Over the past five years, local Chinese banks have become increasingly active in leveraged buyout (LBO) financings, especially those backed by international private equity (PE) firms. These banks offer terms (including loan tenure, pricing, financial ratios and loan size) that are more favourable than those offered by international banks. This trend is particularly noticeable in leveraged financing deals aimed at privatising Chinese companies listed in the US.

International banks remain the preferred financiers for multinational companies operating in China.

Mezzanine debt funds have also been active in the high-yield lending market, targeting Chinese real estate developers affected by a significant liquidity shortage in the real estate capital market. These funds, primarily from insurance companies, provide mezzanine financing to PE sponsors aiming to sustain their senior financing and maintain their loan-to-cost (LTC) ratios when the valuation of their portfolio companies significantly decreases. These aspects will be discussed in greater detail in subsequent sections.

The most common LBO transactions involve PE sponsors and international companies selling their China portfolio companies to international strategic buyers, domestic state-owned enterprises (SOEs) or insurance companies. PRC insurance companies and SOEs are the main buyers in these transactions, and typically do not pursue IPOs or trade sales as exit strategies; instead, they prefer targets that offer stable cash yields. Chinese banks have provided robust financing support to these deals, offering favourable interest rates, financial covenants and large loan sizes, as the targets generally have strong cash profiles and are considered attractive assets. Loan documentation often adheres to standards set by the Loan Market Association (LMA) or Asia-Pacific Loan Market Association (APLMA), and is widely accepted by Chinese commercial banks.

Caution persisted in the LBO market in 2023 as buyers and sellers struggled to bridge valuation gaps. Deals were delayed due to various factors, including high USD interest rates, regulatory scrutiny over PRC lenders providing RMB loans to offshore borrowers, geopolitical risks and multiple macroeconomic uncertainties. The declining equity valuations and fewer new IPOs in the region's capital markets have made it challenging for PE sponsors to exit their portfolios. Many PE sponsors in this region are seeking refinancing for their existing leveraged deals or recapitalisation financing for their portfolios to meet the distribution to paid-in criteria required by their limited partners (LPs).

While lenders are familiar with traditional refinancing, they find recapitalisation financing challenging for the following two main reasons.

• The China Banking and Insurance Regulatory Commission (CBIRC) has issued guidelines that impose strict limitations on the purposes of loans. For instance, PRC banks were not authorised to fund equity acquisitions through bank loans until the Acquisition Loans Guidelines were officially issued in 2008 (and later revised in 2015). Therefore, loans for purposes not explicitly permitted by CBIRC rules, such as recapitalisation through dividend distribution, are usually funded by international lenders or certain offshore branches of PRC banks.
• Some PRC banks are wary of providing loans for dividend recapitalisations due to ethical concerns. They perceive that such transactions primarily benefit PE sponsors by enabling early returns, potentially at a time when the portfolio companies are not yet ready for a significant IPO or trade sale. This could increase the banks' risk exposure, as the borrowers' ability to repay may be compromised by the additional recapitalisation loans.

Another common challenge for PE sponsors in this market is the maximum term for acquisition loans in China, which cannot exceed seven years. Sponsors are often unable to secure an exit through an IPO or trade sale by the time the loan matures, so they must orchestrate a new acquisition transaction (or set up a continuity fund) to finance a new deal on the same target, using the new loan proceeds to retire the debts from existing lenders. This new fund structure allows new investors, seeking fixed returns similar to those of mezzanine credit investors, to join (by contributing new cash) existing LPs, which will roll over their shares into the new fund. Despite significant valuation markdowns demanded by senior lenders and mezzanine investors, this strategy helps to maintain the overall loan-to-value (LTV) ratio based on current market valuations, thereby not materially altering the internal rate of return for original LPs.

Faced with challenges in raising funds from US or European LPs for new transactions, Asian-based General Partners (GPs) are now turning to RMB LPs and other Asian sovereign wealth funds. By establishing funds onshore in China, these sponsors can access lower-cost RMB lending sources – the RMB lending base rate is lower than that in Western markets for the first time in 30 years, in a trend expected to continue. This arrangement enhances lenders' risk appetite by aligning them closer to the target assets and the cash flows they generate, while also allowing sponsors to benefit from onshore interest costs as a tax shield, which is not available when acquisition loans are made to an offshore holding company.

For complex acquisition finance/LBOs where the borrower is an offshore entity, Hong Kong law is frequently used and accepted by lenders and sponsors.

PRC law has been the prevailing choice for domestic corporate and acquisition loans where both lenders and borrowers are onshore entities.

APLMA standard documents are widely used in cross-border transactions in this region. For domestic transactions (particularly where the lenders are Chinese banks), local Chinese banks normally encourage the use of template documents formulated by each bank or those prepared by the China Banking Association.

For complicated leveraged financing transactions with foreign sponsors, Chinese banks can accept and execute the English version of loan documents (with no Chinese translation or Chinese version), according to the PRC counsel’s opinion in reconciling the consistency of English terms with their credit committee approvals.

PRC branches of international banks can only accept and execute the Chinese version of loan documents when their borrowers are PRC local companies, while the prevailing market practice is to adopt the English version for the facility agreement (with the Chinese translation or summary) and the Chinese version for security documents, to accommodate local registration requirements.

Counsels are expected to cover the following aspects in their opinion:

• due incorporation and the valid existence of the borrower;
• authorisation of finance documents;
• due execution, not conflicting with the law, legality, validity and enforceability of finance documents;
• creation of security;
• applicable tax;
• choice of law; and
• dispute resolution and venue.

PRC lenders may also look for opinions on compliance with certain regulatory requirements, including the foreign debt registration as required by the National Development and Reform Commission of China and/or the State Administration of Foreign Exchange of China (SAFE), the LTV/LTC regulatory ratio, etc.

To contemplate an easier route of investment exit given the cross-border foreign exchange control (from the investor’s perspective) and enjoy certain tax benefits offered by an offshore sale structure (from the seller’s perspective), sellers of PRC assets prefer, or are asked by investors, to set up an offshore investment holding structure and place their PRC operating companies or assets under such offshore holding companies. The acquisition is usually constructed as a sale and purchase of shares in offshore holding companies.

In such a deal construct, the senior loans normally comprise two tranches:

• one offshore tranche extended to the acquisition vehicle of the buyer financing the purchase consideration; and
• one onshore tranche extended to the main onshore operating company to take out the existing corporate or construction loans.

The offshore tranche is still categorised and priced as a senior loan, but the offshore loan is technically structurally subordinated to the onshore loans. For real estate loans, offshore lenders will seek to have a second lien mortgage over the onshore real estate properties to improve their subordination position, which may face challenges as outlined in the upstreaming security section in 3.4 Bonds/High-Yield Bonds (Offshore Issuer). Hence, this request is rarely accepted in sponsor-financed transactions.

Many offshore lenders also manage to enter into intercreditor agreements with onshore lenders to share security or achieve co-ordinated security enforcement arrangements, which can also prove to be quite challenging, as discussed in 4. Intercreditor Agreements.

For those domestic LBO deals where both lenders and borrowers are PRC entities, an offshore investment holding structure is not a must. There will be only one senior acquisition loan, to be provided by onshore lenders to the onshore borrower for its acquisition of the equity interest of the onshore target company from the seller.

Mezzanine loans are not commonly seen in sponsor financing, as PE sponsors may easily access 60‒65% LTC loans from senior lenders in this market (with combined use of onshore and offshore loans, since onshore lenders are subject to a regulatory cap of 60% LTC for acquisition loans).

Mezzanine loans are more frequently seen in real estate financing extended to real estate developers, which cannot use bank loans to finance their land acquisitions or are restricted to bank loans to finance their operating expenditures or capital expenditures when they fail to meet certain regulatory financial ratios. Such real estate developers will place their onshore development companies under an offshore holding company, which will utilise mezzanine loans from credit funds and then infuse equity into onshore project companies. Such a mezzanine loan will normally yield 12‒18% interest but will obviously be structurally subordinated to onshore senior creditors without the protection of an intercreditor arrangement.

A new mezzanine structure has been seen in continuity fund deals, as discussed in 1.2 Corporates and LBOs.

There are bridge loans in LBO deals, where the target is cash-rich but cannot provide cash security to the acquirer due to financial assistance restrictions. In a typical reverse merge deal, the lenders may extend a cash bridge facility to the merger subsidiary of the sponsor, supported by the agreed amount of cash from the target company being placed into an escrow account opened with the lender (not a security, given the financial assistance restriction). Such escrow arrangement will be replaced by a cash pledge or account charge arrangement after closing the contemplated merge. The cash bridge loan will remain if the target’s PRC operating subsidiaries do not want to pay dividends from the charged cash to the offshore borrower due to the potential tax leakage, but will otherwise be paid off if they want to distribute dividends to an offshore borrower.

PRC companies may adopt two different types of issuer structures to issue bonds/high-yield bonds in the offshore capital market:

• offshore issuer; and
• onshore/domestic issuer.

Offshore Issuer

The founders of a PRC company may establish a Cayman entity as an offshore holding company and bond issuer, which will, in turn, own a series of PRC operating entities via one or more British Virgin Islands and/or Hong Kong intermediary holding companies. Bonds issued by such issuer may utilise the following credit enhancement routes.

• A pure credit bond: investors may be entirely comfortable with the credit profile of the issuer and its onshore subsidiaries and require no other credit enforcement.
• A Listco guarantee: some Hong Kong Listcos may carve out some PRC assets and place them under a standalone Cayman issuer, which will issue bonds/high-yield bonds. The Listco will still guarantee these bonds to enhance its credit profile.
• Upstreaming security: to improve the bondholder’s structured subordination position, PRC operating entities may provide asset collateral (including a real property mortgage, an equity pledge, etc) to secure the offshore bonds. This is regarded as an outward security securing offshore debt under PRC law, which must be registered with SAFE. Such registration is a merit review and will not survive SAFE scrutiny unless the offshore bond issuer (on a standalone basis) can prove that it has stabilised cash flow to service offshore debts, and that the likelihood of the upstreaming security being enforced is low. Failure to complete the registration will not render the guarantee/security documents invalid, but outbound remittance of the enforcement proceeds or performance payments could be delayed or blocked, as the account banks processing such remittance are under a regulatory obligation to verify the SAFE registration certificates.
• Keepwell: considering the challenges from the guarantee or upstreaming security structure, Keepwell undertakings from the onshore parent of the issuer are also commonly adopted. Typically, the parent acting as the Keepwell provider will undertake to investors that it will disburse funds offshore from the PRC to provide certain financial or liquidity support to the offshore issuer. The parties will acknowledge that the Keepwell arrangement is not a guarantee.

Onshore/Domestic Issuer

PRC companies may issue bonds/high-yield bonds directly into the offshore capital market. Typical credit enhancement measures may include:

• a standby letter of credit issued by a commercial bank, which is counter-guaranteed by the parent group; and
• if the issuer is separated from its parent group, a guaranteed provided by the parent group.

The structure for private placements/loan notes is almost identical to that outlined in 3.4 Bonds/High-Yield Bonds.

In the acquisition finance area, direct purchase of the assets may not be a preferred choice mainly due to tax considerations. As mentioned, PE sponsors typically carry out acquisitions by way of equity rather than asset transactions. Therefore, in the PRC market, asset-based financing deals are not frequently seen in industries other than real estate. For real estate loans, lenders usually adopt similar secured lending structures to those discussed in 3.1 Senior Loans, with the typical security package comprising the following, with the purpose of ring-fencing the asset values and the future cash flows of the borrower:

• a mortgage over the property;
• a pledge over the account receivable if the property is leased; and
• an assignment of rights under the material contracts, including insurance policies and leases (to the extent that such rights are not subject to the receivable pledge above).

In asset-based lending, considering the assets (together with the cash flow generated during the loan tenor) will be the core repayment sources, this structure is less attractive to international banks if there is an offshore tranche, because of the structural subordination issue.

Some PRC banks, on the contrary, will consider extending the offshore tranche loans through their free-trade zone (FTZ) branches. As the FTZ branches are PRC entities, second lien mortgages created in favour of those bank branches will not constitute outward security requiring SAFE registration. As such, PRC banks with FTZ branches are key participants in this niche market.

A typical intercreditor agreement under an offshore/onshore dual tranche transaction includes the following arrangements.

Priority of Payments

As discussed in 3.1 Senior Loans, the offshore loan is structurally subordinated to the onshore loan, and the intercreditor agreement will specify the types of payments that the onshore lenders can receive pursuant to the onshore finance documents. While the scope of such types of payments is deal-specific and will be negotiated, the market consensus is that only enforcement proceeds recovered by the onshore lenders should be subject to payment subordination, while other regular payments under the finance documents (including payment of interest or default interest, repayment or prepayment of onshore loans, and payment of indemnities, costs and expenses) should be permitted as long as no default has occurred and/or is continuing.

Standstill

All the lenders must refrain from taking any action to accelerate the loan or otherwise enforce any part of the security package within 90 days of the occurrence of an event of default (and, if agreed, for a further 90 days), and must do their best to reach a consensus on how to enforce the security package (either an offshore sale of shares or an onshore sale of real properties and other operational assets).

Sharing of Security Proceeds

Onshore and offshore lenders agree to share the security enforcement proceeds on a pro rata basis. This is not easily achievable due to PRC foreign exchange control rules, including that:

• PRC lenders are not allowed to voluntarily waive part of their entitlement to the outstanding loan amounts or security proceeds unless they have special approval from the banking regulator; and
• PRC borrowers or security providers may not provide upstreaming security to offshore lenders unless such security is registered with SAFE, which is a merit review, and meets specific conditions that are not easy to satisfy.

Call Option

Onshore and offshore lenders will grant each other a call option to purchase the entire portion of outstanding loans held by another group of lenders when both sides cannot reach a consensus on how to enforce the security package.

The approach to bank/bond deals is similar to that detailed in 4.1 Typical Elements.

The role of hedge counterparties is similar to the roles described in standard LMA International Council on Archives documents. The hedging arrangements may be put in place prior to or post signing. Typically, the hedging liabilities for the senior debt and the senior debtor will rank pari passu, and the hedging counterparties will benefit from the same guarantees and security package of the senior debt.

In sponsor financing, the borrower will also request to select, at its discretion, a hedge counterparty that is not a syndication lender. However, the lender will usually ask for a first right to offer and a last right to match the hedging terms, thereby limiting the possibility for a third-party creditor to come in and share the guarantees and securities.

Shares

Pledges can be created over shares in a limited liability company.

Inventory

A mortgage on the inventory, including raw materials, semi-finished products and finished products, can be created.

Bank Accounts

A pledge over bank accounts (in essence, a pledge over the deposits therein) will only be recognised when:

• the pledgee has actual control over such account; or
• the inflow and outflow of funds are for one specific category of use.

Receivables

Pledges of account receivables can be used rather than the security assignment or the debenture, as frequently used in other jurisdictions.

IP Rights

A pledge over IP rights can be created.

Real Property

Mortgages over real properties can be created.

Movable Properties

A pledge over movable properties is possible when possession of such properties could be delivered to the creditors. If possession is not deliverable, then a mortgage over movable properties can be created.

There are no form requirements under PRC law.

Share Pledge

Shares of a non-public company are to be registered with local branches of the State Administration of Market Regulation, and shares of a listed company are to be registered with the China Securities Depository and Clearing Corporation (CSDCC).

Bank Account Pledge

There is no registration requirement, but the pledgee should either control such an account or designate an agent to control the account.

Receivables Pledge

Registration with the online registration platform of the People’s Bank of China (PBOC) is required – ie, registration with the Unified Registration and Publicity System for Movable Property Financing of the Credit Reference Centre of the PBOC (the “PBOC System”).

IP Rights Mortgage

Registration of trade mark rights and patent rights with the China National Intellectual Property Administration is required, as is registration of copyrights with the Copyright Protection Centre of China.

Real Property Mortgage

Registration with the real estate exchange centre in different localities is required.

Movable Property Mortgage

Registration with the PBOC System is required.

When both the parent company (“ParentCo”, LBO loan borrower) and operating subsidiaries (“Opco”) are PRC domestic companies, there appear to be no legal constraints preventing Opcos from providing upstream security to the ParentCo. When the Opco is a joint venture with a partner outside the ParentCo group, then such upstreaming security must be approved by the shareholders’ meeting of the Opco, with the ParentCo refraining from voting.

When the ParentCo is an offshore company and the Opcos are PRC domestic entities, the Opcos are unable to provide upstream security to the ParentCo unless they can register such upstream security with SAFE as an outward security for offshore debts, which is not easily achievable, as discussed in 4.1 Typical Elements.

The Administration Rules for a Listco Takeover provide that a listed company in the PRC is not permitted to provide financial assistance to an acquirer. Such restriction does not apply to non-public companies, which can provide security to support the financing of an acquirer as long as such security is properly approved by the shareholders/directors.

PRC law does not have a general corporate benefit test requirement, although if a company is to provide security for the indebtedness of a third party, this security must be approved by the shareholders’ meeting or board meeting, pursuant to the stipulations of the articles of association of the company.

PRC company law provides that a connected shareholder must refrain from voting on resolutions regarding the company providing security to a creditor for the benefit of such connected shareholder, to avoid the majority shareholders of a company abusing the assets and resources of the company.

In a typical onshore/offshore PRC acquisition financing, there are three principal methods of loan enforcement for the offshore lenders.

Option 1: Enforcement of the Offshore Security

This involves the sale of the offshore borrower’s equity interests pursuant to the enforcement of the relevant share charge, or the sale of the PRC wholly foreign-owned entity (WFOE), which is owned by the offshore borrower, pursuant to the enforcement of the equity pledge. The objectives of taking enforcement steps offshore are to:

• seek to obtain control over the WFOE through taking control of the offshore borrower (or other offshore obligors, if any); and
• ring-fence and preserve the assets of the WFOE (in particular, the real property) with a view to assessing the feasibility of a consensual restructuring, or alternatively disposing of the assets.

These objectives are driven by the fact that substantially all the valuable assets of the group obligors are held by the WFOE. However, the offshore lenders do not have any direct security over such assets, nor do they have the right to share in any recoveries from the enforcement of the onshore security documents.

Subject to the stipulations under the borrower share charge and the applicable laws in the foreign jurisdiction where the borrower is incorporated, the offshore lender typically has contractual rights under the borrower share charge to effect certain self-help remedies to sell the shares of the offshore holding company to a third party. This would be the quickest method, if the offshore lender can locate a third-party purchaser ready to close the deal.

Option 2: Sale of the Onshore Business/Assets in Connection With Exercising the Offshore Security

By enforcing the security over the shares in the offshore borrower (by appointment of a receiver or, if permitted, sale to a nominee of the offshore security agent), the offshore lender can effectively control the borrower and the WFOE from offshore.

The benefit of obtaining management control of the WFOE is that it will give greater flexibility for the offshore and onshore lenders to co-operate to effect a consensual enforcement of the onshore securities (rather than a court-based enforcement). In the event that enforcement action is taken onshore, it will also be necessary for the offshore lender to have control of the WFOE in order to control the upstreaming of any excess proceeds from the enforcement (after discharge of the onshore loan) to repay the offshore loan.

In particular, upon taking such control, the offshore lender can:

• assess the financial position of the WFOE;
• seek to control cash flow and prevent the incurrence of further liabilities or dissipation of assets by the WFOE;
• initiate the onshore sale of the business/assets;
• to the extent possible, repatriate sale proceeds by way of dividend;
• if there is a shareholder loan, cause the WFOE to repay the shareholder loan in full; or
• cause the directors of the WFOE to commence onshore liquidation and repatriate the remaining funds after the liquidation proceeding.

Option 3: Enforcement of the Onshore Property Mortgage

This involves enforcement of the first-priority mortgage over onshore assets (including real property and other movable assets) and then the repayment of the onshore loan and repatriation of the sale proceeds outside the PRC to repay the offshore loan through repayment of a shareholder loan, a declaration of dividends or the winding-up of the WFOE.

The attractiveness of enforcing through the property mortgage will depend on a number of factors, including:

• who benefits from the mortgage (ie, just the onshore lender or also the foreign shareholder) relative to who is initiating the enforcement process (eg, the offshore or onshore lender); and
• the degree of mortgage coverage and the likelihood of other creditors.

Unless the onshore borrower agrees, the enforcement of mortgages is a court process, which could be time-consuming. An offshore lender is unlikely to look to the mortgage as a means of enforcement if it has no or limited mortgage coverage (often the case), while an onshore lender will view mortgage enforcement as one of its primary means of enforcement.

Under PRC law, a creditor with a mortgage over a debtor’s property may enforce its remedies under the mortgage through a consensual sale and/or a judicial sale. In each case, the creditor will have lien priority over all junior secured creditors and all unsecured creditors with respect to the proceeds of the sale of the property.

Since sponsor deals are usually non-recourse deals, there will be no sponsor guarantees, and the typical type of guarantees will include:

• before acquisition closing, guarantees from the acquisition SPV and the intermediary holding companies underneath it; and/or
• after acquisition closing, guarantees from the target company (if not merged with the acquisition SPV) and its operating subsidiaries (or selected material subsidiaries).

When both the ParentCo/LBO loan borrower and the Opco are PRC domestic companies, there are no legal constraints preventing the Opcos from providing upstream guarantees to the ParentCo.

When the ParentCo is an offshore company and the Opcos are PRC domestic entities, the Opcos are unable to provide an upstream guarantee to the ParentCo unless they can register such upstream guarantee with SAFE as outward security, which is not easily achievable.

The Administration Rules for Listco Takeover provide that a listed company in the PRC is not permitted to provide financial assistance (including a guarantee) to an acquirer. This restriction does not apply to non-public companies, however, which can provide security (including a guarantee) to support the financing of acquirers as long as such security is duly approved by the shareholders/directors (and, in the case of a listed company, making public announcement via the relevant stock exchange).

It is not mandatory under PRC law for parties to collect guarantee fees. In the market, it is also rare for an affiliated guarantor to charge guarantee fees to another guaranteed affiliate.

There are no enacted laws or regulations clearly recognising equitable subordination. Contractual subordination arrangements between the senior creditor, the subordinated creditor and the debtor are generally recognised by PRC law.

When the target company provides security to an acquirer within the claw-back period before filing for bankruptcy (one year before the court’s acceptance of a bankruptcy petition), such security may be viewed as a preferential or fraudulent property transfer by the target company. The bankruptcy administrator may then decide to void such security provision and recover the property if they can prove that the property transfers were made with the intent to hide assets or that the transfers of property were for less than the fair market value before the bankruptcy of the target company. There are not many such precedents in PRC insolvency law practice.

The main mitigant could be that such security creation was approved by a shareholders’ meeting of the target company, with the connected shareholder refraining from voting on said resolution.

PRC tax authorities will generally charge each lender and borrower stamp tax of 0.05% of the committed loan amount.

There is no withholding tax if both the borrower and the lender are PRC entities. An offshore lender that does not have any presence in the PRC but receives profits, interest or other income from the onshore borrower is subject to withholding tax on that income. The withholding tax rate is 10%, unless the offshore lender is from a jurisdiction with which the PRC has entered into a tax treaty that allows a preferential rate.

According to the PRC Enterprise Income Tax Law, the interest expenses paid by a PRC company to its affiliates for outstanding loans not exceeding the prescribed ratio of the debt investment and equity investment from its affiliates are deductible for corporate income tax purposes, while the interest expenses for the excess portion of loans may not be deductible. 

The prescribed ratio of debt investment and equity investment is generally 2:1, except in the case of financial enterprises, where the ratio will be changed to 5:1.  

The newly amended PRC Company Law, which will come into effect on 1 July 2024, introduces a new provision regulating the joint stock company’s provision of financial assistance in the context of such company being taken over. The company shall not provide gifts, loans, guarantees or other financial assistance to another person to facilitate its acquisition of shares of the company or its parent company, unless:

• it is to implement employee stock ownership plans; or
• it is for the benefit of the company, as resolved by the shareholders’ meeting or the board of directors (in accordance with the articles of association or the authorisation of the shareholders’ meeting, and with the affirmative votes of not less than two thirds of all directors) and the cumulative total amount of financial assistance shall not exceed 10% of the issued share capital.

Notably, the provision does not apply to the takeover of limited liability companies.

In respect of a tender offer on a listed target, the financial adviser must conduct due diligence over the acquirer’s financial capability and source of funds. The acquirer must provide at least one of the following facilities to demonstrate its payment ability:

• for cash consideration, the acquirer must deposit cash in an amount of no less than 20% of the total consideration with a bank designated by the CSDCC;
• for stock consideration, the acquirer must deposit all stock consideration with the CSDCC for custody;
• a bank guarantee to secure the payment of the entire offer consideration; or
• joint and several undertakings from the financial adviser to pay any shortfall of purchase consideration not paid by the offeror.

For leveraged deals where banks provide financing, the lenders can provide debt commitment to sponsors on a certain funds basis, on terms conforming to LMA standards.

There are no other relevant acquisition finance issues in the PRC.