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Chapter III Promotion of Investment and Financing

Article 20 [Original Text]

Article 20 The relevant departments of the State Council shall, in accordance with their respective responsibilities, leverage the incentive and regulatory functions of monetary policy tools and macro-credit policies. In accordance with the principles of marketization and rule of law, they shall implement differentiated policies for financial institutions providing financial services to small and micro private economic entities, urging and guiding financial institutions to reasonably set tolerance levels for non-performing loans, establish and improve due diligence exemption mechanisms, enhance professional service capabilities, and improve the level of financial services provided to private economic entities.

[Interpretation of the Provision]

Legislative Background and Purpose: Difficulties in obtaining financing and high financing costs have long been prominent issues plaguing small and micro private enterprises. This provision aims to guide and incentivize financial institutions to increase financial support for small and micro private enterprises from a macro policy perspective.

Interpretation of the Provision: a. “Relevant departments of the State Council”: Primarily refers to the People's Bank of China, the National Financial Supervisory Administration (or its predecessor, the China Banking and Insurance Regulatory Commission), and the Ministry of Finance, among others. b. “Playing the incentive and regulatory role of monetary policy tools and macro-credit policies”: ● Monetary policy tools: Such as the reserve requirement ratio, re-lending, re-discounting, medium-term lending facility (MLF), and open market operations. These can be used to guide funds toward small and micro private enterprises through targeted reserve requirement cuts and structural monetary policy tools. ● Macro-credit policies: Such as credit allocation guidelines, risk weight adjustments, and capital adequacy requirements. c. “Market-oriented and rule-of-law principles”: Emphasize that policy guidance should respect market laws, avoid excessive administrative intervention, and ensure compliance with legal frameworks. d. “Implement differentiated policies for financial institutions providing financial services to small and micro private economic entities”: Allow or encourage positive incentives (such as lower reserve requirement ratios or priority access to re-lending) for financial institutions that effectively support small and micro private enterprises, while imposing constraints on those that do not. e. Urging and guiding financial institutions: ● “Reasonably setting tolerance levels for non-performing loans”: Allowing financial institutions to have a certain tolerance level for non-performing loan rates for small and micro enterprises to alleviate their concerns about lending. ● “Establishing and improving a due diligence exemption mechanism”: For loans to small and micro enterprises disbursed in accordance with prescribed procedures and standards, even if they become non-performing, credit officers who have acted with due diligence may be exempted from part or all of their liability. This is the key to addressing the “reluctance to lend” issue. ● “Enhance professional service capabilities”: Encourage financial institutions to establish dedicated departments for SMEs and private enterprises, develop specialized financial products, and optimize credit approval processes. f. “Improve the level of financial services provided to private economic entities”: This is the ultimate goal, including enhancing loan accessibility, reducing financing costs, and improving service efficiency.

【Relevant Regulations】

● The People's Bank of China Law of the People's Republic of China: This law stipulates the responsibilities of the People's Bank of China and monetary policy tools. ● The Banking Supervision Law of the People's Republic of China: This law stipulates the supervision of banking financial institutions. ● Policy documents issued by the State Council and financial management departments regarding alleviating the difficulties and high costs of financing for small and micro enterprises and financial support for the real economy.

【Practical Guidelines】

a. Small and medium-sized private enterprises: Should pay attention to national-level financial support policies for small and medium-sized enterprises, proactively engage with financial institutions, and understand financial products and services suitable for their needs. b. Financial institutions: ● Should actively respond to national policy directions and increase credit allocation to small and medium-sized private enterprises. ● Establish and improve internal due diligence exemption and non-performing loan tolerance management systems to motivate frontline credit officers. ● Innovate financial products and service models, such as developing supply chain finance and intellectual property pledge financing. c. Regulatory authorities: Strengthen policy effectiveness evaluations to ensure that incentive and constraint measures are effectively implemented, and dynamically adjust policies based on actual circumstances. d. Risk prevention: While emphasizing increased support, financial institutions should also prioritize risk prevention, adhere to prudent business principles, and strengthen risk identification and control.

Article 21 [Original Text]

Article 21 Banking financial institutions and other entities shall, in accordance with laws and regulations, accept collateral arrangements that meet the requirements of loan business and provide secured loans to private economic organizations using accounts receivable, warehouse receipts, equity, intellectual property rights, and other rights as collateral. All levels of people's governments and their relevant departments shall provide support and facilitate the registration, valuation, trading, circulation, and information sharing of movable property and rights pledges.

【Interpretation of the Provision】

Legislative Background and Purpose: Many private enterprises, especially small and medium-sized enterprises, lack traditional real estate collateral, leading to difficulties in obtaining financing. This provision aims to expand the scope of eligible collateral, promote movable property and rights pledge financing, and require the government to provide conveniences for related supporting services.

Article Interpretation: a. “Banking financial institutions, etc.”: Includes banks, trust companies, consumer finance companies, and other institutions engaged in lending activities. b. “Accept collateral methods that meet lending requirements”: Financial institutions should not be limited to real estate mortgages but should also accept other collateral methods (such as movable property mortgages, rights pledges, guarantees, etc.) that effectively cover loan risks. c. “Receivables, warehouse receipts, equity, intellectual property rights, and other rights pledge loans”: This lists the types of rights pledges that are important and feasible for private enterprises in practice. ● Receivables pledge: Enterprises pledge their legitimate receivables to financial institutions to obtain loans. ● Warehouse receipt pledge: Enterprises pledge their legitimate warehouse receipts (documents representing ownership of goods). ● Equity pledge: Company shareholders pledge their equity holdings in the company. ● Intellectual property pledge: Enterprises pledge the property rights of their intellectual property, such as patent rights, trademark rights, and copyrights. d. “All levels of people's governments and their relevant departments shall provide support and convenience for the registration, valuation, trading, circulation, and information sharing of movable property and rights pledges”: These are the key supporting measures for the smooth implementation of movable property and rights pledge financing. ● Registration: Establish a convenient and efficient unified registration and disclosure system for movable property and rights pledges (such as the People's Bank of China Credit Information Center's Unified Registration and Disclosure System for Movable Property Financing). ● Valuation: Cultivate professional asset appraisal institutions and establish a scientific valuation system to address the challenges of assessing the value of rights. ● Trading and Circulation: Establish and improve market mechanisms for the disposal and realization of pledged assets. ● Information Sharing: Promote the interconnectivity of relevant information to reduce information asymmetry.

【Relevant Regulations】

● The Civil Code of the People's Republic of China (Property Rights Section, Contract Section): Provides detailed provisions on mortgage rights and pledge rights (pledge of movable property and rights), serving as the fundamental legal basis for this article. ● The Measures for the Unified Registration of Movable Property and Rights Security: Standardizes the registration of movable property and rights security. ● The Measures for the Registration of Accounts Receivable Pledge. ● Guidelines on Intellectual Property Pledge Financing issued by the National Intellectual Property Administration and other departments. ● The Asset Valuation Law of the People's Republic of China: Regulates asset valuation activities.

【Practical Guidelines】

a. Financing Innovation for Private Enterprises: ● Private enterprises with high-quality accounts receivable, inventory (corresponding to warehouse receipts), equity, or valuable intellectual property should actively explore using these as collateral to apply for loans from financial institutions. ● Proactively understand the relevant registration and valuation processes. b. Business Expansion for Financial Institutions: ● Financial institutions should enhance their understanding of new collateral methods and risk assessment capabilities, and actively develop related businesses. ● Strengthen cooperation with appraisal institutions, registration institutions, and disposal platforms. c. Government Improvement of Supporting Measures: ● The government should vigorously promote a unified movable property and rights collateral registration system, simplify registration procedures, and reduce registration costs. ● Support the development of professional third-party appraisal institutions to enhance the credibility and efficiency of appraisals. ● Establish a trading and circulation platform for intangible assets such as intellectual property rights. d. Risk Warning: When engaging in rights pledge financing, enterprises should also pay attention to the terms of the pledge contract, clearly define the rights and obligations of both parties, and prevent the risk of the pledge right being exercised due to failure to repay on time.

Article 22 [Original Text]

Article 22 The state shall promote the establishment of a market-based risk-sharing mechanism for financing risks of private economic organizations, support banking financial institutions and financing guarantee institutions in expanding their business cooperation in an orderly manner, and jointly serve private economic organizations.

【Interpretation of the Provision】

Legislative Background and Purpose: Relying solely on banks is insufficient to fully address the financing risks faced by private enterprises, particularly small and medium-sized enterprises (SMEs). This provision aims to establish a multi-party risk-sharing mechanism, particularly leveraging the role of financing guarantee institutions, to分散 and reduce banks' credit risks, thereby enhancing their willingness and capacity to extend loans to private enterprises.

Article Interpretation: a. “Market-based risk-sharing mechanism”: Emphasizes that risk-sharing should follow market principles, with all participating parties assuming risks through market-based methods (such as contractual agreements or rate adjustments) based on their own risk tolerance and expected returns, rather than relying solely on government guarantees. b. “Financing guarantee institutions”: Refers to institutions legally established and engaged in financing guarantee business, including government-backed financing guarantee institutions and commercial financing guarantee institutions. They provide guarantees for enterprises' financing activities, and when enterprises are unable to repay their debts, the guarantee institutions assume the responsibility for repayment. c. “Supporting banking financial institutions and financing guarantee institutions to expand business cooperation in an orderly manner”: Encouraging banks and guarantee institutions to establish stable cooperative relationships (“bank-guarantee cooperation”), such as banks lowering entry thresholds, increasing loan amounts, or simplifying approval processes for loans guaranteed by qualified guarantee institutions. d. “Jointly serving private economic organizations”: The goal is to better meet the financing needs of private enterprises through bank-guarantee cooperation and other means.

【Relevant Regulations】

● The “Regulations on the Supervision and Administration of Financing Guarantee Companies” and its supporting systems: These regulations standardize the establishment, operation, and supervision of financing guarantee companies. ● Policy documents issued by the State Council and relevant departments regarding the strengthening of the government-backed financing guarantee system and the promotion of the development of the financing guarantee industry. ● Relevant provisions regarding financing guarantee funds or re-guarantee institutions established by local governments.

【Practical Guidelines】

a. Financing Options for Private Enterprises: ● Private enterprises with low credit ratings or insufficient collateral can actively seek guarantee support from financing guarantee institutions to increase their chances of obtaining bank loans. ● Understand the guarantee rates and counter-guarantee requirements of different guarantee institutions. b. Banking financial institutions: They should actively collaborate with well-qualified, risk-controlled financing guarantee institutions to innovate business models such as “guarantee upon loan approval” and “batch guarantee,” thereby expanding credit coverage for private enterprises. c. Financing guarantee institutions: ● They should focus on their core business, serving small and medium-sized enterprises (SMEs) and the “three rural areas” (agriculture, rural areas, and farmers) in inclusive finance sectors, particularly government-backed financing guarantee institutions, which should leverage their quasi-public product attributes. ● Continuously enhance risk identification, assessment, and management capabilities, and reasonably determine guarantee rates. d. Government role: ● The government should prioritize supporting the development of the government-backed financing guarantee system through capital injections, risk compensation, and business incentives to enhance its guarantee capacity and risk-bearing capabilities. ● Guide financing guarantee institutions to reduce guarantee fees and counter-guarantee requirements for private enterprises. e. Risk Sharing: Market-based risk-sharing mechanisms may also involve the introduction of insurance, trust, and industrial fund entities to form a diversified risk mitigation system. (To be continued)