On 12 May 2014, the State Administration for Foreign Exchange ("SAFE") of the People's Republic of China ("PRC") promulgated a new regulation titled "The Regulations on Foreign Exchange Administration of the Cross-Border Guarantee (跨境担保外汇管理规定)" (the "Cross-Border Guarantee Regulations"), which took effect on 1 June 2014. The Cross-Border Guarantee Regulations abolish a series of regulations previously issued by SAFE and bring substantial changes to the current cross-border guarantee regime.
The Cross-Border Guarantee Regulations divide cross-border guarantees into the following three categories:
- guarantees provided by an onshore guarantor for a debt owed by an offshore debtor to an offshore creditor (内保外贷, literally translated as "Onshore Guarantee & Offshore Loan");
- guarantees provided by an offshore guarantor for a debt owed by an onshore debtor to an onshore creditor (外保内贷, literally translated as "Offshore Guarantee & Onshore Loan"); and
- cross-border guarantees in other forms.
According to the new rules, PRC entities are no longer required to obtain the approval or quota from SAFE prior to providing "Onshore Guarantee & Offshore Loan" or "Offshore Guarantee & Onshore Loan", subject to certain conditions and requirements. Meanwhile, it is specifically provided that "individuals in China" are not prohibited from providing "Onshore Guarantee & Offshore Loan". In both of the aforesaid situations, the guarantors are required to file the guarantee with the local agency of SAFE within 15 working days after executing the guarantee documents. However, such filing is no longer a requirement for the validity of the guarantee documents.
In the event that the guarantor has to perform the guarantee obligations, there is no need to obtain SAFE approval with respect to such performance. Nevertheless, where an offshore debtor has not repaid the guaranteed amount to an onshore guarantor (unless the failure to repay the guaranteed amount is due to insolvency or liquidation of the offshore debtor), the onshore guarantor shall refrain from providing an additional “Onshore Guarantee & Offshore Loan” without SAFE approval.
In addition, with regard to providing cross-border guarantees in other forms, the guarantor is not subject to any SAFE approval or registration in general.
