On May 12, 2014, the State Administration of Foreign Exchange (SAFE) released the Provisions on the Foreign Exchange Administration for Cross-Border Guarantee (Hui Fa [2014] No. 29) (the “Provisions”), which became effective June 1, 2014. The Provisions replace 12 existing SAFE rules that regulate cross- border guarantees.

The Provisions streamline SAFE’s administration of cross-border guarantees by eliminating the registration procedure completely or narrowing the scope of registration for certain types of cross-border guarantees. More specifically, the Provisions include the following changes:

The Provisions define the cross-border guarantees to include three types: (i) where a Chinese guarantor provides guarantee to an offshore creditor for the benefit of an offshore debtor (Domestic Guarantee of Foreign Loans, or DGFL), (ii) where an offshore guarantor provides guarantee to a Chinese creditor for the benefit of a Chinese debtor (Foreign Guarantee of Domestic Loans, or FGDL), and (iii) any other types of cross-border guarantees (e.g., a Chinese entity providing guarantee to an offshore creditor for its own offshore debt).

• With respect to DGFL, the Provisions repeal the quota management for financing DGFL and expressly permit PRC individuals to act as the guarantor.

• With respect to FGDL, the Provisions repeal the quota management for pure domestic debtor and increase the loan amount limit to 100 percent of the net assets of the debtor.

• With respect to other types of cross-border guarantees, no registration or filing is required.

• The Provisions repeal the SAFE approval, registration and filing requirements for cross-border security agreements.

• The Provisions eliminate the regulatory distinction of finance purpose guarantee and non-finance purpose guarantee.

• The promulgation of the Provisions represents a significant step by SAFE towards streamlining administration and deregulating government control of capital in the area of cross-border guarantees. The changes in the Provisions will facilitate cross-border trade and bringing increased certainty and accessibility to the use of cross-border guarantees – which are welcome news to the market participants.