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SAFE issues rules to further improve and simplify administration of foreign exchange under direct investment 

30 November 2012

On 19 November 2012, to facilitate foreign investment-related capital flow in and out of China, SAFE issued a circular that significantly simplifies the administration of foreign exchange for direct investment (“Circular”). The Circular, which take effect as of 17 December 2012, will abolish or simplify as many as 49 approval requirements, as well as relax the regulatory regime for cross-border loans.


  • Simplified process

The Circular simplifies the foreign exchange approval procedures for setting up and operation of a foreign invested enterprise (“FIE”). In particular, it abolishes the requirement for SAFE’s approval to:

(i)   open a pre-establishment expense account;

(ii)  open a foreign exchange capital account; and

(iii)  purchase and pay foreign exchange to offshore foreign investors in the context of remitting proceeds from a capital reduction or liquidation.

In general, for each of these procedures, the foreign investor or FIE will be able to deal directly with the commercial bank, which will process the transactions directly through SAFE’s online system.

  • Re-investment by a foreign investor or foreign invested investment company (“FIIC”)

(i)  For a FIE:

  • the approval requirement has been removed for re-investment by foreign investors of lawfully-obtained proceeds, e.g. the profits or capital from onshore investment, or the proceeds from an equity transfer or liquidation (although the invested company will still need to register the shareholding change with SAFE);

(ii)  For a FIIC:

  • under the Circular, a FIIC will be deemed to be a domestic investor in terms of any re-investment. Therefore, any enterprise invested in by the FIIC, including a wholly-owned subsidiary or a joint venture established with another domestic company, will no longer be subject to foreign exchange registration requirements; and
  • for any investment payment made by the FIIC, the requirement for prior SAFE approval will also be removed. This means that, in future, if the FIIC intends to make a re-investment, the payment can be directly processed at a bank.
  • Acquisition of a domestic enterprise by foreign investors

For such acquisitions, registration in SAFE’s system will supersede the current SAFE approval requirement for opening an assets realisation account (used for deposit of the seller’s foreign exchange income from the sale of assets or interests) and the approval requirement preceding the receipt of consideration for an equity transfer. Therefore, the seller will be able to open an assets realisation account and receive equity transfer consideration directly through the commercial bank.

  • Overseas loans granted by a domestic enterprise

The Circular also expands the circumstances under which a loan to a foreign entity is permissible, including:

(i)   an onshore entity is allowed to provide a loan to an offshore entity using foreign exchange borrowed onshore (as an alternative to the proprietary funds which must be used under current regime); and

(ii)   an onshore FIE is allowed to provide a loan to its offshore parent company, provided that the amount of loan should be limited to the aggregate of distributed but unremitted profits and proportionate undistributed profits. According to the current rules, an onshore entity is only allowed to provide a loan to its offshore wholly-owned subsidiary or entities in which it has equity interest.

Whilst it remains to be seen how the SAFE’s registration system will operate in practice, i.e. the procedures and timing required for such registration, the revised rules should help reduce companies' costs and improve efficiencies by establishing a registration-based administration mechanism.

Any queries can be forwarded to Fang Jian, Richard Gu or your usual Linklaters contacts.

Reference: Circular of SAFE on Further Improving and Adjusting the Policies of Foreign Exchange Administration in Foreign Direct Investments (国家外汇管理局关于进一步改进和调整直接投资外汇管理政策的通知)

Issuing authority: State Administration of Foreign Exchange (“SAFE”)

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