On 19 November 2012, the State Administration of Foreign Exchange ("SAFE") promulgated the Notice on Further Improvement and Adjustment of Foreign Exchange Administration Policies Concerning Direct Investment ("Notice"), which came into force on 17 December 2012.
Due to China's strict foreign exchange controls, foreign direct investment ("FDI") is subject to various formalities with the SAFE. Following the promulgation of the Notice, many procedures and formalities with the SAFE relating to FDI will be considerably simplified. The key improvements are set out in the table below.
|
Formailities |
Improvements |
|
Opening of foreign exchange bank accounts to receive up-front costs, capital contributions, sales price for transfer of assets and deposits |
Prior approval no longer required |
|
Re-investment with legitimate income generated by foreign investors in China (e.g. distributed profits, proceeds from transfer of equity interests, reduction of registered capital, liquidations, etc) |
Prior approval no longer required |
|
Increasing registered capital with capital reserves, surplus reserves or undistributed profits of foreign investors or with foreign debts borrowed from foreign investors |
Prior approval no longer required |
|
Foreign exchange registration for domestic companies invested by foreign invested holding companies, foreign invested venture capital companies or foreign invested equity investment companies |
Registration no longer required if the domestic company does not have any foreign investors |
|
Funds transfer between foreign invested holding companies, foreign invested venture capital companies or foreign invested equity investment companies and the domestic companies invested by them |
Prior approval no longer required |
|
Repatriation of proceeds from the reduction of registered capital or liquidation of a foreign invested enterprise to foreign investors |
Prior approval no longer required |
|
Granting loans to foreign investors |
Loans granted by foreign invested enterprises to their overseas parent companies are now permitted and loans in foreign currencies borrowed by foreign invested enterprises within China can be used for this purpose |
The SAFE has also issued two sets of detailed procedures for its local offices and banks to follow when handling the relevant SAFE formalities in connection with FDI. The costs and burden on foreign invested enterprises and foreign investors will hopefully be reduced after the simplified procedures start to be adopted.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.