Project Finance 2026 Comparisons

Sponsors are typically central and local state-owned enterprises (SOEs), local investment and financing platforms, and private industrial capital such as energy, manufacturing and industrial-park developers. For concession projects, under State Council Office Letter No 115 [2023], the concessionaire must win open competition and pass review, focusing on operating proposals and project management experience.

Lenders are mainly policy banks (China Development Bank and the Export-Import Bank), large state-owned commercial banks and joint stock banks, with insurance company debt investment plans, trust companies and financial leasing companies also representing significant funding sources. Foreign banks usually participate through cross-border syndications or direct external debt, subject to external debt registration under foreign exchange rules.

State Council Office Letter No 115 [2023] established the new public-private partnership (PPP) mechanism on three principles:

• focusing on user-pay models;
• strictly preventing new hidden debt; and
• prioritising private enterprises.

Under the 2024 Administrative Measures for Infrastructure and Public Utility Concessions (Order No 17), the model has fully shifted to user-pay concessions; by September 2026 the national database held 470 projects with total investment of about CNY2.33 trillion.

There is still no dedicated PPP law, so the regime is governed by departmental rules and normative documents. Key restrictions require user-pay models, prohibit additional fiscal expenditure obligations and new hidden debt, and bar feasibility gap subsidies and minimum return guarantees; new projects are limited to those with operating revenue. For projects of strong public interest, private enterprise equity must be at least 35%.

Private enterprises still face difficult financing access and weak risk resilience; projects must balance their own revenue and complete a demanding fiscal affordability assessment, yet many local SOEs still win concessions.

Project finance in China is typically structured around a dedicated project company, whose corporate form, equity structure, governance and capital arrangements depend on the project. If it is a limited liability company, its shareholders’ subscribed capital must be paid up within five years of incorporation under the Company Law. Establishing an SPV does not by itself achieve insolvency remoteness, so the project’s assets, liabilities, accounts and related-party transactions must be kept appropriately separate. The structure should also satisfy the necessary investment, land, planning, construction, environmental and industry access conditions; under the new PPP regime, concessions, user-pay and government support require special attention.

The financing structure should specify the minimum project capital ratio, sponsor equity, bank loans, shareholder loans and any other permitted funding sources. Project capital is a fixed-asset investment regulatory concept, not necessarily the project company’s registered capital. Bankability also depends on a reasonable allocation of construction, operation, supply, offtake and market risks among the principal project contracts, and on lender protections such as security and cash-flow controls. Projects involving government or state-owned parties must comply with budget, state-asset and local government debt rules; arrangements involving government fiscal responsibility must avoid disguised government borrowing, unlawful guarantees or promised fixed returns.

Typical financing methods include:

• sponsor equity contributions or other qualifying project capital;
• single-bank or syndicated loans;
• shareholder loans; and
• debt instruments issued by eligible issuers.

Once in stable operation, asset securitisation and infrastructure REITs may be used for refinancing or capital recovery.

New energy should remain among the most active sectors; financing for large-scale wind and solar projects is already mature, and new models such as energy storage and direct green-power supply should create further opportunities.

Data centres, computing facilities and related digital infrastructure should generate more financing work: bank financing during construction, then asset securitisation or infrastructure REITs once stable cash flow is achieved.

Logistics infrastructure with stable rental income, such as high-standard warehouses and distribution centres, should retain active financing demand, using bank financing, asset securitisation and infrastructure REITs once mature.

Under the Civil Code and its security interpretation, China’s security system divides into:

• typical security – guarantees; mortgages, movable and rights pledges and liens; and deposits; and
• atypical security – retention of title; finance leases; factoring; and judicially recognised transfer-based security.

Mortgageable assets include:

• buildings and their fixtures;
• construction-land-use rights;
• sea-area-use rights;
• production equipment;
• raw materials;
• semi-finished and finished products (a floating charge over movables);
• buildings under construction;
• ships;
• aircraft; and
• means of transport.

Pledgeable assets include transferable movables and the rights in Article 440 of the Civil Code, such as:

• negotiable instruments;
• bonds and certificates of deposit;
• warehouse receipts and bills of lading;
• fund shares and equity;
• intellectual property; and
• accounts receivable.

Security must be in writing. An immovable mortgage is created upon registration; a movable mortgage is created when the contract takes effect but is unperfected against good-faith third parties without registration. A pledge is created upon delivery; pledged rights evidenced by a certificate (such as shares) are created upon delivery, while uncertificated rights (fund shares, intellectual property, accounts receivable, equity) require registration. A lien is a statutory security interest arising when the creditor lawfully possesses the debtor’s movables and the statutory conditions are met; it cannot be created by contract.

Chinese law has no statutory “security agent”. However, Article 4 of Judicial Interpretation No 28 [2020] established nominee-holding: where, in prescribed circumstances, a security interest is registered in another’s name, such as a bond or entrusted loan trustee, and the debtor defaults, the creditor or its trustee may claim priority. These arrangements rely on registration; pledges over movables and liens cannot be created through nominee holding.

Chinese law recognises only a limited floating charge and does not permit a general floating charge over all of a company’s present and future assets. Under Article 396 of the Civil Code, only enterprises, individual businesses and agricultural producers may create a floating charge, covering only four categories of movables:

• existing and future production equipment;
• raw materials;
• semi-finished; and
• finished products.

The grantor’s immovables, equity, intellectual property or accounts receivable are not covered. To achieve near-total coverage, a lender must separately register mortgages and create security over each asset type, such as immovable mortgages, equity pledges, accounts receivable pledges and account pledges.

Under the State Council’s Decision on Implementing Unified Registration of Security over Movables and Rights (Guo Fa [2020] No 18) and the Measures for the Unified Registration of Security over Movables and Rights (PBOC Order No 7 [2021]), unified registration of security over movables and rights is handled by the Credit Reference Centre of the People’s Bank of China. Immovable mortgage registration is handled by the natural resources authorities – usually the local real estate registration centre. Fees are published by each registry under national rules and vary by asset type and region, but are generally only nominal administrative charges.

Individual identification of each item of collateral is not required; a general description is sufficient. Under Article 53 of the SPC’s Interpretation on the Security Provisions of the Civil Code, a general description that reasonably identifies the collateral is upheld; Article 9 of the Measures for the Unified Registration of Security over Movables and Rights likewise requires a general description that can reasonably identify the collateral, and maximum amount security must register the maximum secured amount. “Reasonable identification” is therefore the test; the law does not require item-by-item listing.

In practice, registries for assets such as immovables require complete details, while a floating charge over movables or security over all accounts receivable or inventory is inherently hard to list exhaustively; where feasible, clear and specific descriptions are advisable, to avoid disputes.

Restrictions on Capacity

Government agencies may not provide security (except with State Council approval for on-lending foreign government or international financial institution loans). Security contracts by residents’ or villagers’ committees are void, except where acting for the village collective on proper resolution. Non-profit organisations acting for public welfare may not be guarantors. Under the Company Law, a company’s external guarantee requires a resolution complying with its articles, otherwise it is void; if the legal representative acts beyond authority, it binds the company only if the counterparty acted in good faith and made reasonable inquiries. A guarantee to a shareholder or controller requires a shareholders’ meeting resolution with the related party abstaining.

Prohibited Collateral

The following may not be mortgaged:

• land ownership;
• collective land use rights such as homesteads (except as permitted);
• public welfare facilities of schools, kindergartens and medical institutions;
• property with unclear or disputed ownership; and
• property that is sealed, distrained or under supervision.

Movables whose transfer is prohibited by law may not be pledged.

Other Restrictions

A pre-maturity agreement that the collateral will pass to the creditor upon default (a foreclosure clause) is void, although the creditor may still claim priority over the collateral by law and the rest of the security contract remains valid.

Security and guarantee contracts are accessory to the underlying contract; if the principal contract is void, the security or guarantee contract is void, subject to limited statutory exceptions. Clauses making security “independent of the principal contract” are void, except for demand guarantees issued by financial institutions.

Special rules apply to the type and period of guarantees. Where the type is not agreed or is unclear, it is a general (subsidiary) guarantee; where the guarantee period is not agreed or is unclear, it is six months from maturity of the principal debt, without suspension, interruption or extension.

Where proprietary and personal security coexist without agreement, the creditor must first enforce against the debtor-provided proprietary security; where a third party provides it, the creditor may choose; and if the creditor waives the proprietary security, the guarantor is released to that extent.

For an immovable mortgage, the lender, as an interested party, may apply to search the register for mortgages, sealing, preliminary notices and objection registrations. Since 2021, security over movables, accounts receivable pledges, finance leases, factoring and retention of title are registered on the PBOC Credit Reference Centre’s unified registration and publicity system, which is publicly searchable. Pledges of listed company shares are registered with China Securities Depository and Clearing Corporation, and unlisted company equity with the market regulation authority; intellectual property pledges are registered with the CNIPA.

However, pledges over movables, which depend on delivery and possession, have no registration, and an unregistered movable mortgage, while unperfected against third parties, remains valid between the parties. Liens are statutory and rank ahead of mortgages and pledges; construction work payment priority over unpaid project funds also requires no registration and ranks ahead of mortgages. Not all encumbrances can therefore be confirmed by search alone: lenders should use the various registries, supplement with due diligence and rely on clear contractual protections.

Security is released upon:

• extinguishment of the secured debt (for example, repayment);
• realisation of the security interest;
• the creditor’s waiver; or
• other statutory grounds, such as loss of the mortgaged property without substitute proceeds, return of the pledged or retained property, or loss of possession.

A guarantee is released upon expiry of the guarantee period, or where the creditor permits the debtor to transfer the debt without the guarantor’s written consent.

For registered security, release requires deregistration, which is the secured party’s obligation; for possessory security, the property must be returned. For guarantees, a confirmation letter evidencing expiry of the guarantee period is advisable.

Enforcement may be initiated when the debtor fails to pay the matured debt or an agreed enforcement event occurs. Methods include:

• agreement with the mortgagor or pledgor to take the collateral at a price, or to be paid in priority from auction or private sale proceeds;
• self-help auction or sale where the parties have agreed to it; and
• applying to the court of the collateral’s location or registration place for an order permitting auction or sale, usually as a separate claim within litigation (the primary method).

For liens, after demand and a grace period, the creditor may take the property at a price, auction it or sell it. Where a secured lender enforces through litigation, the debtor and the security provider should be joined as co-defendants.

The parties may not agree to take ownership of the collateral directly nor prejudice other creditors’ interests; a price set by agreement or private sale must reflect the market price.

Under Article 4 of Judicial Interpretation No 28 [2020], where the security interest is registered in the name of a trustee (security agent), the court will uphold the creditor’s or trustee’s claim to priority. A security agent, as the registered holder, may therefore enforce in its own name or conduct an agreed auction or sale, but the proceeds belong to all creditors (beneficiaries) and may not be retained by the agent. Where the security is not created by registration, only the party in actual possession may enforce.

A choice of foreign law requires a foreign element, such as a foreign party or habitual residence abroad, assets abroad, or relevant facts occurring abroad; without one, a choice of foreign law or jurisdiction is invalid. Parties to a foreign-related contract may choose the governing law, subject to limits:

• mandatory provisions of Chinese law on labour rights, food or public health safety, environmental safety, foreign exchange control and other financial security, and anti-monopoly and anti-dumping rules, apply directly and cannot be excluded;
• foreign law will not be applied if it harms China’s social public interest; and
• Sino-foreign equity or co-operative joint venture contracts and natural resource joint exploration and development contracts performed in China are governed by Chinese law.

A choice of foreign court jurisdiction is generally respected, but is invalid for matters within the exclusive jurisdiction of Chinese courts, including disputes over:

• the establishment, dissolution, liquidation and validity of resolutions of legal persons established in China;
• the validity of IP rights granted in China;
• Sino-foreign joint venture and natural resource exploration contracts performed in China; and
• immovables in China.

For cross-border loans and security, external debt registration, cross-border security and foreign exchange control are mandatory Chinese rules that courts will apply directly even if foreign law is chosen.

Whether a judgment or award against the company is enforceable first depends on whether it falls within China’s exclusive jurisdiction; if not, it is generally enforceable.

For foreign judgments, a party must apply directly to a competent Chinese intermediate court for recognition and enforcement. No retrial on the merits is required, but the court will review under the applicable treaty or the principle of reciprocity, and will recognise the judgment if it does not violate fundamental principles of Chinese law or harm state sovereignty, security or the social public interest. Where enforcement is required, an enforcement order is issued. Judgments from countries with no treaty or reciprocity precedent may be difficult to enforce.

For foreign arbitral awards, a party must apply directly to the intermediate court at the respondent’s domicile or the location of its assets, under the New York Convention or the principle of reciprocity. Review is limited to the procedural grounds in Article V of the New York Convention, plus non-arbitrability under Chinese law and public policy. The court will not review the merits.

Foreign Exchange Control and Registration

SAFE approval, registration or filing affects only whether funds may be remitted across borders, not whether a security contract is effective; the effectiveness of an immovable mortgage still depends on registration with the natural resources authority. Onshore-security-for-offshore-loan and offshore-security-for-onshore-loan structures require registration first, otherwise the guarantee payment cannot be purchased, settled or remitted abroad, and post-performance foreign claim and external debt registration is also required.

The Debtor’s Insolvency

From acceptance of the bankruptcy application, interest stops accruing and the guarantor’s liability is correspondingly fixed. In reorganisation, security over specific property of the debtor is suspended and may only be restored by court order where the collateral risks damage or significant depreciation. Lenders must also guard against the administrator’s avoidance of preferential payments and fraudulent security.

Interest Rate Caps and Priority

For private lending, interest, penalty interest and liquidated damages together may not exceed four times the one-year Loan Prime Rate (LPR). Where a building under construction is mortgaged, the contractor’s construction-price claims rank ahead of the mortgage, and for residential housing, buyers who have paid all or most of the price without delivery rank ahead of construction-price claims.

Foreign lenders may provide cross-border loans to onshore project companies, but the borrower must comply with the external debt quota, registration procedures and restrictions on particular borrowers and use of funds.

Most non-financial enterprises are subject to macro-prudential external debt quota management, under which the permissible debt is calculated mainly by reference to the enterprise’s net assets and regulatory risk parameters. Qualified foreign-invested enterprises may instead use the “total investment minus registered capital” (investment gap) model, and qualified hi-tech, “specialised and sophisticated” and technology-based SMEs may use a dedicated cross-border financing facilitation quota.

Procedurally, medium- and long-term external debt exceeding one year must complete review and registration with the National Development and Reform Commission (NDRC) before the first drawdown; onshore non-bank borrowers must also register the external debt contract with SAFE, on which drawdowns, use of funds and repayment are based.

Whether the project company secures its own debt, or its onshore shareholders or affiliates provide third-party security, the required resolutions must be passed under the Company Law, the articles of association and applicable governance requirements. A foreign lender should review the authorisation documents, as defects may affect enforceability.

Security must also be perfected by asset type: immovable mortgages, equity pledges and accounts receivable pledges are each subject to their own registration regimes; some security is created only upon registration, while other registration mainly creates third-party opposability.

For foreign exchange purposes, a project company securing its own offshore debt needs no separate cross-border security registration. Security by an onshore shareholder or affiliate over the project company’s offshore debt is generally “other-form cross-border security” and, unless otherwise provided, also needs no separate SAFE registration, filing or reporting. Enforcement and payment to a foreign lender must still comply with applicable foreign exchange rules.

A distinction must be drawn: where the borrower is an offshore entity (such as an offshore SPV) and an onshore party provides a guarantee or proprietary security, the arrangement is “onshore-security-for-offshore-loan”, not “other-form cross-border security”. The onshore security provider must register after signing, and must register the resulting foreign claim after performance. Security by the project company for its own offshore debt generally requires no registration, while security by an onshore party for an offshore borrower presupposes registration; the borrower’s location should be identified first.

China applies a “pre-establishment national treatment plus negative list” regime to foreign investment. The current negative list sets out sectors in which foreign investment is prohibited or restricted, with special requirements on shareholding ratios and senior management; outside the list, foreign and domestic investment are treated alike. “Foreign investment” under the Foreign Investment Law includes establishing enterprises in China, acquiring equity or similar interests in onshore enterprises, and investing in new projects alone or jointly; in project finance, access requirements must be checked first.

China also encourages foreign investment in specific sectors and regions through the Catalogue of Encouraged Industries for Foreign Investment, prioritising advanced manufacturing, modern services, hi-tech, energy conservation and environmental protection, and central and western regions. Qualifying projects may enjoy relevant incentives and facilitation.

In addition, foreign investment that affects or may affect national security may be subject to a security review. Investment in military and other defence security sectors must be declared before implementation, as must investment obtaining actual control in important energy and resources, infrastructure, transport and information technology sectors.

An onshore project company may repay principal and interest to an offshore lender and remit profits or divestment proceeds to a foreign shareholder, but the two types of payment follow different legal and foreign exchange procedures.

For offshore loans, after completing the applicable external debt registration, the project company may repay principal and interest in accordance with the loan contract and registration details; the bank will verify the registration, the amounts payable and the relevant tax documentation.

For equity investment, profit repatriation by a foreign shareholder must be based on the project company’s after-tax profits lawfully generated and distributed. Where a foreign investor recovers its principal or capital gains through capital reduction, liquidation or transfer of project company equity, it must complete the applicable company, tax and direct investment foreign exchange registration for the specific exit method.

Under the general foreign exchange rules, an onshore institution that needs to open an offshore foreign currency account for recurring foreign receipts or payments, overseas project contracting, offshore issuance of foreign currency securities or other special business must obtain prior approval from SAFE and use the account in accordance with the approved purpose, scope, amount and term.

An onshore project company may, where permitted, open an offshore foreign currency account in its own name, but this is not routine for onshore project finance. For mainly onshore projects, revenue, external debt drawdowns and cross-border repayment are usually handled through onshore accounts and banks; a mere need to repay external debt or distribute dividends does not require a separate offshore account, as principal and interest may be paid offshore directly through onshore banks.

Contracts take effect upon lawful formation; registration or filing is not a precondition to validity or enforceability. However, omission of the following registrations, while not invalidating the loan agreement, will prevent creation of the security interest or its opposability against third parties, or prevent cross-border payment.

• Security interests – an immovable mortgage is created upon registration. An unregistered movable mortgage is unperfected against good-faith third parties. Security over movables and rights is registered with the PBOC Credit Reference Centre.
• Cross-border financing – external debt exceeding one year requires prior NDRC review and registration (NDRC Order No 56) External debt contract and cross-border security registration are handled under Article 22 of the Foreign Exchange Administration Regulations and Hui Fa [2014] No 29.
• Project agreements – concession agreements must be signed under the six-ministry Order No 17 [2024] procedure.

Omission of these registrations will surface at repayment as an inability to purchase foreign exchange, and all should be conditions precedent to drawdown. Overseas documents require notarisation and legalisation, or an apostille for contracting states.

Ownership of land or natural resources, or engaging in the business of owning or operating such assets, requires a licence.

China adopts public ownership of land and state ownership of natural resources, so a project company usually acquires not ownership but a usufructuary right or an administrative permit right. For land, it usually obtains a land-use right by grant, with operating land for industrial or commercial use granted through tender, auction or listing; collective land must be expropriated and converted to state-owned land first. There is no general prohibition on foreign holding, but the project company must be a legal person duly established onshore, and foreign investors usually hold indirectly through it, subject to the negative list and security review (see 4.3 Foreign Investment Regime).

For natural resources, the core of the newly revised Mineral Resources Law (effective 1 July 2025) is the separation of rights and permits: mineral rights must be granted through tender, auction or listing, and establishing a mineral right requires registration and a certificate, while exploration or mining additionally requires separate approval and a licence. The implementing regulations require registration of the creation, variation, transfer, mortgage and extinguishment of mineral rights, so a certificate without a licence does not permit operations. Projects must also obtain sector licences such as power business, pollutant discharge and water abstraction permits, which generally require an onshore enterprise holder.

It is advisable to make the obtaining and maintenance of key licences conditions precedent and continuing obligations, with acceleration on revocation or non-renewal, and covering government repurchase or compensation sums by accounts receivable pledges.

The concepts of both agency and trust are recognised in China, but they operate differently from the common law.

Agency

Agency is governed by the Civil Code’s provisions on entrustment and agency, and contractual agency arrangements are generally effective. As noted in 2.1 Assets Available as Collateral to Lenders, there is no statutory “security agent”; nominee-holding under Article 4 of Judicial Interpretation No 28 [2020] relies on registration, so pledges over movables and liens cannot be held through nominee arrangements, and the offshore practice of a security agent holding all security in its own name is only partially achievable in China (see also 3.1 Enforcement of Collateral by Secured Lender).

Trust

Trusts are governed by the Trust Law, which requires the settlor to entrust property rights to the trustee, who manages and disposes of them in its own name for the trust purpose. Insolvency remoteness rests on three provisions:

• Article 15 distinguishes trust property from the settlor’s other property;
• Article 16 excludes trust property from the trustee’s liquidation estate; and
• Article 17 bars enforcement, except in statutory cases.

However, Article 10 requires registration of trust property that must be registered, failing which the trust is ineffective; China lacks a unified trust registration authority, so insolvency remoteness depends on case-by-case application of Articles 16 and 17, and the ring-fencing effect is lost if the trust is a channel arrangement or a sham.

Alternatives

Two alternatives are common.

• Entrusted loans – a commercial bank, as trustee, lends on the instructions of the principal (Yin Jian Fa [2018] No 2). The bank bears no credit risk and the principal does not obtain “lender” status, although the principal may claim priority under Article 4 of the SPC’s security interpretation, provided security registration and claim ownership are fully documented.
• Asset-backed special plans – these are established by securities companies or fund subsidiaries to securitise cash flows such as accounts receivable and toll revenue.

On competing security interests, the Civil Code adopts a rule centred on the order of publicity. Where the same property is mortgaged to two or more creditors, registered mortgages rank by order of registration and ahead of unregistered ones, which rank rateably; the same applies to other registrable security interests. Where a mortgage and a pledge are both created over the same property, priority follows the order of registration or delivery.

Two categories of statutory rights that rank ahead of a mortgage without registration should be checked first.

• Liens – where a mortgage or pledge is created over a movable that is then retained, the lienholder takes priority.
• Construction work payment priority – this ranks ahead of mortgages and other claims, and may be exercised for up to 18 months from the date the construction price should have been paid.

Under Article 45 of the Tax Collection Administration Law, taxes owed before the property was mortgaged, pledged or retained also rank ahead, so tax arrears notices should be obtained in due diligence.

Priority can be varied by contract, subject to limits. Under the Civil Code, a mortgagee and mortgagor may agree to vary the mortgage’s ranking and the secured amount, but without the written consent of other mortgagees the variation must not prejudice them; ranking agreements therefore bind only the parties, not non-consenting third parties.

There are three main forms of subordination:

• contractual (one creditor agrees to be paid after another, with shareholder loans subordinated to bank loans being typical);
• structural (pushing debt down to subsidiaries so upstream creditors are in effect paid after the subsidiary’s creditors – the most common form); and
• distribution (the subordinated creditor turns over its insolvency distributions to the senior creditor).

The Enterprise Bankruptcy Law does not prohibit creditors from agreeing the order of payment within the statutory ranking, provided it does not prejudice other creditors and a compulsorily approved reorganisation plan complies with Article 113.

Foreign companies may not engage directly in licensed business onshore; their resident representative offices may not engage in for-profit activity. Although a foreign company’s branch may register, the branch has no independent legal personality and cannot be an insolvency debtor, so branches are never used in project finance. The project company must therefore be a legal person established onshore under Chinese law, almost without exception.

The typical form is a limited liability company, where shareholders are liable only to the extent of their subscribed capital; governance and share transfer are relatively simple; and security can be taken over the equity by pledge. Companies limited by shares suit large infrastructure or energy projects but are costlier to establish and govern. A particular risk of a single-member company is that the shareholder bears joint liability unless it proves that its property is separate from the company’s; wholly-owned project companies should therefore maintain strict independence of finances, accounts and related-party transactions, or insolvency remoteness will be lost (see 1.3 Structuring the Deal).

A further change concerns capital contribution periods. Article 47 of the Company Law (revised 2023, effective 1 July 2024) requires all shareholders’ subscribed capital to be paid up within five years of incorporation; existing companies’ contribution periods are being adjusted to within five years under State Council Order No 784. Transaction documents must recalculate capital injection timing against the drawdown schedule and provide remedies for late payment. Foreign-invested project companies must also comply with the negative list and the foreign investment information reporting obligation.

Reorganisation is one of the three procedures under the Enterprise Bankruptcy Law, alongside liquidation and compromise. In large infrastructure, energy and industrial-park projects, reorganisation is a common debt restructuring tool where the project company retains going-concern value but is in distress for liquidity or shareholder-level reasons.

An enterprise legal person that cannot pay its due debts and whose assets are insufficient to cover all debts, or that is clearly insolvent or likely to become clearly insolvent, may be reorganised. The debtor or a creditor may apply directly; where a creditor applies for liquidation, the debtor or a shareholder holding at least one-tenth of the registered capital may apply for reorganisation after the court accepts the bankruptcy application and before bankruptcy is declared. The debtor or administrator must submit a draft reorganisation plan within six months of the reorganisation order, extendable by three months for good cause, failing which reorganisation is terminated and bankruptcy declared.

Voting is by classes (secured, employee, tax and ordinary claims); a class passes a plan with the consent of a majority of the creditors in the class attending the meeting representing at least two-thirds of the class’s claims. Where some classes fail to approve, the court may approve compulsorily, provided:

• secured claims are paid in full on the specific property with fair compensation for delayed payment and no material impairment of security;
• ordinary claims receive no less than in liquidation;
• the order of payment complies with Article 113; and
• the business plan is feasible.

Three points are worth noting.

• First, courts commonly hold a pre-reorganisation stage before acceptance; the interface between out-of-court restructuring and judicial reorganisation relies mainly on high court guidelines.
• Second, the government–court co-ordination mechanism is often key in projects involving concessions, utilities and industrial-park operations.
• Third, debt-to-equity swaps are common, with listed companies adding a shareholder-class vote on equity adjustments.

The draft amendment to the Enterprise Bankruptcy Law (submitted 25 August 2026, not yet passed) proposes to incorporate out-of-court restructuring and pre-reorganisation, reorganisation-value identification and public recruitment of reorganisation investors, and to tilt the payment order toward personal rights.

Acceptance of a bankruptcy application triggers a series of automatic effects that alter the lender’s enforcement path, with the most significant being the suspension of security rights during reorganisation.

First, upon acceptance, preservation measures against the debtor’s property are lifted and enforcement proceedings are stayed. Second, post-acceptance payments by the debtor to individual creditors are void. Third, unmatured claims are deemed mature upon acceptance, and interest-bearing claims cease to accrue interest from acceptance (see 3.4 A Foreign Lender’s Ability to Enforce). Fourth, the administrator may decide to terminate or continue contracts concluded before acceptance that neither party has fully performed; for project finance this is critical, as concession, offtake, power purchase and EPC contracts may be terminated, leaving only a damages claim (see 6.4 Risk Areas for Lenders).

As regards security, the position differs by procedure. In reorganisation, security over the debtor’s specific property is suspended, but where the collateral risks damage or significant depreciation that would jeopardise the secured creditor, the creditor may apply to the court to restore enforcement. A project company’s plant, concession rights and key equipment are almost always found necessary for reorganisation, so the threshold for restoring enforcement is high. In liquidation and compromise, the secured creditor may at any time claim priority by disposal of the specific property, and the administrator should dispose of it promptly unless separate disposal would reduce the value of other estate property.

A creditor’s rights against the debtor’s guarantors and other jointly liable persons are not affected by the reorganisation plan. Even if the plan reduces the debtor’s debt, the lender may recover the unpaid balance from the guarantor in full, subject to timing: after the insolvency proceedings close, the creditor must claim against the guarantor within six months. The guarantor, having performed, may not seek recourse against the debtor after compromise or reorganisation.

A creditor with security over specific property of the debtor enjoys priority over that property; if the proceeds are insufficient, the unpaid balance participates as an ordinary claim. In reorganisation, exercise of the security is subject to the suspension under Article 75 (see 6.2 Impact of Insolvency Process).

Bankruptcy expenses and common-benefit debts are paid from the debtor’s property at any time and rank highest, including post-acceptance labour remuneration and social insurance for the debtor’s continued operation. New money provided during reorganisation may therefore be structured to obtain common-benefit status or be secured on the collateral – one of the few “new-money priority” channels.

After paying bankruptcy expenses and common-benefit debts, the estate is distributed in the following order:

• wages, medical and disability allowances and pensions owed to employees, basic pension and medical insurance premiums payable to employees’ individual accounts, and statutory compensation payable to employees; then
• social insurance premiums and taxes owed (other than those above); then
• ordinary claims.

Where the estate is insufficient for a class, distribution is pro rata. Punitive claims are paid from any surplus remaining after the above order.

The order in Article 113 is in practice overridden by statutory priorities. Construction work payment priority ranks ahead of mortgages (see 5.4 Competing Security Interests), and taxes owed before a mortgage was created rank ahead of it (Article 45 of the Tax Collection Administration Law). Recovery expectations should therefore not be assessed by Article 113’s text alone; statutory priorities over the collateral must be deducted – a focus of pre-lending due diligence.

Beyond the obvious risk of insufficient collateral realisation, the following areas are easily overlooked.

• Avoidance risk – within one year before acceptance, the administrator may avoid gratuitous transfers, transactions at manifestly unreasonable prices, security for previously unsecured debts, early repayment of unmatured debts, and waiver of claims. Within six months before acceptance, it may also avoid payments to individual creditors made after the debtor had become insolvent, unless they benefited the estate. Normal repayment of project debt is usually not gratuitous, but non-routine repayment within the suspect period after distress should be supported by full commercial justification records.
• The suspension of security during reorganisation (see 6.2 Impact of Insolvency Process).
• Insufficient collateral realisation from statutory priorities such as construction work payment priority and tax arrears (see 5.4 Competing Security Interests and 6.3 Priority of Creditors).
• Termination of project contracts – concession, offtake, power purchase and EPC contracts are executory contracts the administrator may terminate, destroying the cash-flow basis and leaving only a damages claim. Concession projects also risk the government terminating and recovering the project on default, so lenders should ensure government repurchase or compensation sums are covered by accounts receivable pledges (see 5.2 Licence Requirements).
• Substantive consolidation of affiliated enterprises – the court assesses insolvency separately for each member, but it may exceptionally merge the members’ assets for distribution where legal personalities are highly commingled, the cost of separating assets is excessive or fair satisfaction of creditors would be seriously impaired. Security over a single project company would then lose its ring-fencing effect.
• Risk transmission through guarantors – a guarantor often secures multiple entities within a group, so one project company’s insolvency may trigger a chain reaction. If the guarantor itself becomes insolvent, the lender’s ultimate recourse fails.

The Enterprise Bankruptcy Law applies only to enterprise legal persons; other entities are subject to different insolvency or debt-clearance rules, identified on a case-by-case basis.

Financial institutions are not excluded, but enter through a different gateway. Where a commercial bank, securities company or insurance company meets the statutory conditions, the State Council’s financial regulatory authority may apply to the court for reorganisation or liquidation; where the regulator takes over or places a seriously troubled institution under trusteeship, it may apply to stay civil or enforcement proceedings against the institution. A lender’s enforcement may therefore halt if its borrower, its deposits or its collateral involve a financial institution under receivership. Special rules also apply, such as Article 71 of the Commercial Banking Law and Article 90 of the Insurance Law.

For organisations other than enterprise legal persons, if other laws provide that their liquidation is a bankruptcy liquidation, the procedures of this Law apply mutatis mutandis. Under Article 92 of the Partnership Enterprise Law, where a partnership cannot pay its due debts, creditors may apply for bankruptcy liquidation or claim against the general partners, who remain jointly and severally liable if the partnership is declared bankrupt; debt of a limited partnership fund investing in a project company can thus pass through to the general partner.

Natural persons are not yet subject to a unified bankruptcy procedure. Shenzhen has established a local pilot through the Shenzhen Special Economic Zone Personal Bankruptcy Regulations, limited to natural persons with habitual residence in the zone who meet the statutory conditions. For project finance, projects relying on guarantees from the controller and spouse currently have no uniform discharge channel for the guarantor’s personal assets. The draft Enterprise Bankruptcy Law amendment (see 6.1 Company Reorganisation Procedures) also proposes a debt clearance regime for jointly liable individual debtors, which, if enacted, will affect project finance relying on controller guarantees.

Market Access Restrictions

Insurance business is strictly licensed in China. Under the Insurance Law, insurance may be carried on only by lawfully established insurance companies and other insurance organisations provided by law and regulation. Insurance over project assets must therefore be arranged through licensed onshore insurers or their branches. Under the territorial rule in Article 7 of the Insurance Law, onshore legal persons and organisations needing onshore insurance must insure with onshore insurers, so an onshore project company insuring onshore assets must use an onshore insurer and may not directly insure offshore; cross-border or reinsurance is mainly achieved by the onshore insurer ceding to offshore reinsurers.

Fees and Rate Control

Commercial insurance premiums are negotiated between the insurer and the insured. The law sets no unified rate control, and rates mainly depend on the risk profile of the subject matter, the insured amount, the deductible and market bargaining power.

Tax and Fee Considerations

Premiums paid by an enterprise for property insurance are deductible for enterprise income tax. For stamp duty, under the Stamp Tax Items and Rates Table annexed to the Stamp Tax Law, property insurance contracts are stamped at 0.1% of premium income (excluding reinsurance contracts). Insurance proceeds are loss compensation and do not constitute taxable income, so no enterprise income tax is normally payable.

Mechanisms for Lenders to Obtain Insurance Proceeds

Project asset policies are not structurally barred from paying foreign creditors. The lender is usually not the sole insured or beneficiary but is brought into the policy through one or more mechanisms:

• naming the lender (and its agent or trustee) as a co-insured;
• naming the lender as loss payee or first beneficiary; or
• an assignment or pledge of the right to claim proceeds.

Insurable Interest

Under the Insurance Law, the insured of property insurance must have an insurable interest in the subject matter at the time of the insured event, otherwise no claim may be made. A lender holding a security interest and corresponding economic stake in the collateral is generally regarded as having an insurable interest, and insurers commonly accept naming the financier as a co-insured.

Cross-Border Payment and Compliance

Payment of insurance proceeds to a foreign creditor is a cross-border transfer subject to foreign exchange rules, usually classifiable under the current account (services/compensation); the project company or a related party may purchase and remit foreign exchange on the basis of the policy and claims materials, subject to the bank’s review. If the policy is underwritten by an offshore insurer, the Article 7 onshore placement requirement applies; cross-border project finance therefore generally uses an onshore policy as the base, adding offshore capacity through reinsurance or co-insurance rather than direct offshore placement.

General Rule on Interest Withholding Tax

Interest income sourced in China received by a non-resident enterprise (with no establishment in China, or whose income is not effectively connected with one) is subject to enterprise income tax at the current effective rate of 10%, commonly called interest withholding tax. The onshore payer is the withholding agent and must withhold at source upon payment or when due; an onshore project company paying loan interest to a foreign lender must therefore generally withhold income tax at 10%.

Exemptions

Interest is exempt in the following cases:

• interest on loans from a foreign government to the Chinese government;
• interest on preferential loans from an international financial organisation to the Chinese government and resident enterprises; and
• other income approved by the State Council.

Preferential loans provided or guaranteed by a foreign government, export credit agency or qualifying international financial institution may therefore be exempt.

Tax Treaty Relief

A foreign lender resident in a country or region with a tax treaty (arrangement) with China that qualifies as the beneficial owner may apply a lower withholding rate (for example, 7% under the Mainland–Hong Kong arrangement). The taxpayer must provide a tax residence certificate and satisfy the beneficial owner test to prevent treaty abuse.

Principal and Other Payments

Repayment of principal is a return of capital, not income, and is not subject to withholding tax. Withholding tax is levied on the full gross amount, and the withholding agent bears declaration and withholding obligations; computation and currency conversion follow the source withholding rules for non-resident enterprises.

VAT

Loan interest is a “loan service” subject to 6% VAT. For onshore borrowers, input VAT on interest paid for loan services is not creditable; the VAT borne for project financing is generally part of the borrower’s actual financing cost, as is input VAT on loan-related advisory, handling and consulting fees.

Stamp Duty

Under the Stamp Tax Law, loan contracts are stamped at 0.005% of the loan amount, but this item is limited to loan contracts between banking financial institutions (and other approved financial institutions) and borrowers, excluding interbank lending, and the tax base excludes interest. Contracts between financial institutions and small and micro enterprises are currently exempt.

Other Taxes and Charges

For cross-border loans, interest received by a non-resident enterprise may, in addition to withholding tax, attract surcharges such as urban maintenance and construction tax and education surcharge levied on the VAT actually paid. For the project itself, customs duty and import VAT on imported equipment form part of the project cost and, though not borne directly by the lender, affect bankability and debt-service capacity.

Tax Gross-Up and Contract Arrangements

Financing documents usually include a tax gross-up clause obliging the borrower to make additional payments where a change of law or withholding reduces the lender’s net receipts. Such clauses are enforceable under Chinese law, but must be designed in light of cross-border payment, external debt and tax compliance requirements.

China has no standalone usury law; interest rate caps differ by lender. For private lending between natural persons, legal persons and unincorporated organisations, the SPC’s judicial interpretation caps interest at four times the one-year Loan Prime Rate (LPR) at contract formation, with any excess unprotected. The interpretation expressly does not apply to financial institutions approved by the financial regulator to carry on lending, nor their branches.

Judicial Adjustment of Financial Institution Loans

Loans by banks and other licensed financial institutions are not subject to the four-times-LPR private lending cap, and are market-priced. However, where interest, penalty interest, compound interest and liquidated damages under a financial loan contract, taken together, are manifestly disproportionate to actual loss, the court may, by reference to financial adjudication policy, adjust the part exceeding a composite annualised rate of approximately 24%. Financial institution loans thus enjoy headroom above the private lending cap but remain subject to a judicial prudence red line.

Practical Impact on Project Finance

In project finance, lenders are usually licensed financial institutions or approved foreign banks, whose loans use market-based rates and are not subject to the four-times-LPR cap, but the combined design of interest, penalty interest, default interest and fees should remain within a reasonable range to avoid judicial reduction. For cross-border loans choosing foreign law, these interest rules, as mandatory considerations of financial order, may still have effect in onshore proceedings.

Purely Domestic Project Agreements

For projects whose parties, assets and performance are all in China, project agreements are governed by Chinese law; without a foreign element, the parties may not choose foreign law.

Party Autonomy for Foreign-Related Agreements

Where the project agreement involves an offshore party or another foreign element, the parties may choose the governing law; absent a choice, the law most closely connected with the contract applies. Some commercial contracts in cross-border projects may therefore choose foreign law.

Mandatory Application of Chinese Law to Specific Agreements

Project agreements involving public interest or administrative regulation are generally required to be governed by Chinese law. Concession agreements and agreements under PPP, because of their administrative permit and public service character, are governed by Chinese law and subject to the domestic regulatory framework. Arrangements concerning onshore immovables, land use rights and buildings under construction are also governed by Chinese law by virtue of the situs rule. Matters involving foreign investment access, national security review and mandatory provisions of Chinese law are governed by Chinese law and cannot be excluded by choice of law.

Domestic Financing Agreements

Onshore loan agreements and security documents without a foreign element are governed by Chinese law. The parties may not choose foreign law.

Cross-Border Financing Agreements

Foreign-related loan agreements (including syndicated and offshore loans) allow the parties to choose the governing law; cross-border project finance loan agreements often choose English, Hong Kong or New York law. Such a choice is generally respected by Chinese courts unless it evades mandatory provisions of Chinese law or harms China’s social public interest.

Limits on the Governing Law of Security Documents

Even where the financing agreement chooses foreign law, proprietary security arrangements over collateral located in China remain subject to Chinese law:

• immovable mortgages are governed by the law of the immovables’ location (Chinese law) and must be registered onshore;
• pledges of rights are governed by the law of the place where the pledge is created; and
• equity and accounts receivable pledges must be registered under Chinese law.

Cross-border project finance therefore typically adopts a layered structure in which the principal financing agreement is governed by foreign law and the onshore security documents by Chinese law.

Whether or not the project or financing agreements choose foreign law, the following matters are generally mandatorily governed by Chinese (domestic) law and cannot be excluded by choice of law.

• Creation and registration of security interests – the creation, perfection and priority of immovable mortgages, movable mortgages, equity pledges and accounts receivable pledges are governed by Chinese law and must be registered with the relevant registry. Identification, priority and enforcement of collateral follow Chinese law.
• Foreign exchange management and external debt registration – external debt quotas, contract registration, cross-border security registration and foreign exchange procedures for repayment are mandatory.
• Foreign investment access and national security review – the negative list, access management and any national security review are governed by Chinese law.
• Establishment and governance of the project company – its legal capacity, organisation, shareholders’ rights and obligations and liquidation are governed by the law of its place of registration (China).
• Insolvency and priority – insolvency proceedings, the definition and distribution of the estate, and statutory priorities such as construction work payment and consumer home-buyers’ priority are governed by Chinese law.
• Taxation – administration of withholding tax, VAT, stamp duty and surcharges is governed by Chinese tax law and cannot be excluded by choice of law.