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”), further supporting and regulating domestic enterprises’ outbound lending activities, which will take effect from April 20, 2026.

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

According to reports from Daily Economic News, compared to the previous draft for comments, the “Notice” has increased the macro prudential adjustment factor from 0.5 to 0.6, raising the overall limit of outbound loan balances to better meet the cross-border operational funding needs of enterprises.

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 by 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, Director of the Cross-Border Financial Research Institute, in an interview with 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 amounts, interest rates, terms, and purposes.

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 certain conditions regarding registration date and operational compliance.

Regarding loan limits, the “Notice” specifies that the maximum outbound loan balance is linked to the enterprise’s equity, calculated as the most recent audited equity multiplied by the macro prudential adjustment factor.

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

Wang Zhiyi told Daily Economic News, “Raising the macro prudential adjustment factor from 0.5 to 0.6 directly increases the maximum outbound loan balance for enterprises. For companies with overseas subsidiaries, projects, or regional fund transfer needs, domestic funding support for overseas operations has become more feasible, especially benefiting manufacturing exports, cross-border trade, and overseas construction enterprises.”

“Outbound financing substitution effects will become more apparent,” Wang added. For some enterprises facing high financing costs, insufficient credit, or unfavorable local financing conditions abroad, support from the 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 previously planned through ODI (Overseas Direct Investment).

It is also noteworthy that the “Notice” emphasizes the use of the local currency first, setting currency conversion factors to encourage the use of RMB for outbound loans.

Specifically, the outbound loan balance = the sum of the lender’s foreign currency and RMB outbound loan balances + the foreign currency balance multiplied by the currency conversion factor, which is set at 0.5.

Officials from the People’s Bank of China and the State Administration of Foreign Exchange stated 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 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 Related to Outbound Loans by Domestic Enterprises” (Hui Fa [2009] No. 24), the “Notice on Further Clarifying Matters Related to RMB Outbound Loans for 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 framework for both RMB and foreign currency outbound loans is similar, 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 terms within five 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). Typically, extensions should not exceed once per loan.

Furthermore, after signing an outbound loan agreement, the lender must register with the local foreign exchange bureau before disbursing funds. Registered outbound loan amounts must be used within two years; any unexchanged funds after this period 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 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 outbound loans, it does not necessarily make the business easier. In fact, subsequent banking practices, business guidelines, and local standards are likely to be further detailed. Enterprises will need to provide more comprehensive explanations about why they are making loans, the source of funds, the destination, the relationship with the borrower, and whether it aligns with genuine operational 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 substituting 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 RMB and foreign currency 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 acknowledge 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. The document also reserves a transition period for implementation to facilitate the connection between existing and new activities.