The 10 Most Controversial Questions About Fixed Asset Loans in China (2025 Regulatory Guide)

With $4.2 trillion in outstanding fixed asset loans in China’s corporate lending market, international investors increasingly encounter complex compliance scenarios. This definitive 2025 guide examines the most debated use cases—from debt refinancing to intangible asset financing—with actionable insights for North American businesses operating in China.

1. Permissible Use Cases Under PBOC Guidelines

Core Applications:

• Greenfield construction (new factories/data centers)
• Brownfield expansion (production line upgrades)
• Strategic acquisitions (qualifying equipment/real estate)

Gray Areas Requiring Special Approval:

• Intangible assets: Patent financing now allowed under 2024 regulatory update
• Leasehold improvements: Tenant upgrades to rented properties (approved August 2024)
• Pre-construction costs: Up to 15% of total project value

2. Top 10 Controversial Scenarios Explained

① Cross-Bank Loan Refinancing

Compliance Checklist:

• New appraisal of underlying collateral (USPAP standards)
• Documentation of original loan purpose (supply contracts + payment trails)
• Maximum 10-year blended tenure (existing + new loan)

② Shareholder Loan Repayment

Permitted When:

• Funds originally used for qualifying capex
• Verified through:
  • Wire transfer records
  • Contractor invoices
  • Construction progress reports

Prohibited For:

• Land purchase financing
• Working capital gaps

③ Trust Loan Substitution

Key Distinction:

• ❌ Banned for intra-bank trust products
• ✔️ Allowed for third-party trust loans with:
  • Full audit trail
  • Independent collateral valuation

④ Interest Payment Financing

Capitalization Rules:

• During construction phase only
• Must align with IFRS capitalization standards
• Capped at project’s weighted average cost of capital

⑤ Payroll Expenditures

Allowable Cases:

• Direct construction labor (verified via payroll taxes)
• Engineering supervision teams
• Excludes: Administrative staff

3. Specialized Financing Structures

Intangible Asset Financing Timeline

Tax Payment Financing

Approved Uses:

• Property acquisition taxes
• Construction-related levies
• Excluded: Income/VAT payments

4. Risk Management Protocols

Red Flags for Lenders

🚩 Documentation Gaps
Missing:

• Notarized board resolutions
• Environmental impact statements

🚩 Cash Flow Mismatches
When:

• Debt service coverage <1.25x
• Revenue projections exceed sector benchmarks by >20%

🚩 Collateral Issues

• Unregistered security interests
• Outdated machinery appraisals

5. 2025 Regulatory Outlook

Upcoming Changes:

• Digital asset collateralization pilot (Q4 2025)
• ESG-linked pricing for heavy industry projects
• Stricter related-party transaction disclosures

Strategic Recommendation:
Structure loans with 18-month maturity buffers to accommodate regulatory shifts.” — Industrial Bank of China Risk Advisory