WFOEs and Foreign Security: The Waters are Muddied

The People¡¯s Bank of China promulgated the Administration of the Provision of Security to Foreign Entities by Domestic Institutions Inside China Procedures (the Foreign Security Procedures), effective as of October 1 1996. Further, the State Administration of Foreign Exchange (SAFE) promulgated the Administration of the Provision of Security to Foreign Entities by Domestic Institutions Inside China Procedures Implementing Rules (the Implementing Rules), which took effect from January 1 1998.

Since these two laws (together referred to as the Foreign Security Laws) were issued, many commentators appear to have concluded that wholly foreign-owned enterprises (WFOEs) were exempt from the requirements to obtain SAFE approval for the granting of foreign security.

However, a circular issued by SAFE on August 29 1999 that prefaces the Interpretation of Relevant Provisions Concerning the Provision of Foreign Security by Domestic Institutions Letter [Huihan (1999) No 24] (the Circular) seems to suggest that SAFE, at least, has other ideas.