On 13 February 2014, State Administration of Foreign Exchange (SAFE) released a consultation paper on Foreign Exchange Rules On Administration Of Cross-border Security (the “Consultation Paper”). It is proposed in the Consultation Paper that restrictions on Cross-border Security will be dramatically relaxed so that FX/RMB will be fully convertible in respect of Cross-border Security. This is a significant reform in pace with Chinese Government’s streamlining administration and institute decentralization and opening up of capital account transactions.
Cross-border Security refers to (a) provision of security by a PRC entity in favor of an offshore entity in an offshore financing transaction (“Outbound Security”); or (b) provision of security by an offshore entity in favor of a PRC entity in PRC financing transactions (“Offshore Security”). The Consultation Paper penciled the following reforms: