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TABLE OF CONTENTS CHAPTER I GENERAL PROVISIONS CHAPTER II PLEDGE OVERSEAS CHAPTER III MORTGAGES OVERSEAS CHAPTER IV HYPOTHECATION OVERSEAS CHAPTER V SUPPLEMENTARY PROVISIONS CHAPTER I GENERAL PROVISIONS Article 1. The detailed rules are formulated in compliance with the Procedures on the Administration of External Guarantees Provided by Institutions Within Chinese Territory (hereinafter referred to the procedures) in order to standardize the behavior of providing external guarantees and improve the administration of such guarantees, Article 2. The State Administration of Foreign Exchange and its branches (SAFE) are the organs in charge of the administration of external guarantees. Article 3. Provision of external guarantees shall be approved by SAFE, except otherwise provided in the detailed rules. Article 4. The term external guarantees used in these detailed rules refers to guarantees provided by institutions within the Chinese territory (hereinafter referred to the guarantor) by way of producing guarantee letters, stand-by letters of credit, promissory notes, checks and drafts, mortgages by properties stipulated in Article 34 of the Guarantee Law of the PRC, hypothecation by moving properties according to provisions stipulated in Section 1 of Chapter IV of the Guarantee Law of the PRC or by rights stipulated in Article 75 of Section 2 provided by institutions within the Chinese territory to institutions outside China or foreign-funded financial institutions (FFEs) inside China (creditors or beneficiaries, hereinafter referred to the creditors) with the pledges that when the debtor (hereinafter referred to the guaranteed) fails to repay the debts in line with the contract, the guarantors shall perform the obligations of payment or the creditors may put the mortgaged or hypothecated assets to auction according to the Guarantee Law and enjoy priority in getting compensations from the proceeds there-from. Article 5. Some of the terms covered in the second paragraph of Article 2 of the procedures are defined as: (1) The term "call money guarantee" refers to guarantee for repayment by the creditor of principal and interests of call money provided by a guarantor to a guaranteed. Call money includes the forms of loans, negotiable securities (not including stocks), overdraft, deferred payment and credit lines granted by banks; (2) The term "guarantee for lease of call money" refers to a guarantee provided to the lessor when importing equipment by a lessee through lease of call money from he lessor in that the guarantor shall undertake to pay the rents whereas the lessee fail to pay up. (3) The term "guarantee for accounts under compensation trade" includes cash performance guarantee and non-spot performance guarantee. The term "cash performance guarantee" refers to a guarantee provided by the guarantor to the equipment supplier in that whereas failure of the importing party in deliveries of products to the equipment supplier or a third party designated by the equipment supplier prescribed in the contract after receiving the equipment prescribed in the contract and/ or in paying by cash for the equipment and interests attached, the guarantor shall pay the equipment supplier according to the amount guaranteed plus interests and related costs. As non-spot performance guarantee does not involve payment in cash, it is not subject to administration of the present detailed rules; (4) The term "guarantee for the contracted engineering projects outside China" refers to a guarantee provided by a guarantor to the bid rewarding party which offers bids for a contracted project overseas in that whereas a bid winner fails to sign or perform the contract within the agreed time limit, the guarantor shall pay to the bid rewarding party the amount prescribed in the contract. It includes bidding guarantee, performance guarantee and advance payment guarantee; (5) The term "guarantees for others with the nature of foreign debt" refers to guarantees involving debt services overseas other than the four categories provided in the preceding paragraphs. Article 6. Parties involved in external guarantees include guarantors, the guaranteed and creditors. "A guarantor" refers to an organization with the status of a legal person or authorized by a legal person prescribed in Article 4 of the procedures including Chinese-funded financial institutions, Chinese-funded enterprises and FFEs, but not include foreign-funded financial institutions in China. For a pledge overseas, the pledgee is the guarantor. For a mortgage overseas, the mortgagor is the guarantor. For a hypothecation overseas, the pledger is the guarantor. "A guaranteed" refers to a Chinese-funded enterprise, FFEs in China or a wholly-owned subsidiary registered overseas of an institution within the Chinese territory or an enterprise with Chinese share holders in China. "A creditor" refers to an organization outside territory of China or foreign-funded financial institution in China. For a pledge overseas, the pledger is the creditor. For a mortgage overseas, the mortgagee is the creditor. For a hypothecation overseas, the pledgee is the guarantor. Article 7. The term "written contract" used in Article 13 of the procedures may be a contract signed between parties concerned independently, including letters of guarantee in nature, faxes, insurance contract under the credit insurance item and stand-by letter of credit. It may also be the guarantee clause in the master contract. An external guarantee contract is a sub-contract of the master debt contract. When the master debt contract is invalid, the guarantee contract is also invalid. Whereas agreements are made in the external guarantee contract, the agreement shall stand. Article 8. Terms of reference for examining and approving external guarantees: (1) In providing external guarantee for Chinese-funded enterprises in China or providing one-year (including one year) external guarantee for foreign-funded enterprises, the guarantor should submit the application to the domiciled branch of SAFE in province, autonomous region and municipality for approval; (2) In providing one-year (including one year) external guarantee for FFEs or for organizations overseas, the guarantor (not including solely-owned enterprises) shall submit the application to the domiciled branch of SAFE in province, autonomous region or municipality for preliminary examination before being submitted to SAFE head-quarter for approval; (3) If the guarantor is a Chinese-funded national financial institution in Beijing or a Chinese-funded enterprise affiliated to the central authorities or a FFE (not including foreign-wholly-owned FFEs) that has obtained business license from the State Administration of Industry and Commerce, the foreign guarantee shall be examined and approved by SAFE. Wholly foreign-owned enterprises may provide external guarantee wholly at their own will without the need of approval by SAFE. Article 9. In going through external guarantee approval procedure, a guarantor should submit to SAFE all or part of the following materials: (1) A filled-up application form; (2) Document of approval for feasibility study report of guaranteed project or document of approval of government department in charge and other related documents of approval and replies; (3) Balance sheet and profit and loss statement of the guarantor and the creditor audited and sealed by certified public accountants office (If the guarantor is a group company, it should submit its consolidated balance sheet and the balance sheet, profit and loss statement of the headquarter); (4) The master obligation contract guaranteed or letter of intent and other related documents; (5) Contract of guarantee or letter of intent; and/or (6) Other materials required by SAFE. In making mortgage or hypothecation, it is required to submit the certificates for the title of the securities or, objects of pledge accompanied with certificates for the evaluation of their current value. In providing external guarantee for FFEs, a Chinese-funded financial organization or Chinese enterprise should submit documents to certify that the securities for debts involving that part of foreign investment have been rightly put in place. In providing external guarantee, a branch of a financial institution should provide documents of authorization by its head office. Article 10. After receiving the materials for a guarantor required in Article 9 of this set of rules, SAFE shall verify and examine them and give due reply or transmit the materials to its superior organ within 30 days after the receipt of the documents. If the guarantor is found to be not up to required standards, SAFE shall return the application materials. Article 11. Whereas a guarantor fails to provide an external guarantee six months after approval by SAFE, the approval document shall become invalid automatically. If the guarantor wants to continue to provide guarantee, another application should be filed for approval. Article 12. Whereas an extension has to be made after the expiration of the term of guarantee, the guarantor should go through the procedures for the extension with SAFE 30 days ahead of the date of expiration and the application shall be examined and approved according to the terms of reference defined in this set of detailed rules. Article 13. Headquarters of Chinese-funded financial institutions should formulate procedures for authorizing and managing the provision of guarantees overseas by their branches and submit them to SAFE for the record. Branches of Chinese-funded financial institutions should submit the procedures for authorization and managing the provision of external guarantees of their respective headquarters to the domiciled branch of SAFE for the record. SAFE shall examine the guarantee capacity of competence of Chinese-funded financial organizations within their jurisdiction for provision of guarantees according to their procedures for authorizing and managing in the record. Without corresponding authorization, a branch of Chinese-funded institution must not provide an external guarantee. SAFE shall examine the qualifications and competence of Chinese-funded institutions for providing external guarantee. If a financial institution is found to be not up to the required standard, SAFE shall notify the said financial institution and SAFE concerned not to approve the institution or its branches to provide external guarantee. Article 14. A Chinese-funded enterprise may only provide external guarantee for its affiliated companies or for the debt overseas due to the part of Chinese investment in an entity which the enterprise concerned assume a share holder except that the guaranteed is a FFE that has issued B-shares or H-shares abroad. Article 15. Whereas a foreign loan under guarantee needs to be converted into Renminbi, it shall be converted in accordance with regulations on foreign exchange surrender under the capital account formulated by SAFE. Article 16. SAFE shall exercise supervision and guidance over the cost for borrowing of foreign loans under guarantee. Article 17. Whereas an institution assumes a guarantor, the following conditions should be met: (1) Whereas the guarantor is a trade type enterprise overseas, the ratio of its net assets to total assets should not be lower than 10% in principle; whereas the guarantor is a non-trade type one, the ratio of its net assets to total assets should not lower than 15% in principle; and (2) The guarantor is not a loss-making enterprise. Article 18. Whereas a property developer wants to be put under the guarantee of mortgage guarantee, the following conditions should be met: (1) A license or approval from related government department has been acquired by the developer concerned for selling buildings to foreigners; and (2) That part of investment made for the construction of the buildings for sales to foreigners has exceeded 70% of the total investment. CHAPTER II PLEDGE OVERSEAS Article 19. The term "pledge" used in this set of rules refers to acts whereby the guarantor and the creditor have agreed that if the debtor fails to repay or perform its obligations as agreed upon, the guarantor shall undertake the obligations of repayment or performance of the obligations as agreed upon. Article 20. SAFE shall exercise control over pledges overseas according to the following regulations: (1) To examine and approve case-by-case the financing, financing lease and the cash performance guaranty under the account of compensation trade and deferred payment that has exceeded one year (not including one year pledges) provided by Chinese-funded banks; (2) To control the asset/liability ratios of pledges overseas provided by Chinese-funded banks other than the four categories described in the preceding paragraph. A Chinese-funded bank may provide the aforesaid pledges overseas described in the first and second paragraphs of Article 21 of these rules within their own capacity. Contracts of pledges provided by Chinese-funded banks prescribed in this paragraph shall become valid on the dates when the contracts concerned are signed; and (3) Pledges overseas provided by non-bank financial institutions or non-financial institutions shall be examined and approved case-by-case by SAFE. Article 21. Whereas the guarantor is assumed by Chinese-funded financial institution, the following conditions should be met: (1) The combined total of the balances in amount of pledges provided by the financial institution concerned to entities overseas, foreign exchange within Chinese mainland and foreign exchange debts should not exceed 20 times its own foreign exchange funds; and (2) Whereas the financial institution is a legal corporate person, the combined total balance in amount of pledges provided by the institution to foreign exchange loans, foreign exchange guarantee (calculated by 5%) and foreign exchange investment (in stock) should not exceed 30% of its foreign exchange funds. Article 22. Whereas the guarantor assumed by a non-financial legal corporate person, the balance of pledges provided by the institution should not exceed 50% of its net assets, and its foreign exchange income of the preceding year. For a Chinese-funded trade enterprise, the ratio of its net assets to total assets should not be lower than 15% in principle. For a Chinese-funded non-trade enterprises, the ratio of its net assets to total assets should not be lower than 30% in principle. SAFE shall identify trade or non-trade enterprises according to the business licenses issued by the State Administration of Industry and Commerce. CHAPTER III MORTGAGES OVERSEAS Article 23. The term "mortgage overseas" used in this set of rules refers to guarantee by the debtor or the third party with properties listed in Article 24 of this set of rules with the promise that the properties concerned would definitely not be transferred to others. Whereas the debtor fails to finalize the debt service, the guaranteed has the right to put properties into discounted sales or auctions and enjoy the priority in compensation from proceeds there from according to the provisions of the Guarantee Law. The debtor or the third party provided for in the preceding paragraph is the mortgagee; the guaranteed is the mortgage holder, and the properties mortgaged is the mortgage. Article 24. The following properties may serve mortgage overseas: (1) Properties and other fixed structures on the ground owned by the mortgagor; (2) Machines, means of transport and other property owned by the mortgagor; (3) State land use right, properties and other fixed structures of which the mortgagor has the right to use; (4) The use right of waste mountains, waste gullies, waste hills and wastelands which have been contracted to the mortgagor to use under the permission of the contract awarding party; (5) Machines, means of transport and other property owned by the State of which the mortgagor has the right to use; and (6) Other properties allowed by law. A mortgagor may use all the properties listed above as mortgage. Article 25. The value of credit mortgaged must not be greater than the value of the mortgage. Whereas the value of properties used as mortgage is greater than that of the credit amount, the remnant can be used to serve as another mortgage. Article 26. The current value of mortgage shall be evaluated by Chinese valuation organizations. Article 27. Whereas a mortgagor uses its own property as mortgage against its own debt, no advance approval from SAFE is needed. What it needs is to go through the external guarantee registration procedure with SAFE. Whereas the mortgagor mentioned in the preceding paragraph is a Chinese-funded enterprise, it should provide a certificate of foreign liabilities approved by SAFE in going through the registration procedure. Whereas a definite mortgage registration department has been designated by the Guarantee Law to the properties owned by the mortgagor for registration, the mortgagor has to go through the mortgage registration procedures with the prescribed department after going through the mortgage overseas registration procedures. Article 28. Whereas no definite registration department has been provided by the mortgage used by the mortgagor, the mortgagor shall go through the mortgage approval and mortgage registration procedures directly with SAFE. Article 29. Whereas a definite registration department has designated by the Guarantee Law for mortgages used by the mortgagor, as the third party, used as mortgage overseas, the mortgagor has to first get the approval from SAFE before going through the registration procedures with the mortgage registration department stipulated in the Guarantee Law. Article 30. Whereas a mortgagor provides mortgage to a guaranteed against debt of others, the amount of debt mortgaged must not exceed its foreign exchange income of the preceding year. CHAPTER IV HYPOTHECATION OVERSEAS Article 31. The term "hypothecation overseas" used in this set of rules is classified into movable assets and titles hypothecation overseas. Article 32. "Movable assets hypothecation overseas" refers to the fact that the debtor or the third party puts movable assets to a creditor overseas without transferring possession of the movable assets. Whereas the debtor fails to finalize the debt service, the creditor has the right to put the movable asset on discounted sales or auctions and to be compensated in priority by the proceeds therefrom. Article 33. "Title hypothecation overseas" may use the following titles: (1) Drafts, promissory notes, checks, bonds, deposit slips, warehouse warrants or bills of lading; (2) Shares or stocks transferable according to law; (3) Trademarks, patent rights and property rights in copyright that is transferable according to law; (4) Other rights that can be hypothecated according to law. Article 34. In hypothecation overseas, the debtor or a third party is the pledgor and the creditor is the receiver of the pledge; the movable assets or titles transferred serve as the pledge. Article 35. Whereas a pledgor uses own movable assets or titles as pledge for own debts, there is no need to get advance approval from SAFE before going through the external guarantee registration procedures with SAFE provided for in this set of rules. Whereas the pledgor mentioned in the preceding paragraph is a Chinese-funded enterprise, a certificate certifying the borrowing overseas which has been approved by SAFE has to be shown when going through the external guarantee registration procedures. For going through registration procedures for the hypothecation of equity, a stock limited FFE has to get prior authorization by the board of directors. For a solely foreign-funded enterprise, it has to get an approval from prior approved department for going through the registration procedures for the hypothecation of equity. Article 36. Whereas a pledgor, as a third party, engages in a hypothecation overseas using kinds of pledge provided in the Guarantee Law, the pledgor has to directly go through the approval and registration procedures for the hypothecation with SAFE. Whereas a pledgor uses the kinds of pledge provided in (2) and (3) of Article 33 of this Rule, hypothecation has to be registered with the prescribed department in charge provided in the Guarantee Law. Article 37. Whereas a pledgor provides guarantee for the debt of others, the amount of the debt guaranteed must not exceed its foreign exchange income in the previous year. Article 38. The pledgor may deliver the pledge concerned to the pledgee only after the all requirements mentioned above are fulfilled. CHAPTER V SUPPLEMENTARY PROVISIONS Article 39. A guarantor must go through registration procedures for the guarantee with SAFE after providing external guarantee: (1) For a non-financial corporate person registration should be made on an case-by-case basis. The guarantor should, within 15 days starting from the date when the contract of the guaranty is concluded, go to the domiciled branch of SAFE to fill in the Registration Form of External Guarantee for getting a Registration Certificate of External Guarantee. After the complete execution of the contract of guarantee, the guarantee documents shall become invalid automatically and then the guarantor should turn in and cancel the Registration Certificate of External Guarantee with the original organ of issue; (2) Financial institution should on a regular basis monthly report conditions of the guarantee in the previous month to SAFE by filling up external guarantee registration form and a Feedback Statement of External Guarantee within first 15 days of a month. Article 40. In performing obligations of external guarantee, a guarantor should get the approval of SAFE. Financial institutions which have been permitted to handle exchange business should go through the foreign exchange sale and payment procedures under the external guarantee account on the strength of the approval document issued by SAFE. All of the branches of SAFE shall report the conditions of approvals to contracts to SAFE for the record. Article 41. In going through approval procedures for guarantee contracts, a guarantor should submit the following materials: (1) An application; (2) The original of approval given by SAFE for the external guarantee; (3) The Registration Certificate of External Guarantee and the Registration Form of External Guarantee issued by SAFE; (4) The copy of the contract of external guarantee; (5) The notice by the creditor demanding for the guarantee; and (6) The balance sheet of the debtor. Article 42. For external guarantee that has not gone through the registration procedures with SAFE, the organ shall deny the buying and remittance of foreign exchange for performing the contract. Article 43. For a major change to guarantee contract by the creditor and the guaranteed leading to the change of the guarantee liabilities, a prior consent from the guarantor and an approval for the change from SAFE which gives the original approval is a must. Without the consent of the guarantor or the approval of SAFE, the obligations of the guarantor upon the guarantee shall be relieved automatically. Whereas, according to the provisions of this set of rules for an external guarantee that does not require the prior approval of SAFE, changes to the contract do not need the approval from SAFE. Whereas a guarantor has exerted a major change to the guarantee contract without the approval of SAFE, the change shall be invalid. The term "major charges of the contract" used in this article includes changes concerning guaranteed, guarantor, the term of obligations, amount, currency, interest rate and laws applicable. Article 44. Transference of the right under a guarantee by the guaranteed consent from the guarantor and the approval from SAFE are needed. Without the consent of the guarantor and the approval organ, the guarantee obligations of the guarantor shall be relieved automatically. If there is an agreement in the contract, the agreement shall prevail. Whereas according to the provisions of this set of rule, the external guarantee does not need the approval of SAFE, changes of the right under the guarantee by the guaranteed shall not get the approval of SAFE concerned. Article 45. A guarantee contract should specify the following: (1) The guarantor has the right to supervise the funds and assets of the guaranteed; (2) After providing an external guarantee, the guarantor should perform its guarantee obligations within the validity terms of the contract guaranteed. After the guarantor has completed the performance of the guarantee obligations, the guarantor has the right to claim for compensation from the guaranteed; (3) After providing a guarantee, the guaranteed has failed to perform the obligations of the debt contract, resulting in the exemption of debt for the guaranteed, the guarantee obligations of the guarantor shall be relieved automatically; (4) The guarantor has the right to demand the guaranteed to take counter-guarantee measures or provide corresponding security; and (5) The guarantor has the right to collect the guarantee commission as agreed upon. Article 46. State organs and institutions shall not provide external guarantee except providing re-lending approved by the State Council for using loans provided by foreign governments or international economic organizations. A guarantor shall not provide guarantee for foreign-funded enterprises against its registered capital. Chinese-funded enterprises and Chinese-funded financial institutions should not provide guarantee for debts overseas due to the part of foreign investment in FFEs. A guarantor should not provide guarantee to financial institutions within Chinese mainland in raising funds for starting offshore businesses. A guarantor should not provide external guarantee by way of bonus or lien (advance payment under trade account is not included). The guaranteed overseas should not repatriate the funds under the debt guarantee for use at home. Article 47. This set of rules is applicable to the following guarantees: (1) Counter-guarantees overseas; (2) Guarantees provided by an overseas organization to a creditor inside mainland China; (3) Guarantees provided by an organization outside mainland China to a financial institution with offshore banking business in financing; (4) External guarantee provided under the offshore account by a Chinese-funded financial institution inside mainland China that handles offshore banking business with the approval of SAFE. Article 48. Whereas a guarantor has provided external guarantee without the approval of SAFE provided for in this set of rules, the contract of guarantee is invalid. Article 49. For external mortgage or hypothecation which is required by this set of rules to get the approval from SAFE, whereas the mortgagor or pledgor has gone through the mortgage or hypothecation registration procedures without going through the required procedures with SAFE, the Renminbi obtained by the mortgagor or pledgor from auction or selling of the mortgage or pledge upon the expiry of the principal debt should not converted into foreign exchange and be remitted abroad. Article 50. For a guarantor who has provided external guarantee without authorization, SAFE shall give it a warning, criticism through issuing a circular or suspend or cancel its external guarantee business and impose concurrently a fine of more than RMB 100,000 and less than RMB 500,000. For a guarantor who has provided external guarantee without going through the guarantee registration procedures, SAFE shall issue a warning, criticism through a circular or suspend or cancel its external guarantee business. Article 51. This set of detailed rules shall be interpreted by SAFE. Article 52. This set of rules shall come into effect as of January 1, 1998. |
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