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China Releases Circular Regarding the Provisions on the Foreign Exchange Administration for Cross-Border Guarantee

On May 12, 2014, the State Administration of Foreign Exchange (SAFE) released the Provisions on the Foreign Exchange Administration for Cross-Border Guarantee (Hui Fa [2014] No. 29) (the “Provisions”), which became effective June 1, 2014. The Provisions replace 12 existing SAFE rules that regulate cross- border guarantees.

The Provisions streamline SAFE’s administration of cross-border guarantees by eliminating the registration procedure completely or narrowing the scope of registration for certain types of cross-border guarantees. More specifically, the Provisions include the following changes:

The Provisions define the cross-border guarantees to include three types: (i) where a Chinese guarantor provides guarantee to an offshore creditor for the benefit of an offshore debtor (Domestic Guarantee of Foreign Loans, or DGFL), (ii) where an offshore guarantor provides guarantee to a Chinese creditor for the benefit of a Chinese debtor (Foreign Guarantee of Domestic Loans, or FGDL), and (iii) any other types of cross-border guarantees (e.g., a Chinese entity providing guarantee to an offshore creditor for its own offshore debt).

  • With respect to DGFL, the Provisions repeal the quota management for financing DGFL and expressly permit PRC individuals to act as the guarantor.

  • With respect to FGDL, the Provisions repeal the quota management for pure domestic debtor and increase the loan amount limit to 100 percent of the net assets of the debtor.

  • With respect to other types of cross-border guarantees, no registration or filing is required.

  • The Provisions repeal the SAFE approval, registration and filing requirements for cross-border security agreements.

  • The Provisions eliminate the regulatory distinction of finance purpose guarantee and non-finance purpose guarantee.

  • The promulgation of the Provisions represents a significant step by SAFE towards streamlining administration and deregulating government control of capital in the area of cross-border guarantees. The changes in the Provisions will facilitate cross-border trade and bringing increased certainty and accessibility to the use of cross-border guarantees – which are welcome news to the market participants.

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About this Author

George Qi, Greenberg Traurig Law Firm, Shanghai, Corporate and Finance Law Attorney
Shareholder

George Qi is the Co-Managing Shareholder in the firm's Shanghai office. He practices primarily in China-related cross- border mergers and acquisitions, foreign direct investment and general corporate matters. He also has wide- ranging experience advising both U.S. and non-U.S. companies relating to internal investigations of FCPA or other regulatory violations.

Areas of Concentration

  • Corporate

  • Compliance

  • Foreign Corrupt Practices Act...

86021-6391-6633
Dawn (Dan) Zhang, Greenberg Traurig Law Firm, Shanghai, Corporate Law Attorney
Shareholder

Dawn (Dan) Zhang is Co-Managing Shareholder of the Shanghai Office and has broad experience advising clients on China-related cross-border mergers and acquisitions, restructuring, joint ventures, funds, and general corporate matters. Before joining Greenberg Traurig, Dawn practiced in other international law firms for many years and served as the PRC legal counsel for a multinational corporation, where she handled a wide variety of corporate matters for public and emerging growth companies. Dawn passed the national PRC judicial qualification examination in 1998 and is admitted to practice in New York.

Concentrations

  • Mergers and acquisitions

  • Funds

  • Foreign direct investment

  • Corporate governance and compliance

  • Life sciences

8621-6391-6633