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China Strengthens Management of Central SOEs Financing Guarantees to Further Controls Financial Risks

Wed, 29 Dec 2021
Categories: China Legal Trends

On 19 Nov. 2021, the State-Owned Assets Supervision and Administration Commission of the State Council (SASAC) issued the “Notice on Strengthening the Management of Central State-Owned Enterprises Financing Guarantees” (hereinafter “the Notice”, 关于加强中央企业融资担保管理工作的通知).

“Central State-Owned Enterprises (SOEs)” refers to the state-owned enterprises invested by the central government of China.

The Notice makes it clear that central SOEs shall not provide any form of guarantee to those outside the corporate group with no equity relationship engaged.

In principle, central SOEs are only allowed to provide financing guarantees to their subsidiaries or associates that qualify as a going concern, which has the resources needed to continue operating and meet its financial obligations.

In addition, central SOEs should be strictly in accordance with the shareholding ratio when providing guarantees for subsidiary enterprises and associate enterprises. They shall not provide guarantees to associate enterprises in excess of the shareholding ratio.

In recent years, the development of central SOEs has demonstrated some distinctive features, that is, the rapid development of financial business and the large scale of financial assets, which has also made them one of China's hidden financial risks.

The Notice mainly aims to prevent cross-transmission of debt risks arising from mutual financing or guarantees of such enterprises.

 

 

Cover Photo by Zhaoyang Chai on Unsplash

Contributors: CJO Staff Contributors Team

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