China: Relaxation Of PRC Cross-Border Security And Guarantee Restrictions By SAFE’s New Rules

The Regulation on Foreign Exchange Administration of Cross-border Security together with its operational guidelines (collectively the New Rules) released by the State Administration of Foreign Exchange (SAFE) came into effect on 1 June 2014. The New Rules substantially reform and liberate the regulatory regime for cross-border financing by relaxing most of the existing PRC regulatory restrictions on cross-border security/guarantee.

The New Rules are regarded as the first major attempt by SAFE to revamp and update its control over cross-border security in line with the PRC government's policy of streamlining of administration and liberalising Renminbi. The main milestones are as follows:

  • The approval, registration or filing requirements of SAFE in relation to cross-border security/guarantee agreements and various requirements under the present SAFE rules are no longer pre-conditions to the validity of the cross-border security/guarantee agreements
  • The administrative distinction by SAFE between the security for financing purpose and the security for non-financing purpose are abolished
  • SAFE approval on the enforcement of cross-border security/guarantee is abolished

The New Rules provide that the validity of a cross-border security agreement is no longer subject to SAFE approval, registration, filing and any other relevant administrative requirements. However, article 6 of the Judicial Interpretation of the Supreme People's Court on Certain Issues Concerning the Application of the Security Law of the People's Republic of China stipulates that a security agreement/guarantee shall be rendered invalid if no approval or registration for the provision of cross-border security is obtained from the relevant regulatory authority. The above Judicial Interpretation remains valid and, in the hierarchy of PRC legislation, it is higher than the New Rules issued by SAFE. Before the Supreme People's Court declares that the above Judicial Interpretation is no longer applicable, the prudent view is that we should still regard that a cross-border security agreement is not valid until it is duly registered with SAFE.

The New Rules divide cross-border security/guarantee transactions into three categories: (i) onshore security/guarantee for an offshore debt (Outbound Security); (ii) offshore security/guarantee for an onshore debt (where the security provider is offshore, and the creditor and debtor are onshore) (Inbound Security); and (iii) other types of cross-border security/guarantee. Each category applies to its separate rules, which we will summarise in turn.

Outbound Security

Outbound Security refers to any security/guarantee provided by an onshore security provider in favour of an offshore creditor to secure a debt incurred by an offshore debtor.

According to the New Rules:

Who can provide Outbound Security

  • Financial institutions (including banks and non-bank financial institutions) which meet the business criteria for carrying on the business of providing Outbound Security as required by the relevant regulators

    • No longer subject to the annual quota allocated by SAFE
  • Onshore companies (domestic or Foreign Invested Enterprises (FIEs))

    • No longer subject to prior case-by-case SAFE approval or SAFE quota
    • Qualification requirements such as minimum shareholding, meeting certain financial conditions and quotas are removed

Onshore individuals are now expressly permitted to provide Outbound Security

SAFE registration

  • Banks – are now required to register any Outbound Security through a pre-established online platform with SAFE
  • Non-bank financial institutions, onshore companies and onshore individuals – are now required to register any Outbound Security with local SAFE within 15 business days from the date of the security/guarantee agreement

SAFE is asking companies which signed cross-border security agreements and submitted registration applications to SAFE before 1 June 2014, but did not complete the registration process by 1 June 2014, to re-submit their registration application according to simplified procedures under the New Rules.


  • The proceeds of enforcement of Outbound Security may be remitted to the offshore creditor without further SAFE approval/registration through an onshore bank which (if the guarantor/security provider is not a bank) will require the production of the SAFE registration certificate. If the Outbound Security is not registered with SAFE, late registration is permitted although SAFE may impose penalties on the guarantor/security provider
  • Following enforcement, the onshore guarantor/security provider may be indemnified by the offshore debtor. The onshore guarantor/security provider shall register with SAFE its receivables received from such indemnification by the offshore debtor under the Outbound Security

Restrictions on use of proceeds

The proceeds of any offshore financing supported by the Outbound Security:

  • Can be used only for the ordinary business purposes of the offshore debtor and not for speculative purposes
  • Without SAFE approval, cannot be used for:

    • Equity investment or shareholder loans into PRC entities
    • Refinancing existing debt which was originally used for equity investment or shareholder loans into PRC entities
    • Acquisition of an offshore company/group which has more than 50% of its assets in the PRC
    • Initial payment to a PRC entity for a trade transaction in respect of goods or services which (i) is more than US$1,000,000 and exceeds 30% of the total price for such goods or service, and, (ii) is made at a time more than one year earlier than the date of delivery of goods or services

Restriction on providing new Outbound Security

If any existing Outbound Security becomes enforceable and the guarantor/security provider is not a bank without SAFE approval, such guarantor/security provider cannot provide new Outbound Security until the offshore debtor has fully repaid the debt owing to such guarantor/onshore security provider arising from the enforcement of the Outbound Security.

Inbound Security

Inbound Security refers to any security/guarantee provided by an offshore security provider/guarantor in favour of an onshore creditor to secure a debt incurred by an onshore debtor.

According to the New Rules:

Qualification requirements

  • Onshore creditor – only onshore financial institutions licensed to conduct lending business can legally lend money in the PRC
  • Onshore debtor – no restrictions and could be any onshore entities (domestic or FIEs) and individuals
  • Offshore security provider/guarantor – no restrictions and could be any offshore entities or individuals

SAFE registration

Onshore creditors must register the Inbound Security through an online platform with SAFE


  • Upon enforcement, the onshore creditor may process and receive the enforcement proceeds from the offshore security provider/guarantor directly
  • After payment to the onshore creditor, the offshore security provider/guarantor will become a creditor of the onshore debtor. The onshore debtor shall register such foreign debt (Subrogated Foreign Debt) with the local SAFE within 15 business days after payment by the offshore security provider/guarantor. If the Subrogated Foreign Debt is not registered with SAFE, late registration is permitted although SAFE may impose penalties on the onshore debtor

Restriction on Subrogated Foreign Debt

The total outstanding principal amount of all the Subrogated Foreign Debt of an onshore debtor shall not exceed the amount of that onshore debtor's net assets as shown in its audited financial statements for the previous financial year

Restriction on providing new Inbound Security

Before any Subrogated Foreign Debt is fully discharged, without SAFE approval, the onshore debtor cannot arrange any new Inbound Security or make any drawdown under any facility agreement which is supported by any Inbound Security

Other cross-border security

Other types of cross-border security refer to any cross-border security/guarantee other than Outbound Security and Inbound Security. Such other types of transactions include without limitation the following:

  • The guarantor/security provider is onshore, either the creditor or the debtor is onshore and the other is offshore
  • The guarantor/security provider is offshore, either the creditor or the debtor is onshore and the other is offshore
  • All three parties are onshore, but the collateral is offshore
  • All three parties are offshore, but the collateral is onshore

Under the New Rules, any PRC entities and individuals can freely enter into such other types of cross-border security/guarantee transactions with no need for approval or registration (but still subject to the underlying debtor's compliance with foreign exchange rules in general).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions