It's SAFE Again for China Venture Capital Round-trips & Red-chip Listings

By Neal Stender & Yan Zeng, Coudert Brothers in association with Orrick, Herrington & Sutcliffe, Hong Kong, and Xiaowei (Sherry) Yin & Ying Zhu, Coudert Brothers LLP, Beijing and Shanghai

The use of offshore special purpose companies¹ controlled by PRC residents for round-trip investments² involving transfers of assets or company equity from China to offshore, and reinvestments or loans back into China, is the focus of the new Circular on Issues Relevant to Foreign Exchange Control with Respect to the Round-trip Investment of Funds Raised by Domestic Residents Through Offshore Special Purpose Companies (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)(Circular)³.

Two previous SAFE circulars - now repealed - had effectively frozen⁴ PRC investments involving offshore companies controlled by PRC resident individuals. Indirectly, this also slowed considerably the flow of PRC-related venture capital and private equity investment into China, as well as many planned listings of offshore companies controlled by PRC investors. These somewhat notorious SAFE circulars included (i) the Circular on Issues Relevant to Improving the Foreign Exchange Administration Regarding Mergers and Acquisitions by Foreign Investors (January Circular, often referred to as 'Circular No. 11') and (ii) the Circular on Issues Relevant to Registration Regarding Offshore Investments of Individual Domestic Residents and Foreign Exchange Registration in Respect of Mergers and Acquisitions by Foreign Investors (April Circular, often referred to as 'Circular No. 29').