On November 19, 2021, China State-owned Assets Supervision and Administration Commission (“SASAC”) of the State Council released the “Circular on Strengthening the Management of Financing Guarantees of Central State-owned Enterprises” (the ” Circular “) (Guo Zi Fa Cai Ping Gui [2021] No. 75)

On January 4, 2022, SASAC released an explanation to clarify the queries regarding the Circular (the “Explanation”).

Drafting Background of the Circular and the Explanation

In recent years, SASAC has attached great importance to the management of financing guarantees of central state-owned enterprises (“CSOEs”) and has successively put forward some relevant requirements in a series of documents such as the “Supplementary Notice on Strengthening the Fund Management of Central Enterprises” (Guo Zi Ting Fa Ping Jia [2012] No. 45). However, it is also found in daily supervision that some CSOEs still have problems such as excessive growth in the scale of guarantees, expansion of implicit guarantee risks, and increased risk of compensation losses.

To further strengthen the financing guarantee management of CSOEs, prevent the risk of major capital loss, and promote the high-quality development of enterprises, SASAC released the Circular, which clarified the requirements in the supervision system of financing guarantee business of CSOEs.

On January 4, 2022, to facilitate the understanding of the content and requirements of the Circular, SASAC released the Explanation.

Main Features and Contents of the Circular and the Explanation

(1) The scope of management and control is more comprehensive.

Firstly, it is highlighted that the Circular not only applies to CSOEs themselves, but also applies to CSOEs’ subsidiaries at all levels.

Secondly, in terms of management and control content, the Circular defines the scope of management to include all financing guarantees, including not only standard guarantees provided for corporate financing activities, but also implicit guarantees with guarantee effectiveness.

Specifically, the legal departments of the CSOEs needs to decide whether the joint loan contract, the margin compensation commitment, the comfort letter, the letter of support and other letters have the effect of guarantee according to the specific terms. If so, those are all implicit guarantees.

(2) The management requirements are more stringent.

Regarding the benefited parties in financing guarantees, based on the principle of “same shares, same rights” and the principle of risk-control, no guarantees of any form should be provided to companies outside the group that have no equity relations, and guarantees to high-risk subsidiaries should be strictly controlled. In principle, financing guarantees can be provided. Financing guarantees can only be provided to subsidiaries or shareholding companies that have the ability to continue operations and solvency.

Financing guarantees beyond the shareholding ratio will be strictly controlled.  CSOEs shall provide guarantees to their subsidiaries and enterprises held by them in strict accordance with their shareholding ratios therein. If it is necessary to provide a financing guarantee to a subsidiary beyond its shareholding ratio in such subsidiary, it must reported to the group’s board of directors for approval and a full and realizable counter-guarantee shall be provided by the minority shareholder or a third party through mortgage, pledge or otherwise.

Besides, the scale of financing guarantees is also strictly limited.  The total guarantee scale of a CSOEs shall not exceed 40% of the group’s consolidated net assets, and the guarantee amount of a single subsidiary (including the headquarters) shall not exceed 50% of its own net assets.

(3) The management and control methods are more detailed.

The Circular points out few important key elements in the review of illegal guarantees, including: the guarantor, the amount of guarantee, the benefited party and its operating status, the method of guarantee, the guarantee fee, and the cleanup plan for illegal guarantees and etc.

In addition, given that provision of guarantee is a major risk for CSOEs and PRC Company Law provides that guarantee shall be approved by board or shareholder meetings, the Circular stipulated that the guarantee budget need to be approved by the board or its authorized decision-making body.  However, to maximize the board’s risk control function, the enterprise guarantee system and special guarantee matters are still subject to the approval of the group’s board.

(4) The rectification and cleanup timeline is provided for illegal guarantee. 

The new illegal financing guarantee will be investigated and relevant personnel will be held liable.  The Circular requires CSOEs to rectify existing financing guarantees that are not in compliance with the Circular in three years.  The guarantees of no equity relationship arising from spin-off from the group or the disposal of equity, and the guarantees for enterprises held by it beyond its shareholding ratios therein shall be cleaned up within two years.

If you have questions about this client alert, please contact the authors listed below or the Anjie lawyer with whom you normally consult.


Jason Chan


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