China has adjusted up the macro-prudent adjustment parameter in its macro-prudential management of cross-border financing to allow domestic enterprises to borrow more foreign debt on 11 March 2020. The previous macro-prudent adjustment parameter set by the People’s Bank of China was 1, which has be increased to 1.25 now.

1. The Change of Foreign Debt Management Mode for Chinese Enterprises
   
   Ordinary domestic Chinese enterprises have no foreign debt quota before 2016, whilst foreign invested enterprises can borrow foreign debt in an amount not exceeding the difference their approved and registered total investment amount and registered capital. On 29 April 2016, the People’s Bank of China issued the People’s Bank of China Circular on the nationwide Implementation of the Macro-prudential Management of Full-scale Cross-border Financing, which announced the nationwide implementation of the macro-prudential management mode for cross-border financing. Starting from 3 May 2016, enterprises (including both domestic enterprises and foreign invested enterprises, but excluding government financing platforms and real estate enterprises) with legal person status established in China can borrow from overseas and incur foreign debts based on their net assets.
   
   
2. The Foreign Debt Quota under the Macro-prudential Management Mode
   
   According to the Circular of the People's Bank of China on Matters relating to the Macro-prudential Management of Full-covered Cross-border Financing (Yin Fa [2017] No.9), the ceiling foreign debt quota of an enterprise = the net assets of the enterprise × the leverage rate of cross-border financing × the macro-prudential adjustment parameter.
   
   Currently, the leverage rate of cross-border financing for enterprises is 2, whilst the macro-prudential adjustment parameter for enterprises is 1.25. Therefore, the ceiling foreign debt quota for enterprises has been increased from 2 to 2.5 times their net assets after the adjustment of the macro-prudent adjustment parameter.
   
   
3. The Use of Foreign Debt
   
   The use of foreign debt by Chinese enterprises shall be subject to the negative list. As long as there is no violation of laws and regulations, the foreign debt can be used to pay the expenditures within the business scope of the enterprise. But foreign debt shall not be used for the construction or purchase of real estate that is not for operation purpose (except for real estate enterprises), shall not be used directly or indirectly for securities investment or other investment other than principal guaranteed bank investment products, shall not be used to offer loans to non-affiliated enterprises, except for the circumstances specified in the business scope.  
   
   
4. Selection of Management Mode by Foreign Invested Enterprises
   
   Foreign invested enterprises may choose to adopt either the investment gap mode or the macro-prudential management mode according to Yin Fa [2017] No.9. Once selected, no change shall be made arbitrarily. However, some areas (for example, the Guangdong-Hong Kong-Macao Greater Bay Area) have issued new regulations recently to allow foreign invested enterprises that have selected the investment gap mode to change to the macro-prudential management mode. The foreign invested enterprises registered in those areas may consider to change their foreign debt management mode if they can enjoy bigger foreign debt quota under the macro-prudential management mode.

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