On May 27, 2011, the State Administration of Foreign Exchange of PRC (“SAFE”) issued Operating Instructions on Foreign Exchange Administration for Domestic Residents Engaging in Financing and Round-tripping Investment via Overseas Special Purpose Vehicles (“Circular 19”), which goes into effect on July 1, 2011.

Circular 19 removes some major obstacles to round-trip investments and has an effect of encouraging offshore investments and reviving round-trip investments. It indicates SAFE’s policy shift from restricting to monitoring and regulating offshore equity financing activities. This client alert summarizes the key changes and effects of Circular 19, as well as its implications for investors.