinterestrateoverthepastyear.Incontrast,thePeople’sBankofChinahasbeenactivelyreducingtheRMBinterestratetostimulatethedomesticecon-omy.Consequently,therehasbeenanotableshiftawayfromoffshorefinancinginfavourofonshoreRMBloans.

1.2ImpactoftheUkraineWar

Inloantransactions,specificsituations(suchasinvolvementinsanctionedindustriesorthepossibilityofindividualscontrollingpartiesonsanctionlists)aregivenheightenedattention.Additionalduediligenceisoftenconductedtoensurethatpotentialrisksassociatedwithrelevanttransactionsarefullyidentifiedandassessed.Lendersshallalsopaycloseratten-tiontosanction-relatedrepresentationsandwarrantiesclauseswithinloandocuments.

TheUkrainewarisalsohavinganimpactoncurrencyexchangerates,especiallyforcoun-triesdirectlyinvolvedinorwithsignificanteco-nomicexposuretotheconflict.Fluctuationsinexchangeratescaninfluencethetermsandcostsofloans,especiallyforentitiesdealingwithforeigncurrency-denominateddebt.

Duringperiodsofheightenedgeopoliticalten-sion,lendersmightbecomemoreselectiveinapprovingloans.Thiscouldresultinreducedcreditavailabilityforbusinessesandindividuals.Lendersmayprioritiseloanswithlowerdefaultriskorcollateralisedassets.

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1.3TheHigh-YieldMarket

WiththebouncebackofthePRCeconomy,sev-eralPRC-incorporatedcompanieshavereturnedtothebondmarketandcontinuetosellsuccess-fuldealsindifferentcurrencies.Whilsthigh-yielddebtissueshaveyettobecomeavitalalterna-tivefinancingsourcewithinthedomesticPRCmarket,theoverseasmarkets(includingHongKong)continuetoseerobustdemandforPRCorPRC-sponsoredissues.

1.4AlternativeCreditProviders

Thealternativecreditindustryoffersalotofopportunitiesbutisalsosubjecttomorestrin-gentsupervisioninthePRC,whichmaycon-tinueforarelativelylongtime.Forexample,theregulatoryauthoritieshaveintroducedaseriesofpoliciestoencouragethedevelopmentofconsumerfinanceinthepastfewyears.Favour-ablepoliciessuchasloweringthecoverageratiorequirementwilleffectivelyimprovecon-sumerfinancecompanies’profitabilityandriskmitigationcapabilities,andallowingconsumerfinancecompaniestocarryoutthetransferofcreditincomerightsatthebankingcreditassettransferregistrationcentrewillhelpthemtofur-therexpandfinancingchannelsandbusinessvolume.

Asimilartrendhasbeenobservedindiffer-entkindsofalternativecreditindustries.Theincreaseinfinancingdemandsofcompaniesonthesupplychainstimulatesnotonlybanksgrantingregularloans,butalsofactoringcom-paniesfocusingonsupplychainfinancing.Inthecontextofthecountry’semphasisoninternalcirculation,thedevelopmentofthealternativecreditindustrycaneffectivelystimulatedomes-ticdemand.Thefavourableregulatorypolicieshavegreatlyhelpedtobuildupconfidenceintheindustry.

Severalcreditfundsandotherkindsofalterna-tivecreditprovidershavealsoparticipatedinthedirectforeigndebttobegrantedtocompanieslocatedinChina,orinvestedinthenon-perform-ingloanmarket.

1.5BankingandFinanceTechniques

FollowingtheCOVID-19pandemic,bothbor-rowersandlendersnowtendtousemorecom-prehensiveformsoftermsheetsorcommitmentletterstoavoiddisputesorargumentsduringthedocumentationstage.ComparedtotheperiodpriortotheCOVID-19pandemic,borrowersandlendersnowhaveadeeperunderstandingoftheestablishmentandapplicationofthelevelofconsentrequiredforspecificmatters,graceperi-odsusedinundertakingsandeventofdefaultclauses,forcemajeureandothersimilarcarve-outclauses.

WiththeCivilCodeofthePRCcomingintoforceatthebeginningof2021,officiallyconfirmingthesecuritynatureofnon-standardsecurity(suchasassignmentofrightsorsubordinationofinter-companyloans),thereisnowmoreflexibilityforrelevantpartiestonegotiatethecreditsupportarrangementandtobemorecreativeinthisarea.

1.6ESG/Sustainability-LinkedLending

ThePRCauthorityissteppingupeffortstopro-motethedevelopmentofgreenloans.Thegreenfinanceguidelinesforthebankingandinsuranceindustrieshavebeenissued,requiringbanksandinsurersto:

•increasesupportforthegreen,low-carbonandcirculareconomy;

•includeESGrequirementsintotheirmanage-mentprocessesandcomprehensiverisk

managementsystems;

•strengthenESGdisclosures;and

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•improverelevantpolicies,mechanismsandprocessmanagement.

Meanwhile,theregulatorybodyisactivelyfos-teringproductinnovationbyadvocatingtheexpansionofgreenloaninitiatives.Additionally,theauthorityisinclinedtosteerlocallenderstowardsaugmentingtheirallocationofresourcesforgreenloans.

Drivenbypolicyencouragement,PRCbanksareactivelyseizingtheopportunitiespresentedbythedevelopmentofgreenfinance,whichhasbecomeanewgrowthpointforthem.LookingattheannualreportsofvariousPRCbanks,itisevidentthatgreenloansareexperiencingrapidgrowth,withgrowthratesexceeding30%,becomingacommontrend.Inadditiontothehighgrowthofgreenloans,banksarealsointro-ducinginnovativegreenfinancialproductsandservices.Simultaneously,banksarecompre-hensivelyadvancingthedevelopmentofgreenfinanceintermsoforganisationalstructure,pol-icyframeworks,andotheraspects.

2.Authorisation

2.1ProvidingFinancingtoaCompany

Anyentity(includingbanksandnon-banks)mayprovideloanstoanothercompanyinthePRC.However,carryingouta“lendingbusi-ness”(ie,providingloansonaregularbasis)inthePRCisrestrictedtofinancialinstitutionsorquasi-financialinstitutionswithlendinglicencesgrantedbytherelevantfinancialsectorregu-lator(eg,banks,micro-lendingcompanies).Itoftenrequiresspecificcase-basedanalysistodeterminewhethersomeoneisrunningtheriskofconductinga“lendingbusiness”withouttheappropriatelicence.

3.StructuringandDocumentation

3.1RestrictionsonForeignLendersProvidingLoans

Aforeignlenderwhomakesacross-borderloantoaPRCcompanyisnotrequiredtobelicensedinthePRC.However,itisworthnotingthat:

•aPRCcompanythatintendstoborrowloansfromaforeignlendermusthaveasufficientquotaforborrowingloansfromforeignlend-ers(theso-calledforeigndebtquota);and

•theloansborrowedbyaPRCcompanyfromanyforeignlendershallbesubjecttoregistra-tionwiththeStateAdministrationofForeignExchangeofthePRC(SAFE)and(ifthetenorofsuchloansismorethanoneyear)registra-tionwiththeNDRC.

onarelatednote,thePeople’sBankofChina(PBOC)andSAFEjointlypublishedaregulationinFebruary2022togovernoffshorelendingpro-videdbyPRCbankstooffshoreentities,whichimposesaseriesofrestrictionsonlendinglimits,loanpurposes,eligibleborrowingentities,anddatareportingrequirements,etc.

3.2RestrictionsonForeignLendersReceivingSecurity

Therearenospecificrestrictionsonthereceiv-ingofsecurityorguaranteestoforeignlenders.However,anysecurityorguaranteesgrantedbyaPRCcompanytoforeignlenderswhichistosecuretheliabilitiesofadebtorincorporatedororganisedoutsidethePRC(commonlyknownas“NeiBaoWaiDai”)shallberegisteredwithSAFE.

3.3RestrictionsandControlsonForeignCurrencyExchange

TherearerestrictionsandcontrolsonforeigncurrencyexchangeinthePRC.ThePBOCandSAFEarethemainauthoritiesinchargeoffor-

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eignexchangecontrolsinthePRC.Generally,foreignexchangeactivitiesinthePRCaredivid-edintotwocategories,namelycurrentaccountactivitiesandcapitalaccountactivities.

Foreignexchangetransactionsrelatingtocapi-talaccountactivities(eg,borrowingfrom,andgrantingofsecurityorguaranteesto,foreignlenders)aremoreheavilyregulatedandmorestrictlycontrolledthanthoserelatingtocurrentaccountactivitiesandshallgenerallybesubjecttoapprovalbyorregistration/filingwithSAFE.

3.4RestrictionsontheBorrower’sUseof

Proceeds

Generally,theproceedsfromloansordebtsecu-ritiescouldbeusedforvariouspurposes,includ-ingbutnotlimitedtoinvestmentinfixedassets,workingcapitalpurposesandacquisitions.Thatsaid,theproceedsfromloansordebtsecuritiesborrowedorissuedbyaPRCcompanyoutsidethePRCshallinprinciplebeusedforthepur-posesfallingwithinthebusinessscopeofsuchPRCcompanyregisteredwiththeStateAdmin-istrationforMarketRegulationofthePRC.

3.5AgentandTrustConcepts

TheconceptofagentisrecognisedunderPRClaw,pursuanttowhichtheagentmayactforandonbehalfoftheprincipal(s).TheconceptoftrustunderthePRClaw(whichmeansthatthesettlerentrustshis/her/itspropertyrightstothetrusteeandallowsthetrusteeto,accordingtothewillofthesettlerandinthenameofthetrustee,admin-isterordisposeofsuchpropertyintheinterestsofabeneficiaryorforanyintendedpurposes)isnotapplicabletotheholdingofsecuritybythesecurityagentforandonbehalfofthelendersandthereforeisnotcommonlyusedintheloanmarket.

3.6LoanTransferMechanisms

Aloantransferisessentiallythetransferofcon-tractualrightsunderPRClawrequiredtoeffectsuchtransfer.Ingeneral:

•aloantransferwillbecomeeffectivebetweenthetransferorandthetransfereefromthe

dateoftheexecutionandcompletionoftheloantransferbetweenthesetwoparties;

•oncetheloanistransferred,thebenefitoftheassociatedsecurityorguaranteesshallbe

automaticallytransferredtogetherwiththeloan;and

•theloantransferwillbecomeeffectiveagainsttherelevantborrower/securityprovider/guar-antorasfromthedateonwhichsuchbor-

rower/securityprovider/guarantorisnotifiedofsuchloantransfer.

Thetransferofloansisalsosubjecttocertainregulatoryrequirements(eg,partialtransferofaloanbybanksiscurrentlynotpermitted)andfor-eignexchangecontrol(eg,aPRClendermaynottransfertheloansmadetoaPRCcompanytoaforeignlenderwithouttheapprovalofSAFE).

3.7DebtBuy-Back

PRClawdoesnotprohibitaborrowerorsponsorfrombuyingbackdebt.Debtbuy-backsaresub-jecttotheregulatoryrequirementsandforeignexchangecontrolonloantransfers.Contractualrestrictionsareoftenputinplacewherethebuy-backispartialonly.

3.8PublicAcquisitionFinance

Inthecaseoftheacquisitionofacompanylist-edinthePRC,thefinancialconsultantofthebuyerisrequiredbyregulatorstoensurethatthebuyerhasthecapabilitytoperformitsobli-gationsundertheacquisitiontransaction,butthereisnoPRClaw,regulationorruleregarding“certainfunds”withrespecttotheloanfacility

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usedtofinancethepublicacquisitionfinancetransactions.Thereisalsonouniformstand-ardregardingthe“certainfunds”provisionsintheacquisitionfinancetransactionsinthePRC.The“certainfunds”provisionscouldbeagreedbetweentheborrowerandlenderbythemselves.Inpractice,loandocumentswilloftenincludecertainfundsprovisionswhicharecomparabletothosetobefoundinthedocumentationofaninternationalacquisitionfinancetransaction.

3.9RecentLegalandCommercialDevelopments

FollowingthepromulgationoftheNDRCMeas-uresasmentionedabove,fromthelegaldocu-mentationperspective,weshouldpayattentiontotheupdateoftheterms(including,withoutlimitation,definitions,representationsandwar-ranties,undertakings,conditionsprecedentandconditionssubsequent)ofthefacilityagree-ments.AccordingtotheMeasures,lenderswillrequirethatborrowersobtainaRegistrationCer-tificateasaconditionprecedentfordrawdown,

andwillimposemorespecificobligationstoensureborrowers’compliancewiththeMeas-ures.

Afteradecadeofpreparation,theLIBORtransi-tionhasentereditsfinalstage.TheendofJune2023markedthefinalmajormilestoneintheLIBORtransitionwiththeendoftheremainingUSDLIBORpanel.Alargenumberofloanagree-mentsthatusedtoapplyLIBORhavealsomodi-fiedtheirinterestratebenchmarksintheformofamendmentandsupplementalagreements.

3.10UsuryLaws

UnderPRClaw,therateofinterestthatcanbechargedbythelenderthatisnotafinancialintui-tionorquasi-financialinstitutionwithalendinglicenceshallnotexceedfourtimestheone-yearLoanPrimeRateprevailingasofthedateofthe

loanagreement.Thereisnolaworotherrulelim-itingtheamountofinterestthatcanbechargedbyfinancialinstitutionsorquasi-financialinstitu-tionswithalendinglicence.

3.11DisclosureRequirements

ThePRChasarangeoflawsandregulationsgoverningfinancialcontractsandtheirdisclo-sure,includingbutnotlimitedto:

SecuritiesLaw

TheSecuritiesLawofthePeople’sRepublicofChina(中华人民共和国证券法)governstheissuanceandtradingofsecuritiesinthePRC.Itincludesprovisionsrelatedtodisclosurerequirementsforpublicly-tradedcompanies.Thesecompaniesarerequiredtodisclosefinancialinformation,businessoperations,risks,andotherrelevantinformationtoensuretransparencyforinvestors.

StockExchanges

CompanieslistedonChinesestockexchanges,suchastheShanghaiStockExchange(SSE)andtheShenzhenStockExchange(SZSE),mustadheretospecificdisclosurerequirementssetbytheseexchanges.Theserequirementsincluderegularfinancialreporting,announce-mentsofmajorevents,andmore.

InterbankandOTCMarkets

InChina,therearealsointerbankandover-the-counter(OTC)marketswherefinancialproductsaretraded.Dependingonthetypeoffinancialcontractandmarket,theremaybespecificdisclosurerequirementssetbytheregulatoryauthorities.

BankingandInsurance

FinancialcontractsinthebankingandinsurancesectorsaresubjecttoregulationsfromChina’sNationalFinancialRegulatoryAdministration(NFRA).Theseregulationsincludeprovisions

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fordisclosureoffinancialinformation,termsandconditionsoffinancialproducts,andrisk-relatedinformation.

onlineFinance

Inrecentyears,Chinahasalsoseenagrowthinonlinefinanceandfintechplatforms.Theseplat-formsaresubjecttospecificregulationsaimedatensuringtransparency,consumerprotection,andpreventingfinancialrisks.

ForeignInvestment

ForeigninvestorsengaginginfinancialcontractsinChinashouldalsobeawareofanyspecificregulationsanddisclosurerequirementsthatapplytotheirinvestments.

Anti-MoneyLaundering(AML)Regulations

FinancialinstitutionsoperatinginthePRCarealsosubjecttoAMLregulations,whichmayincludedisclosurerequirementsrelatedtosuspi-cioustransactionsandcustomerduediligence.

4.Tax

4.1WithholdingTax

NowithholdingtaxispayableinthePRCinrespectofpaymentsofprincipal,interestorotherpaymentsmadebyaPRCcompanytolendersincorporatedororganisedinthePRC.

However,PRCincometax(currentlysetatrate10%),valueaddedtax(currentlysetatrate6%)andsurchargesareapplicabletopaymentofinterestandfeesmadebyaPRCcompanytonon-PRCresidentlenders,subjecttoadjust-mentbyapplicabletreaty.SuchtaxeswouldbewithheldbythePRCcompanyactingastheobligatorywithholderonthepaymentstothenon-PRCresidentlenders.

4.2otherTaxes,Duties,ChargesorTaxConsiderations

InthecaseofloansextendedbyaPRCresidentlendertoaPRCcompany,valueaddedtax(cur-rentlysetat6%)alongwithassociatedsurcharg-eswillbeleviedoninterestandfeepayments,andthePRCresidentlenderisobligatedtopayPRCincometax(currentlysetat25%)onanannualbasisforitsprofits.ConcerninginterestandfeepaymentsmadebyaPRCcompanytonon-PRCresidentlenders,thetaxesapplybywayofwithholding.

NostampdutyortaxationofasimilarnatureispayableinthePRCinrespectoftheexecutionofsecuritydocumentsorguarantees.Stampdutyinrespectofloanagreementsisrequiredtobepaidbytheborrowerandthelenderrespectivelyattherateof0.005%oftheloanamount(totheextentthatsuchlenderisafinancialinstitution).

4.3ForeignLendersorNon-moneyCentreBankLenders

Assetoutin4.1WithholdingTax,interestandfeespaidtof