The basic framework for China's foreign exchange regulations on cross-border guarantees was put in place in June 2014 with the implementation of the Provisions on the Foreign Exchange Administration of Cross-border Guarantees (No. 29 [2014] of the State Administration of Foreign Exchange,or document 29) and its operating guidelines. The regulations clearly specified the types of guarantees that were included under the State Administration of Foreign Exchange's registration requirements. At the same time,they eliminated limits on the size of guarantees,scrapped requirements related to the equity of companies' concerned and ended restrictions on relationships between the guarantor and the entity providing offshore loans. It also abolished the prior approval requirement on offshore guarantees for onshore loans,a move that has greatly facilitated the use of guarantees in cross-border trading,investments,financing,international project contracts and other cross-border business activities.

Document 29 stated that foreign exchange policies on cross-border guarantees were aimed at guarantee transactions that could affect the nation's balance of payments through capital flows or the transfer of assets. It established 14 categories for these guarantees according to the various combinations of the places of registration of the parties involved (guarantors,guaranteed parties and beneficiaries) and the place of registration of the actual obligation among other factors. It also expanded the scope of guarantee registrations to cover onshore guarantees for offshore loans and offshore guarantees for onshore loans which could increase our external credits or external debts.

Document 29 scrapped limits on the guaranteed amount and did away with financial guidelines on the guarantors for domestic guarantees of offshore borrowings but retained restrictions on transferring guaranteed funds directly or indirectly into China for domestic use without approval of foreign exchange authorities. In addition,it made a modest liberalization of individual onshore guarantees in offshore loan transactions.

The regulations stated that borrowers in onshore loan transactions with an offshore guarantee can be any legally established domestic or foreign-funded enterprise. There are some controls on the size of offshore guarantees for onshore loans - specifically that external debts should not exceed the total of the relevant enterprise's net assets of the previous year or its existing foreign debt quota. If guaranteed amount exceeds either of those limits,penalties can be applied on the excess amount. Financial institutions that provide exchange settlements or purchases related to guarantee performance bonds must receive authorization from foreign exchange authorities.