Investors adjust to limited China enforcement rights

Author: Brian Yap | Published: 23 May 2016

Market participants warned foreign investors not to underestimate the difficulty of enforcing rights in a default situation onshore, and the importance of conducting due diligence on People’s Republic of China (PRC) enterprises at Latham & Watkins’ Debt Restructuring Conference in Hong Kong last week.

The People’s Bank of China issued new guidelines in early May, allowing foreign direct lending to PRC enterprises, marking a departure from previous rules in which special approval from the State Administration of Foreign Exchange (SAFE) was needed in such a provision.

But panelists warned foreign investors of potentially negative consequences when overlooking the importance of assessing the financials of PRC enterprises when investing onshore, citing the difficulty for foreign parties to enforce their rights in a default case onshore.

"The whole enforcement situation onshore is...