SAFE significantly eases restrictions on cross-border security and guarantees

By Robert Caldwell,  Carolyn Dong,  Paul Lee and  Timothy Tan

On 19 May 2014, the State Administration of Foreign Exchange (SAFE) of the People’s Republic of China (PRC) formally issued the Foreign Exchange Administration Rules on Cross-border Security and its corresponding implementation guidelines (Hui Fa [2014] No. 29) (collectively the ‘new regulations’).

Among the most exciting changes is that the new regulations, which come into effect on 1 June 2014, will allow domestic onshore entities and individuals in China to grant security and provide guarantees to offshore creditors (‘outbound security’) without the need for SAFE approval. Prior to the new regulations, the provision of outbound security was subject to SAFE’s review of whether a set of onerous requirements had been satisfied, including those relating to the principal debtor’s profitability and the security provider’s net assets position, total foreign currency revenues and affiliation with the principal debtor. In many cases, these requirements effectively rendered outbound security arrangements prohibited or at least impractical…

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