SAFE Adjusts Management Approach of Mainland Institutions

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Aug. 3 – The State Administration of Foreign Exchange recently issued a notice regarding the management approach of mainland institutions vouching for overseas organizations.

Huifa [2010] No. 39, issued on July 30, stipulates that SAFE will further monitor the balance management control for domestic banks which provide external financing guarantees to overseas institutions. For domestic non-bank financial institutions and enterprises provide external security, they shall be approved on a case by case basis by SAFE in most situations. Domestic banks shall raise the annual target application to the local foreign exchange bureau before April 15 each year.

Furthermore, the notice also stipulates that for domestic banks providing financing guarantees, the guarantees are not restricted by the shares of the guaranteed person (or the beneficiary) from domestic institutions, or the relationship between the domestic institutions and the guaranteed person (or the beneficiary) in the proportion of net assets or profits. They shall still be consistent with the relevant laws and regulations.

For domestic banks providing non-financing guarantees, the guaranteed person or the beneficiary should at least be established within the territory of China, or established outside the territory of China but with a domestic institution directly or indirectly holding shares.

For domestic institutions providing financing guarantees for foreign investment enterprises, the guarantee fund shall not be transferred back into China through a third party directly or indirectly in the form of lending, equity investment or other forms.