China 20/20 Legal and Regulatory Developments - January 2013

by Orrick, Herrington & Sutcliffe LLP
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SAFE Issues Notice of State Administration of Foreign Exchange on Further Improving and Adjusting Foreign Exchange Policies Related to Direct Investment

On November 19, 2012, the State Administration of Foreign Exchange ("SAFE") issued the Notice of the State Administration of Foreign Exchange on Further Improving and Adjusting Foreign Exchange Policies Related to Direct Investment (the "Notice"), which became effective on December 17, 2012. The purpose of the Notice is to simplify the administrative procedures and approvals, strengthen the statistics and supervision work, and make foreign exchange policies related to direct investment registration-based.

The Notice mainly covers the following points: (1) abolishing the requirement to obtain SAFE's approval for the opening of and payment into foreign exchange accounts for direct investment; (2) abolishing the requirement to obtain SAFE's approval for reinvestment of foreign investors' legal income obtained in China, for example, conversion by foreign-invested enterprises of capital reserves, surplus reserves, undistributed profits or other legal income that belongs to foreign investors or their registered external loans (including interest) into registered capital; (3) simplifying the administration of foreign exchange for reinvestment in China by foreign invested holding companies; (4) simplifying the procedures for capital verification and confirmation that foreign invested enterprises are required to complete; (5) simplifying the foreign exchange registration procedures for acquisition, by foreign investors, of shares held by Chinese parties; (6) abolishing the requirement to obtain SAFE's approval for purchase and external payment of foreign exchange for direct investment; (7) abolishing the requirement to obtain SAFE's approval for domestic transfer of foreign exchange for direct investment; (8) further relaxing controls regarding the provision of loans abroad; (9) improving the administration of the conversion (into RMB) of foreign exchange capital of foreign invested enterprises; and (10) requiring banks to enhance their awareness of compliance in the process of conducting foreign exchange businesses for direct investment. The plan for the transition and transfer of historic business and direct investment system data is also attached to this Notice.

The full Chinese text of the Notice is available here.

SAFE Makes Revisions to Provisions on Foreign Exchange Administration Concerning Investment in Securities in China by Qualified Foreign Institutional Investors

On December 14, 2012, the State Administration of Foreign Exchange ("SAFE") issued the amendments to the Provisions on Foreign Exchange Administration Concerning Investment in Securities in China by Qualified Foreign Institutional Investors (Announcement [2012] No. 2 of SAFE) (the "Announcement"), which came into force on the same date.

For investment quotas, the Announcement permits the upper limit of the investment quota of sovereign funds, central banks or monetary authorities to be over the equivalent of USD 1 billion. For account administration, the Announcement further requires that custodians shall report to SAFE's local counterparts at their place of domicile for record purposes within five working days after the opening of foreign exchange accounts and dedicated RMB deposit accounts of qualified foreign institutional investors ("QFIIs") and that they shall submit the official custodianship agreement to SAFE to collect the Foreign Exchange Registration Certificates of the QFIIs.

The Announcement adds one article which provides that a QFII may, upon expiry of the lock-in period for the investment principal, remit the investment principal and the investment proceeds abroad in installments or by batches; the monthly amount of funds (including investment principal and proceeds) remitted abroad by a QFII shall not exceed 20% of its total domestic assets as at the end of the preceding year. The Announcement also amends a provision on remittance of an open-end Chinese fund and allowing the custodian bank of an open-end Chinese fund to handle relevant capital inflow or outflow formalities on a weekly basis according to the net balance for fund subscription purchase and redemption, provided that the net cumulative amount of a fund remitted abroad on a monthly basis shall not exceed 20% of the total domestic assets of the said fund as at the end of the preceding year. The Announcement further makes amendments regarding specified procedural requirements as well.

The full Chinese text of the Revised Provisions is available here

The Measures for Enjoyment of Relevant Treatment by Foreigners Permanently Residing in China Released

Twenty-five departments, including the Central Organization Department of the Communist Party of China, the Ministry of Human Resources and Social Security, and the Ministry of Public Security, jointly released the Measures for Enjoyment of Relevant Treatment by Foreigners Permanently Residing in China (the "Measures") on September 25, 2012. The Measures became effective on the date of release; however, they were not published until December 11, 2012.

The Measures apply to the foreigners who have obtained a Foreigner's Permanent Residence Permit. Such foreigners are, in principle, entitled to enjoy the same rights and undertake the same obligations as Chinese citizens, except for those political and special rights and obligations which Chinese laws and regulations specifically stipulate that foreigners cannot enjoy or undertake. Foreigners working in China with a Foreigner's Permanent Residence Permit are entitled to enjoy the same benefits as Chinese nationals in terms of employment, residence, visas, customs clearance, investments, professional title, children's education, social insurance, housing fund, house purchase, income tax, handling of financial business, shopping, travelling, and obtaining a driving license. In addition, the public security department will speed up the processing of such foreigners' application for naturalization as a Chinese national or restoration of Chinese nationality, based on the applicable formalities.

The full Chinese text of the Measures is available here

Five Ministries and Commissions Jointly Release a Notice to Provide Visa and Residence Facilities for Foreign High-level Talent 

On September 28, 2012, five departments, including the Central Organization Department of the Communist Party of China, the Ministry of Human Resources and Social Security, the Ministry of Foreign Affairs, the Ministry of Public Security, and the State Administration of Foreign Experts Affairs, jointly released the Notice on Issues Concerning Providing Foreign High-level Talent with Facilities for Visa and Residence in China (the "Notice"). However, the Notice was not published until December 13, 2012.

According to the Notice, visa and residence facilities can be provided to: (1) foreign high-level talent introduced under the introduction plan of overseas high-level talent, and their foreign national spouse and children under 18-years-old, or (2) a foreign national spouse and children under 18-years-of Chinese high-level talent introduced under the introduction plan of overseas high-level talent.

The Notice stipulates measures for providing visa and residence facilities: (1) for multiple temporary exit/entry, qualified applicants can apply for a long-term multiple-entry visa with five years' validity, which is effective for multiple entries with the longest permitted stay of 180-days; (2) for working or residing in China for a long period, qualified applicants can apply for a work permit or foreigner's residence permit with two to five years' validity; (3) applicants who are qualified for permanent residence can apply for permanent residence; and (4) qualified applicants can obtain a Permit for Expert Settling in China or Foreign Expert Permit. The Notice also specifies detailed procedures for providing visa and residence facilities.

The full Chinese text of the Notice is available here.

GAPP Seeks Public Opinions on Administrative Measures for Online Publication Services (Revised Draft for Comments)

On December 18, 2012, the General Administration of Press and Publication ("GAPP") issued a notice seeking public opinions on the Administrative Measures for Online Publication Services (Revised Draft for Comments) (the "Draft"). The deadline for submission of comments is January 10, 2013. The Draft will replace the Interim Provisions on Internet Publication Administration issued by GAPP and the Ministry of Information Industry in 2002. The Draft applies to online publication services in the PRC. "Online publication services" are defined as activities to provide online publications to the public through information networks, and to provide services to others for disseminating online publications. The Draft also defines the scope of online publications. In order to provide online publication services, an entity shall obtain approval from the relevant publication administration authority and a License for Online Publication Services. The Draft stipulates the requirements for an entity to be eligible to provide online publication services. Sino-foreign joint ventures, Sino-foreign cooperative ventures, and wholly foreign-owned enterprises are not allowed to provide online publication services. If any of these entities plans to cooperate, with any entity providing online publication services in relation to the business of online publication services, the entity providing the online publication services shall report to GAPP to enable it to conduct a security evaluation.

The Draft also provides other rules and regulations relating to online publication service licenses, administration of online publication services, supervision and administration, guarantees and awards, and legal responsibilities regarding online publication services.

The full Chinese text of the Draft is available here.

GAPP Seeks Public Opinions on Administrative Measures for Overseas Press and Publication Institutions Establishing Offices in China (Draft for Comments)

On December 18, 2012, the General Administration of Press and Publication ("GAPP") issued a notice seeking public opinions on the Administrative Measures for Overseas Press and Publication Institutions Establishing Offices in China (Draft for Comments) (the "Draft"). The deadline for submission of comments is January 10, 2013. The Draft defines an "Office" as an office which is established in China: (1) by a publication institution based in a foreign country, Hong Kong, Macao or Taiwan active in the business of newspapers, journals, books, audiovisual products, electronic publications, or online publications, or (2) by an intermediary institution or an agent based in a foreign country, Hong Kong, Macao or Taiwan conducting business related to press and publications, and which in either case operates non-profit activities relevant to such an institution's or agent's business. An Office is not qualified to be a legal person. According to the Draft, China will adopt a licensing system for the establishment of such Offices, and GAPP and the State Council Information Office are responsible for approving their establishment. The Offices can operate non-profit activities such as acting as a point of contact, communication, consultation and reception, however they shall not operate business activities relevant to press and publications.

The Draft also specifies requirements, procedures and documents necessary for establishing Offices in China as well as license renewal, annual review and other issues for the Offices.

The full Chinese text of the Draft is available here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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