(“Provisions”)（跨境担保外汇管理规定）, issued by the State Administration of Foreign Exchange (“SAFE”)
The Provisions and the implementing guidelines establish a comprehensive legal framework of cross border guarantees in various forms that can trigger cross border receipts, payment of funds or transfer of property ownership.
The Provisions regulate several types of cross-border transactions arising from cross-border guarantees, dividing them into three categories: (1) overseas loans with domestic guarantees; (2) domestic loans with overseas guarantees; and (3) other forms of cross-border guarantees.
Overseas loans with domestic guarantees
In an overseas loan with a domestic guarantee, the guarantor is registered in domestic territory (“Domestic Guarantor”), while the debtors and creditors are registered in an overseas territory.
After entering into the agreement for an overseas loan with a domestic guarantee, the Domestic Guarantor must comply with the following procedures:
- If the Domestic Guarantor is a bank, it must report relevant data relating to the transaction through the centralized platform.
- If the Domestic Guarantor is a non-bank financial institution, it must register the transaction agreement with the applicable SAFE branch within 15 days of the date it is executed.
The use of loans with a domestic guarantee is subject to the following restrictions:
- They must be used in the debtor’s usual business scope, and must not be used for any business outside this scope, for arbitrage or other speculative transactions involving fictitious trading backgrounds.
- Without approval, the debtor must not directly or indirectly transfer the borrowed funds for domestic use by investing in equity or creditors' rights in domestic territory.
To perform the guarantee obligation under the agreement, the overseas payment must be made as follows:
- If the Domestic Guarantor is a bank, it may make the overseas payment itself.
- If the Domestic Guarantor is a non-bank financial institution, it may make the overseas payment by presenting the registration certificate issued by SAFE for the cross-border guarantee.
Where the Domestic Guarantor becomes the creditor of the overseas debtor as a result of performing the guarantee obligation, the Domestic Guarantor must comply with the registration formalities for the overseas credit.
Domestic loans with overseas guarantees
In a domestic loan with an overseas guarantee, the guarantor is registered in overseas territory (“Overseas Guarantor”), while the debtors and creditor are registered in domestic territory.
Under the Provisions, to qualify for an overseas guarantee, the domestic loan must meet the following conditions:
- debtor must be a non-financial institution registered and operating in domestic territory;
- creditor must be a financial institution registered and operating in domestic territory;
- domestic loan to be guaranteed must be an ordinary loan or credit line (this does not include Entrusted Loans 1 ) either in RMB or in the foreign currency granted by the financial institution;
- form of guarantee must be in line with the laws of China and related foreign countries.
If the domestic debtor incurs overseas liability because the Overseas Guarantor performs the guarantee obligation, the domestic debtor must register this overseas liability with the applicable SAFE branch as a short-term foreign loan.
Other forms of crossborder guarantees
Domestic institutions giving or accepting other forms of cross-border guarantees not identified as overseas loans with domestic guarantees, or domestic loans with overseas guarantees, can enter into guarantee contracts at their discretion.
Other forms of cross-border guarantees include:
- loans guaranteed by domestic institutions in which the debtors and creditors are registered separately in domestic territory and overseas, or vice versa;
- loans guaranteed by overseas institutions in which the debtors and creditors are registered separately in domestic territory and overseas, or vice versa;
- loans in which the debtors, creditors and guarantors are all registered in domestic territory, but guarantee rights are registered overseas; and
- loans in which the debtors, creditors and guarantors are all registered overseas, but the rights to the guarantee are registered in domestic territory.
Date of issue: May 12, 2014. Date of effectiveness: June 1, 2014.