The new rules also require FIEs to register Forex cash collateral and guarantees which are used to secure RMB loans. Prior to the adoption of the new rules, Forex collateral, as a capital account item, only needed SAFE's prior verification (i.e. to verify the source and amount of the Forex). As a result, it was relatively easy for FIEs to pledge Forex cash with Chinese banks in obtaining RMB loans. In a devaluation scenario, the Chinese banks would then be entitled to a smaller portion of the Forex collateral. According to the new rules, where a RMB loan is secured with Forex cash collateral, the security must be registered with SAFE within 15 days of execution, and FIEs cannot convert RMB loans to repay Forex loans.
As to RMB loans secured with Forex guarantees, the purpose of such RMB loans is now restricted to supplementing the borrower's working capital. It may not be used to meet long-term capital requirements or to convert and repay Forex loans. To maintain governmental supervision on RMB loans with Forex guarantees, FIEs are still required to register the Forex guarantee with SAFE as "contingent foreign debt."