The government of Dongguan has set up an earmarked fund of 1 billion yuan for the transition and upgrade of processing trade to help and support overseas-invested enterprises and promote their further development. Toward this goal an earmarked fund of counter-guarantee for payment guarantee and letter of guarantee of bank deposit system of restricted goods of processing trade is set up to alleviate enterprise fund pressures and help reduce their burden.
According to announcement No. 97 in 2008, jointly issued by the national Ministry of Commerce and the General Administration of Customs, 122 customs-coded articles (mainly hardware and plastics) in the catalogue of prohibitive commodities for category B enterprises in eastern China shall be managed in actual operation.
After implementation of this announcement, related enterprises have been required to submit relatively large sums of bank deposit guarantees to ensure their processing trade of restrictive commodities. This has often resulted in idle funds and increased operation costs. Enterprises engaged in processing with supplied materials, who lack operation funds to make bank deposits and and do not have a legal person identity, will not be able to apply for bank credit of payment guarantee and letter of guarantee from the Bank of China. Instead, they must provide a counter-guarantee of standby letter of credit from their parent company to the Bank of China through an overseas bank. In cases like this, the Bank of China issues a bank deposit payment guarantee and letter of guarantee to the processing enterprise with a standby letter of credit. Therefore, the entire formal process, being fairly complicated, increases the burden on enterprises.
In order to reduce operational difficulties for enterprises, the government of Dongguan has implemented measures to help enterprises engaged in processing trades. They can now issue counter guarantees for payment guarantees and letters of guarantee for bank deposits of restricted commodities.
2. What are in the support measures?
(1) The government of Dongguan has designated economic entities of all towns and sub-districts (such as overseas economic and development corporations) to provide counter guarantees to the Bank of China for local processing enterprises. The economic entities of all towns and sub-districts (hereinafter called guarantors) issue counter guarantees for payment guarantees and letters of guarantee for bank deposits of prohibitive commodities to accredited enterprises engaged in processing trade, according to a secured line of credit with the Bank of China.
(2) The accredited enterprises engaged in processing trade apply to the guarantor within their jurisdictions. With a confirmation letter provided by the guarantor and other documentation, an enterprise can apply for a bank deposit payment guarantee and letter of guarantee from the settlement department of the Bank of China
(3) If an enterprise does not manufacture and export finished products within the stipulated period nor secure verification formalities, this will lead to losses by the guarantor. And, the earmarked fund of transformation and upgrade of processing trade and the finance department of the town/sub-districts shall compensate, at a rate to be determined, the guarantor’s losses.
(4) To enjoy support measures, applicable enterprises in processing trades must
abide by related requirements of laws and regulations and be in line with the industrial orientation of Dongguan. They must also be registered with the industrial and commercial administration and pay tax to the taxation department.
(5) The application shall be made by enterprises in processing trade themselves, and examined and approved by related towns and sub-districts, and verified and confirmed by the appraisal group of the Bureau of Foreign Trade and Economic Cooperation.