Recently, the China Insurance Regulatory Commission ("CIRC") and the State Administration of Foreign Exchange ("SAFE") have jointly distributed the Circular on Matters Concerning Regulating Insurance Institutions' Business of Offshore Loans under Onshore Guarantee (the "Circular"), immediately effective from the issue date.
The major contents of the Circular are described as follows. The first is specifying the ways to do business of offshore loans under onshore guarantee; the second is standardizing the counter-guarantee subjects and the forms of guaranties; the third is making clear the financing proportion and purposes of the funds raised; the fourth is enforcing supervision under the flow-through principle; and the fifth is enumerating what practices are prohibited. Further, the Circular states that projects invested in by insurance institutions shall be subject to harsher requirements and that the underlying assets shall not violate the country's macro-control policies, industry policies and outbound investment policies; additionally, it is required to use special funds for the designated purposes only, and insurance institutions are prohibited from using the funds, derived from the business of offshore loans under onshore guarantee, for any other business except for investment projects of special purpose corporations, or for offering loans to third parties; moreover, insurance institutions are prohibited from engaging in the business of offshore loans under onshore guarantee in disguised form and from using credit loans obtained overseas for arbitrage or illegal speculative transactions.