Development and Reform Commissions of all provinces, autonomous regions, municipalities directly under the central government, and cities under separate planning; relevant industry regulatory authorities under the State Council:

Since the reform and opening-up policy was launched, China has achieved remarkable economic and social benefits from its projects financed by loans from international financial institutions (hereinafter referred to as “loan projects”). These projects have played an important role in promoting China’s economic and social development and in advancing reform and opening-up. In response to new situations and emerging issues that have arisen in the new era, and in accordance with relevant regulations such as the “Decision of the State Council on Reforming the Investment System” (Guofa [2004] No. 20) and the “Interim Measures of the National Development and Reform Commission on the Management of Investment Projects Financed by Loans from International Financial Institutions and Foreign Governments” (Order No. 28 of the National Development and Reform Commission), we hereby issue the following notice to continue making active, rational, and effective use of loans from international financial institutions, to meet the higher requirements imposed by China’s national economy’s need for both high-quality and rapid development in utilizing foreign investment, and to further enhance the scientific, standardized, and institutionalized nature of loan project planning, decision-making, and management, thereby genuinely improving the quality and efficiency of loan utilization:

1. Strengthen the planning and management of loans from international financial institutions, and rigorously ensure the quality of submitted project applications.

(1) Further strengthen the management of local and sector-specific loan planning. The Development and Reform Commissions of various regions and the industry regulatory authorities under the State Council shall, based on China’s national economic and social development plans, the national strategy for utilizing foreign investment, industrial policies, and key areas of development, and in conjunction with regional and sector-specific development plans, carefully consider the allocation and terms of loans from various sources of foreign funding. They should adhere to the principles of “self-reliance as the mainstay, highlighting key priorities, and making full use of available resources,” take a long-term perspective, ensure comprehensive coordination, emphasize regional and sector-specific characteristics, and diligently carry out the application process for candidate projects seeking loans from international financial institutions.

(2) Enhance the quality of submitted project proposals. Submitted project proposals must meet the depth required by the project proposal document, clearly defining the necessity of the project construction, the proposed location, construction objectives, construction scale, construction content, investment estimates, and funding-raising plan. Additionally, a preliminary analysis of the project’s economic and social benefits is required. At the same time, sufficient consideration should be given to the region’s capacity to repay foreign debt, its ability to secure domestic matching funds, and the organizational and implementation capabilities of the project entity. The proposal should reasonably specify the sources and amounts of foreign loans to be utilized for the project and clearly assign responsibility for loan repayment.

For projects involving local governments’ commitment to loan repayment or guarantee responsibilities, the local Development and Reform Commission shall, after consulting with relevant departments at the same level or obtaining approval from the local government, submit the applications upward.

(3) In addition to closely aligning with the key areas of industry development planning, projects submitted by the industry regulatory authorities under the State Council must also meet the following conditions:

1. The industry regulatory authority is responsible for repaying foreign loans or providing domestic matching funds;

2. Promotion of key industry technologies and new technologies;

3. The initiative has played a significant role in promoting industry reform and demonstrating innovative mechanisms.

For projects applying for loans where the local government assumes loan repayment or guarantee responsibilities and provides domestic matching funds, a written opinion from the local Development and Reform Commission and other relevant departments must be attached.

(4) Carry out loan planning and preparation work in an orderly manner to enhance work efficiency. The National Development and Reform Commission will, based on the annual work schedule for preparing loan plans, centrally accept project applications according to different loan sources. Specifically, the application period for World Bank loan projects is from January to February each year; the application period for Asian Development Bank loan projects is from July to August each year. Project applications for loans from other international financial institutions, such as the International Fund for Agricultural Development and the European Investment Bank, should be submitted promptly in accordance with the requirements set forth in our Commission’s notices.

(5) For projects included in the preliminary project list for loans from international financial institutions, local development and reform commissions and the relevant industry regulatory authorities under the State Council shall organize the project entities to carry out their work according to the loan amounts, construction contents, annual negotiation and signing schedules, and other details specified in the plan. Should any entity unilaterally alter the project’s construction content, or if there are substantial changes to the project’s construction content, or if the entity fails to effectively carry out preparatory work for the project, thereby affecting the project’s ability to proceed with negotiations and signing as scheduled, and fails to report such issues promptly and propose solutions, the National Development and Reform Commission will remove the affected projects from the preliminary loan project list when preparing the next loan plan.

II. Strictly manage the approval process for loan projects and enhance the quality of preparatory work conducted in the early stages of projects.

(6) After receiving the loan plan issued by the National Development and Reform Commission, the provincial development and reform commissions or the industry regulatory authorities under the State Council shall promptly notify the relevant departments and project entities. Based on the annual loan negotiation and signing schedule, and in conjunction with the loan institution’s project preparation procedures, they should as early as possible clarify the approval requirements and timelines for each project and actively collaborate with the relevant entities to expedite all preliminary preparatory work. They should also provide guidance on establishing and improving the institutions responsible for the preliminary preparation and implementation of projects; urge project entities to reach agreement with the lending institutions as soon as possible on work plans, clearly defining key tasks and requirements, and rationally scheduling the progress of preliminary work; develop plans for construction engineering, use of loan funds, and tendering and procurement activities; secure domestic matching funds; prepare project documents—including project proposals and feasibility study reports—that meet the required standards; and promptly complete such tasks as the environmental impact assessment report and land-use approval.

(7) Provincial Development and Reform Commissions shall earnestly fulfill their responsibilities by organizing qualified domestic consulting agencies and experts to conduct thorough research and feasibility studies on the necessity of loan-funded projects, project construction objectives, project scope, technical solutions, as well as the economic and financial benefits of the projects. They shall also, in light of the reasonable recommendations put forward by experts from foreign lending institutions during project identification and evaluation, optimize the project construction and loan utilization plans, ensure the implementation of all necessary construction conditions—including domestic matching funds—and establish sound loan repayment plans and assign clear repayment responsibilities. Furthermore, they shall strictly follow relevant national regulations to complete the procedures for project approval, ratification, and filing.

(8) Provincial Development and Reform Commissions must strictly control the approval process for projects, ensuring that project approvals, ratifications, and filings maintain their authority in both domestic and foreign-related work. They should complete the approval, ratification, and filing procedures in a timely manner, based on the project’s readiness and the requirements of engaging in foreign-related activities. For loan projects subject to an approval system, the project proposal should generally be approved after the foreign lending institution has completed project preparation and reached agreement with relevant domestic entities on the project’s framework plan; and the feasibility study report should be approved after the foreign lending institution has completed the project evaluation and reached agreement with domestic entities on such matters as the project’s construction content and the arrangement for the use of loan funds.

(9) Carefully prepare project funding application reports to enhance both quality and efficiency. Provincial Development and Reform Commissions and State Council industry regulators shall, in accordance with the requirements of National Development and Reform Commission Order No. 28, guide relevant project entities to meticulously prepare their project funding application reports, with particular emphasis on elaborating preliminary plans for the use of loan funds, loan repayment arrangements, and the prevention and management of foreign debt risks. In particular, the project construction content and the allocation of loan funds must be consistent with the approved project feasibility study report and the assessment report from the lending institution. Further strengthen the initial review of project funding application reports to improve both the quality of submissions and operational efficiency. After the approval of the project feasibility study report and prior to negotiations with foreign lending institutions, promptly submit the reviewed project funding application reports to the National Development and Reform Commission for approval.

(10) For loan projects whose feasibility study reports are approved by the National Development and Reform Commission, the prepared project feasibility study report shall include the contents required in the project funding application report. If, when submitting the feasibility study report, it is not yet possible to determine the specific contents required in the project funding application report, a supplementary report should be promptly prepared based on the progress of the project’s internal and external work and submitted together with the feasibility study report for approval by the National Development and Reform Commission.

(11) The use of loans shall adhere to the principles of rationality and effectiveness. Based on the actual needs of project construction, management, and operation, loan funds shall primarily be allocated to fixed-asset investment activities such as civil engineering works and the procurement of equipment and materials. They may also be appropriately and reasonably used for technical support activities such as training, study tours, and consulting services (in principle, not exceeding 5% of the total loan amount). However, loan funds may not be used for the purchase of goods outside the scope of the project. To reduce the financial costs associated with remaining project balances and loans, the unforeseen expenses portion of the project investment will no longer be financed by foreign loans and will instead be covered by domestic matching funds. Furthermore, interest accrued during the construction period on foreign loans used for the project may be reasonably calculated based on the actual requirements of the construction period.

(12) Ensure the effective implementation of domestic matching funds. The National Development and Reform Commission will, based on the characteristics of projects in different regions and sectors, reasonably determine the proportion of domestic matching funds required for loan-funded projects. In principle, for general loan-funded projects, domestic matching funds should not be less than 50% of the total project investment. For loan-funded projects in underdeveloped regions as well as those in public-benefit areas such as education, health, and poverty alleviation, the proportion of domestic matching funds may be reduced to 30% to ease the financial burden on local governments. At the same time, development and reform commissions at all levels should earnestly explore and study effective ways to combine government funds from various domestic sources with foreign loans, coordinate arrangements, and enhance the efficiency of fund utilization.

III. Strengthen collaboration and close coordination to effectively carry out external work.

(13) Development and Reform Commissions in various regions and the industry regulatory authorities under the State Council shall adhere to the principles of “unified planning, centralized external coordination, division of labor and collaboration, and efficient management,” actively organize and coordinate relevant departments and project entities, enhance communication, foster close cooperation, and effectively carry out external affairs.

(14) To implement the loan planning and annual signing schedule and ensure the achievement of the project’s established objectives, development and reform commissions at all localities shall coordinate effectively with their counterparts in finance, land resources, environmental protection, and other relevant departments, establishing efficient mechanisms for consultation and communication. They should actively participate in external work such as project identification, preparation, preliminary assessment, evaluation, and loan agreement negotiations, ensuring smooth alignment between domestic project approval procedures and the project preparation processes of foreign lending institutions, and promptly addressing any issues that arise during the project preparation phase. For bundled projects led by the industry regulatory authorities under the State Council, local development and reform commissions shall provide full cooperation and, in accordance with relevant national regulations, promptly complete the approval of their respective regional project proposals and feasibility study reports.

(15) When the industry regulatory authorities under the State Council take the lead in organizing and implementing projects, they shall ensure effective coordination and communication with the relevant departments of the province where the project is located. At various stages of project preparation, they should proactively solicit opinions from provincial-level development and reform commissions and other relevant departments, and urge project entities to strengthen communication with provincial-level development and reform commissions, finance, environmental protection, land, and other government departments, and to promptly fulfill their respective project approval procedures as required.

(16) In external cooperation, local Development and Reform Commissions and the industry regulatory authorities under the State Council shall urge project entities to base their actions on the loan plans and project approval documents approved by the state. If the foreign party’s assessment results differ from the originally approved project construction content or loan amount, the project entity shall promptly report such changes to the National Development and Reform Commission and promptly study and propose solutions to avoid shifting responsibility onto each other, leaving issues unresolved, or even disrupting the progress of preliminary project work. Without prior approval from the National Development and Reform Commission, no entity may unilaterally make commitments or sign memoranda with foreign parties.

4. Strengthen the supervision and management of loan project implementation, and establish and improve a sound project oversight mechanism.

(17) Local Development and Reform Commissions and the industry regulatory authorities under the State Council shall, in accordance with relevant national regulations, urge project entities to establish and improve loan-project management mechanisms. The project entity shall set up a sound project organization and management structure, formulate standardized management systems, and assume responsibility for the project’s preliminary preparation, construction, and operational management. For projects bundled by local or State Council industry regulatory authorities, a project office may be established as needed in a timely manner to handle specific tasks such as external liaison and organizational coordination during the project’s preparation and construction phases, ensuring the stability of the organization and personnel and enhancing management efficiency. However, the functions of the project office must not replace the responsibilities of the project entity.

(18) Strictly manage loan adjustments and the use of remaining loan funds. If, during the course of a project’s construction, it becomes necessary to adjust the loan procurement items, modify the loan utilization plan, or apply the remaining loan funds generated by the project to enhance the original project’s construction, the project entity shall promptly report to the National Development and Reform Commission and other relevant authorities, and engage in consultations with the lending institution. The entity shall prepare a loan adjustment plan or a plan for the use of remaining funds, following the requirements set forth in the project funding application report, and after completing the relevant project approval procedures, obtain preliminary review by the provincial-level Development and Reform Commission or the industry regulatory authority under the State Council, and submit the plan for approval by the National Development and Reform Commission before implementation. As for any remaining loan funds no longer needed, the project entity shall be urged to complete the requisite formalities, promptly cancel such funds, and file a record with the original project approval authority.

(19) Strictly manage the confirmation of tax exemptions for loan projects. Development and Reform Commissions at all levels shall, in accordance with the requirements of the “Notice from the General Office of the National Development and Reform Commission on Matters Relating to the Issuance of Confirmation Letters for Loan Projects from International Financial Institutions and Foreign Governments” (NDRC Foreign Investment [2006] No. 408), rigorously review the implementation of tendering and procurement plans for loan projects and properly carry out the tax-exemption confirmation for imported equipment under these projects. For project entities that provide false documentation, the relevant departments will, in coordination with other authorities, temporarily suspend the processing of tax-exemption procedures for their projects and, depending on the severity of the situation, issue public criticism or impose penalties.

(20) Strengthen the full-process tracking and management of loan projects. Development and Reform Commissions at all localities and industry regulatory authorities under the State Council should urge and guide project entities to establish and improve systems such as the project entity responsibility system, engineering supervision system, contract management system, project completion acceptance procedures, information reporting mechanisms, and post-project evaluations. They should reinforce the governance structure of project entities, build and refine project archives, and proactively enhance project implementation and management. Project entities shall be urged to submit project information by the end of July each year and by the end of January of the following year, including an overview of the project, the current stage of preparatory work both domestically and internationally, the progress of project construction and the amount of investment completed along with physical progress, the status of foreign loan disbursements and repayments, major issues encountered, and relevant recommendations. In accordance with relevant national regulations, promptly organize design, construction, and engineering supervision units to carry out project completion acceptance. In conjunction with the requirements of lending institutions, complete the post-project evaluation within one year after the project is completed and promptly submit the project completion report and the post-project evaluation report.

(21) Development and Reform Commissions at all levels shall cooperate with audit authorities in conducting impartial audits of loan projects. At the same time, loan projects shall be included in the scope of inspections and oversight for major projects, and each level shall assume responsibility for supervising and inspecting the implementation process of loan projects it has approved. Should any serious issues be discovered—such as improperly approved projects, failure to follow prescribed bidding procedures, unauthorized changes to project procurement content, or misappropriation, diversion, or misuse of funds—relevant departments will work together to investigate these cases rigorously and hold the responsible parties accountable.

(22) The National Development and Reform Commission will, for regions and departments identified during inspections and audits as having numerous or serious issues, suspend the acceptance of their applications for new projects until they have successfully completed and passed re-inspection following corrective measures. At the same time, it will also suspend external negotiations and contract signings for projects included in the loan planning.

V. Guard against foreign debt risks, strive for innovation, and continuously enhance the efficiency and management level of loan projects.

(23) Development and Reform Commissions at all levels and relevant industry regulatory authorities under the State Council shall, in collaboration with other relevant departments and institutions, closely monitor changes in exchange rates and interest rates of foreign debts denominated in different currencies. They should also study and develop management measures to mitigate foreign debt risks, treating the prevention of foreign debt risks as an important component of loan project management and promoting the standardization and institutionalization of this work. We should leverage market mechanisms and harness the role of financial institutions to guide project entities in managing foreign debt risks and provide timely policy support to assist these entities in safeguarding against such risks.

(24) Development and Reform Commissions at all levels and relevant industry regulatory authorities under the State Council should, based on the characteristics of loan projects in different sectors, study the problems existing in the loan transfer and guarantee processes. They should actively cooperate with the relevant departments to establish more effective mechanisms for loan transfer and guarantees, streamline loan transfer procedures, accelerate loan disbursement speeds, and enhance the efficiency of loan fund utilization.

(25) Development and Reform Commissions at all levels and relevant industry regulatory authorities under the State Council shall promptly monitor policy developments of international financial institutions, make full use of their platforms and intellectual resources, and actively engage in international cooperation. Taking loan projects as a vehicle, we should draw on and absorb advanced international practices in areas such as project financing, project management, and risk prevention. We should place particular emphasis on the demonstration effect of loan projects in terms of development models, management innovation, and institutional reform, step up efforts to promote these projects, continuously enhance our work standards, and maximize both the economic and social benefits of loan projects. In doing so, we can contribute to implementing the Scientific Outlook on Development, building a harmonious society, and promoting China’s economy and society toward better and faster development.

National Development and Reform Commission of the People's Republic of China

May 27, 2008