New PRC cross-border guarantee rules

By Jem Li and April Wang

On 12 May 2014, the State Administration of Foreign Exchange (SAFE) issued the Rules on the Foreign Exchange Administration for Cross-border Guarantee (Hui Fa [2014] No. 29), which will become effective as of 1 June 2014.

In a major effort to further deregulate government control of capital, SAFE has taken one more step to basically eliminate the requirement of its prior approval of cross-border guarantee of loans and investment agreements. The significant changes brought by the rules will be welcome news to PRC companies as it would be less burdensome and less costly for them to provide guarantees to their offshore subsidiaries, as well as to foreign companies or governments. This is because under the rules they no longer have to deal with the uncertainty of not knowing if the terms of guarantees of loan agreements or investment agreements they negotiated with PRC parent companies will or will not obtain SAFE approval.

The rules have the following significance…

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