The State Administration of Foreign Exchange issued the Circular of the State Administration of Foreign Exchange on the Administration of Overseas Security by Domestic Institutions (the “Overseas Security Circular”) at the end of July. The Overseas Security Circular simplifies the administrative procedures for obtaining overseas security, mitigates previous restrictions, and relaxes the restrictions on financing of outbound projects.  

While the Overseas Security Circular keeps in place the distinctive systems of quota balancing (applicable to banks) and case-by-case approval (applicable to non-bank institutions) for security provided to foreign parties, a new group of entities, i.e., certain qualified non-banking financial institutions and other enterprises, may also apply to SAFE for a quota for providing overseas security. Under the current regime:  

  • Quota balancing applies when domestic banks provide financing-type security (where the underlying principal contract is of financing nature, such as loan, bond issuance and lease) to foreign parties;  
  • No approval or quota balancing is required for domestic banks qualified to provide security to provide nonfinancing- type security (i.e., any security other than financing-type security, such as quality guarantee, tender bond and payment guarantee) to foreign parties;  
  • Case-by-case approval applies when domestic non-banking financial institutions and other enterprises provide security to foreign parties;  
  • Domestic non-banking financial institutions and other enterprises that frequently provide overseas security and have a sound internal management system in place may apply to SAFE for the granting of a quota for providing overseas security.

The Overseas Security Circular expands the universe of overseas debtors. The requirements debtors have to satisfy are summarized as follows:  

  • Where a bank provides overseas financing-type security, the debtor is not subject to any regulatory restrictions with respect to affiliation with domestic entities, ratio of net assets and profit performance, etc.;  
  • Where a bank provides overseas non-financing-type security, either the debtor or the beneficiary shall be a domestic PRC entity or a foreign entity established or directly or indirectly owned by a domestic PRC entity;  
  • Where non-banking financial institutions provides overseas security, the debtor shall be a domestic PRC entity or a foreign entity established or directly or indirectly owned by a domestic PRC entity;  
  • Where a non-financial-institution enterprise provides overseas security, the debtor shall be a domestic PRC entity or a foreign entity established or directly or indirectly owned by such enterprise;  
  • Where a non-banking financing institution or enterprise provides overseas security, the debtor shall have a positive net assets value and have been profitable for at least one (1) of the most recent three (3) years. Where the debtor is engaged in long-term projects such as resource development, it shall have been profitable for at least one (1) of the most recent five (5) years.  

Last but not least, the Overseas Security Circular clarifies that WFOEs (wholly foreign owned enterprises) that are not otherwise qualified for quota-balancing administration shall be subject to case-by-case approval when providing overseas security.  

- Circular of the State Administration of Foreign Exchange on the Administration of Overseas Security by Domestic Institutions  

- 国家外汇管理局关于境内机构对外担保管理问题的通知  

- Issuing Authority: the State Administration of Foreign Exchange  

- Date of Issuance: July 30, 2010 / Effective Date: July 30, 2010