Foreign Exchange rules further simplified for Foreign Direct Investment in China

by DLA Piper

On 11 May 2013, the State Administration of Foreign Exchange of the PRC (SAFE) released the Provisions on Foreign Exchange Administration of Inbound Direct Investment by Foreign Investors(外国投资者境内直接投资外汇管理规定), which entered into effect on 13 May 2013 ("SAFE Circular 21"). This is another important piece of SAFE regulation related to foreign direct investment in China (FDI). It's a further step to simplify and streamline foreign exchange administration regimes. It cancelled 24 FDI-related foreign exchange regulations. The attached Operating Guidelines and Specifications on Matters Relating to Inbound Direct Investment Business (境内直接投资业务操作指引) (Operating Guidelines) provide detailed instructions.

Registration-oriented Foreign Exchange Regime

Article 3 of SAFE Circular 21 expressly provides that foreign exchange matters of FDI activities are only subject to registration regime (in contrast to the verification-oriented regime prior to SAFE Circular 59 1). Similar to SAFE Circular 59, SAFE Circular 21 abolishes various SAFE approval/verification requirements on foreign exchange procedures, and lists out the matters requiring SAFE registration in a more streamlined and unified way.

According to SAFE Circular 21, foreign investors or FIEs need to complete registration with SAFE for the following FDI matters:

  • Payment from overseas as the start-up expense for setting up an FIE,
  • Establishment of an FIE,
  • Capital contribution to an FIE or payment of acquisition consideration for acquiring Chinese companies from Chinese investors,
  • Changes to the registered capital of an FIE, such as increase/decrease of registered capital or equity transfer of an FIE,
  • Cancellation of incorporation of an FIE or conversion of an FIE into a domestic company; and
  • Re-investment by an FIE in China.

Operating Guidelines - General Introduction

The Operating Guidelines attached to SAFE Circular 21 provide detailed instructions for SAFE and its local branches to follow when reviewing the application for each of the above registration matter. In addition, the Operating Guidelines also provide template registration forms to be used for such registrations. These instructions and template forms offer very useful information for both the applicants and SAFE officials, which will facilitate the registration process.

It is worth noting that, in contrast to the previous versions of foreign exchange operating guidelines where the required application documents list usually contains an item named "other documents/materials as required by SAFE", the Operating Guidelines attached to SAFE Circular 21 have removed such cover-all item to provide more certainty to the applicants. In addition, SAFE Circular 21 also shortens the reviewing time for SAFE to process the registration application to five working days (which is extendable to 20 working days in special circumstances). These have been seen as welcoming signals that SAFE will treat FDI registration more as a formality rather than a substantive review.

Once the required SAFE registrations are done, foreign investors or FIEs may proceed the following foreign exchange matters directly with relevant banks:

  • Account opening for various foreign exchange accounts, such as start-up expense accounts, capital accounts, assets realization accounts, re-investment accounts,
  • Cross-border payment or domestic fund transfer, and
  • Settlement of foreign exchange or purchase of foreign exchange (note that RMB settlement of foreign exchange in the capital account for equity re-investment in China is still subject to relevant SAFE control).

The Operating Guidelines also provide detailed guidance for banks to follow when handling the above foreign exchange matters for FDI activities.

SPV (Round-trip investment)

Among the regulations that have been abolished by SAFE Circular 21, it is worth noting that SAFE Circular on Distributing the Operating Procedures regarding Foreign Exchange Administration for Financing and Round-trip Investments by PRC Residents through Overseas Special Purpose Vehicles/国家外汇局关于印发《境内居民通过境外特殊目的公司融资及返程投资外汇管理操作规程》的通知 ("SAFE Circular 19") was abolished. However, since SAFE Circular 75 2 still remains effective, relevant foreign exchange registrations thereunder regarding round-trip investment are still required. For foreign exchange registrations relating to special purpose vehicles ("SPV") established by PRC residents, procedures under items 2.10 3, 2.11 4, 2.12 5, 2.13 6 and 2.14 7 of the Operating Guidelines attached to SAFE Circular 59 should be complied with. Regarding inbound investments made by such SPVs, SAFE Circular 21 has integrated relevant foreign exchange registration into the ordinary registration requirements applicable to other FDI activities.

FIE Establishment

The Operating Guidelines specifically provides that a foreign investor may use the RMB income obtained by it in China to invest in a newly established FIE. Tax clearance should be completed before such establishment. An FIE that is invested by an SPV through round-trip investment should be marked as SPV invested company in the SAFE system. Cross-border RMB investment is also recognised expressly, provided that the relevant MOFCOM counterparts approve such RMB investment in approval reply, and if not specified in the approval reply, the relevant board resolutions or shareholders resolutions of the FIE can be proof materials supporting the RMB investment amounts. It also provides clearance regarding different usages of RMB in further investments by foreign investors in China, i.e. RMB profits re-investment and re-investment with non-profits RMB.


Circular 21 provides clearer guidelines for foreign exchange matters relating foreign related mergers and acquisitions. It clearly provides that foreign investors' acquisition of 25% or more of shares in A share exchange listed companies will be marked as foreign invested company limited by shares. The Operating Guidelines also provide details regarding in-kind contribution. Especially, it recognises that in case of intangible assets, intangible assets' evaluation report should be obtained. It does not limit intangible assets here to registered intangible assets. In other words, any intangible assets that have a value under evaluation reports can be contributed, logically speaking. It also mentions expressly that contributing with equities in foreign companies is also allowed. All these, once implemented, will create another era of mergers and acquisitions in China. It is no doubt an important step to melt China into the world.


SAFE Circular 21 is seen as a welcome move for SAFE to further simplify and streamline foreign exchange administration regime for FDI in a more systematic way. SAFE has sent a clear signal that China's foreign exchange regulatory regime has been shifted from an approval/verification-oriented system to a registration/filing-oriented regime. The issuance of SAFE Circular 21 will no doubt further facilitate FDI activities in China and the internationalization of RMB.

1 SAFE Circular on Further Improving and Adjusting the Foreign Exchange Administrative Policy on Direct Investment /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,effective from 17 December 2012 ("SAFE Circular 59").

2 SAFE Circular on Issues relating to Foreign Exchange Administration for Financing and Round-trip Investments by PRC Residents through Overseas Special Purpose Vehicles/关于境内居民通过境外特殊目的公司融资及返程投资外汇管理有关问题的通知, effective from 1 November 2005 ("SAFE Circular 75").
3 Foreign exchange registration for overseas special purpose vehicles established by PRC residents/境内居民个人特殊目的公司外汇登记
4 Foreign exchange change of registration for overseas special purpose vehicles established by PRC residents/境内居民个人特殊目的公司外汇变更登记
5 Foreign exchange verification for purchase/payment of foreign currency by domestic individuals relating to the overseas special purpose vehicles established by PRC residents/特殊目的公司项下境内个人购付汇核准
6 Foreign exchange cancellation of registration for overseas special purpose vehicles established by PRC residents/境内居民个人特殊目的公司外汇注销登记
7 Supplement foreign exchange registration for overseas special purpose vehicles established by PRC residents/境内居民个人特殊目的公司外汇补登记

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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