In a broad overhaul of China’s foreign exchange control rules on the provision of forex guarantees, the State Administration of Foreign Exchange (“SAFE”) issued the Notice of the Issue of the Administration of External Guarantees by Domestic Institutions (the “Notice”) on July 30, 2010.

The Notice amends two existing regulations in this area that emerged during the Asian financial crisis, namely the Administrative Measures for the Provision of External Guarantees by Domestic Institutions and the Detailed Rules for the Implementation of the Administrative Measures for the Provision of External Guarantees by Domestic Institutions, which took effect in October 1996 and January 1998, respectively (together, the “Old Rules”).

In broad terms, the Notice has relaxed existing restrictions on the provision of “external” (i.e., foreign exchange denominated) guarantees by removing or watering down various requirements previously imposed upon both guarantors and debtors under the Old Rules as well as by simplifying the administrative procedures for the provision of external guarantees. These changes appear to be in line with other recent policy shifts designed to support outbound investments.