State Administration of Foreign Exchange and Ministry of Construction, Circular on Issues Relevant to Regulating Foreign Exchange Control in Relation to the Real Property Market

Issued: September 1 2006
Effective: as of date of issue
Applicability: In the event of a conflict between existing provisions and this Circular, this Circular shall prevail. In the case of sales contracts of commodity premises of branches, sub-branches and representative offices in China, and individuals from overseas signed before the effective date of this Circular, the foreign exchange transfer matters involved in the transfer of commodity premises shall be handled in accordance with the existing provisions (Article 12).

Main contents: The Circular specifies the documents required for remittance from overseas of the purchase amounts for commodity premises in different cases. In the case of branches, sub-branches or representative offices established in China by overseas organizations purchasing commodity premises for their own use at the place of registration, they shall provide documents such as a written undertaking stating that the commodity premises purchased comply with the requirement of necessity and private use (Article 1). For individuals from overseas purchasing commodity premises for their own residence that comply with the actual needs, they shall provide domestic employment contracts or certification of student status valid for one year or more (Article 2). In the case of Hong Kong, Macao or Taiwan residents or overseas Chinese purchasing commodity premises in the mainland of a certain area for their own residential purposes, they shall provide the certificate on the record filing of the pre-sale contract for the commodity premises purchased in the city where the concerned individual is located, which is issued by the department in charge of real property (Article 3). If the registered capital of a foreign-invested real property enterprise has not been paid in full, or the enterprise has not obtained a State-owned Land Use Certificate, or the paid-in capital of a development project is less than 35% of the total investment of the project, the enterprise may not borrow foreign debts from overseas (Article 6). If a foreign institution or individual acquires a domestic real property enterprise by way of an equity transfer or otherwise, or acquires the equity of a Chinese party to an equity joint venture, and if the full amount of transfer cannot be paid by its own funding in one lump sum, the State Administration of Foreign Exchange (SAFE) will not handle the foreign investment related foreign exchange registration in respect of the receipt of foreign exchange from the equity transfer. Where the Chinese and foreign investors to a foreign-invested real property enterprise specify in the contract, articles of association, equity transfer agreement or other document terms that guarantee a fixed return or a fixed return in a disguised form to either party, SAFE will not handle foreign exchange registrations or registration amendments for the foreign-invested enterprise (Article 7). Funds in dedicated foreign exchange accounts of foreign investors opened by foreign institutions or individuals with domestic banks may not be used for the development of, or for dealing in, real property (Article 8).
Related legislation: Opinions on Regulating the Entry of Foreign Investment into the Real Property Market and the Administration Thereof, Jul 11 2006, CLP 2006 No.7 p.35