Relaxing foreign exchange controls

Boasting abundant foreign exchange reserves, coupled with the increasing demand for Chinese enterprises to explore overseas markets, China has been loosening its control over foreign exchange in recent years. The State Administration of Foreign Exchange (Safe), the regulatory authority of foreign exchange in China, has issued a raft of regulations to ease the previously tight foreign exchange control over outbound investments by domestic enterprises and banks, over the extension of loans by domestic enterprises to their invested overseas enterprises, and most recently, over the provision of security to foreign entities by domestic entities (Foreign security). Generally speaking, Foreign security refers to security provided to foreign entities by domestic entities.

On July 30 2010, Safe promulgated the Circular on Issues Concerning the Administration of the Provision of Security to Foreign Parties by Organisations in China (关于境内机构对外担保管理问题的通知) (New circular) with immediate effect. Prior to the New circular, the regulations and rules governing Foreign security in China were the Measures for the Administration of the Provision of Security to Foreign Parties by Organisations in China (境内机构对外担保管理办法) promulgated by the Peoples People's Bank of China on September 25 1996, the Implementing Rules for the Measures for the Administration of the Provision of Security to Foreign Parties by Organisations in China (境内机构对外担保管理办法实施细则) promulgated by Safe on December 11 1998, and a series of subsequent circulars and notices issued by Safe (collectively, the “Old rules”).