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Ministries to Clean Up Security Deposits in Construction Engineering Sector

The Ministry of Industry and Information Technology and Ministry of Finance recently issued a circular on cleaning up and regulating security deposits borne by enterprises in the construction engineering sector in keeping with the arrangements of the State Council.

The Circular specifies the scope of the clean-up. Specifically, all security deposits required by administrative organs and payable or borne by enterprises (including deposits, guarantees and collaterals) are subject to the present exercise.

Security deposits in the construction engineering sector will be regulated in accordance with the requirements set out in the Circular of the General Office of the State Council on Cleaning Up and Regulating Security Deposits in the Construction Engineering Sector (Guo Ban Fa No. 49 [2016]). Security deposits arising from fully market-oriented activities and insurance and security funds paid by financial institutions are not included in this clean-up. There are 24 types of security deposits in the construction engineering sector alone, with annual payment estimated to be worth over 1 trillion yuan.

The Circular stresses the need to observe the following principles in the clean-up work:           

1. All security deposits not based on laws and administrative regulations and not approved by the State Council shall be abolished.

2. Security deposits explicitly cancelled or suspended by the government shall be strictly stopped and may not be collected in other names.

3. Security deposits that have reached maturity or meet bail-out conditions shall be returned within the prescribed time in accordance with the amended repayment schedules, and payment may not be deferred for any reason.

4. Security deposits shall not be required for projects that can be better regulated through stronger operational and post-operational oversight.

5. Security deposits with the same or similar administrative functions shall be combined and payment standards shall be unified to avoid multiple law enforcement, overlapping law enforcement and excessive law enforcement.

6. If the laws and regulations upon which the requirement of security deposit is based have been amended, the name, form and amount of payment, bail-out period and so on must be updated accordingly.

7. Every effort shall be made to lower the standards for the payment of security deposits and shorten the duration of fund usage.

For the full text of the Circular in Chinese, please see:

http://www.gov.cn/zhengce/content/2016-06/27/content_5085975.htm

Content provided by Picture: HKTDC Research
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