On May 28, 2010, the People's Bank of China (“PBOC”) and the China Banking Regulatory Commission (“CBRC”) jointly issued a circular, titled Opinions on Providing Financial Services to Further Support Energy Saving and Emission Reduction and Closing-down of Backward Production Capacities (the “Circular”). The Circular requires commercial banks to curb lending to enterprises which consume high amounts of energy, those with high emissions, and industries with backward production facilities and over-capacity problems. This move is in line with the PRC State Council’s efforts to enhance energy saving, reduce emissions and close down backward production facilities. However, it remains to be seen whether commercial banks will implement the Circular in a strict manner, especially when they face problems generating revenue due to the Government crackdown on the real estate property bubble in China, which in the past has contributed a large portion of banks’ revenue.
The main contents of the Circular are as follows:
Commercial banks must strictly review loan applications from companies in high-energy-consuming and high-emission industries. Only the headquarters of commercial banks can determine whether to extend loans to finance capacity expansion of enterprises suffering from over-capacity, backward production facilities, high-energy-consumption or high emissions.
New credit may not be extended to any projects which do not comply with government energy-saving and pollution reduction policies.
By the end of June 2010, banks should conduct an overall review of loans to energy-intensive industries and report the results to the PBOC and CBRC.
Banks are encouraged to extend credit support to projects aimed at reducing energy consumption and pollution.
According to the Circular Guofa [2010] No. 7 issued by the PRC State Council, the aim to “close down backward production facilities” focuses on enterprises with small–scale production capacities or backward production techniques in the following industry sectors: Power; Coal; Coke; Ferrous Alloy; Steel & Iron; Non-ferrous Metal; Construction Materials; Light; and Textiles.
According to the Circular Guofa [2009] No. 38 issued by the PRC State Council, the following industries are currently identified as “industries with over-capacity problems”: Steel & Iron; Cement; Sheet Glass; Coal Chemicals; Polycrystalline Silicon; Wind Power Equipment; Electrolytic aluminium; Ship building; Soybean grinding; Large-sized forged pieces; Phosphate fertilizer; and Potassic fertilizer.
With the issue and implementation of the Circular, companies and industries with high-energy consumption, high pollution, backward production facilities and over-capacity problems may find it increasingly difficult to get loans from their banks.
For further information, please contact
Kevin Wang
Head of Banking and Finance Practice Area Group
CMS, China
T +86 21 6289 6363
E kevin.wang@cmslegal.cn
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