The State Administration of Foreign Exchange of the People’s Republic of China (“SAFE”) is the principal gatekeeper for incoming and outgoing investment made in foreign currency. SAFE wields tremendous influence over capital inflows and outflows and, as such, the rules it promulgates can significantly affect inbound investments. Recently, SAFE issued Circular 19, the ‘Operating Rules for the Administration of Foreign Exchange in Financing and Round-trip Investment by Residents in China via Special-Purpose Companies’, an important addition to an existing body of rules and regulations of special importance to foreign investors.

In 2005, SAFE issued the groundbreaking SAFE Circular 75 (“Circular 75”), which allowed domestic residents and foreigners resident in China to, for the first time, establish offshore special purpose companies as a way of accessing international capital markets. Circular 75 was the key legal document in enabling private companies to access the ‘red chip’ offshore listings, and was also the first rule to specifically require that the domestic resident owners of onshore companies seeking investment via special purpose companies register with SAFE.