Circular on Issues Relevant to Foreign Exchange Control in Connection with Overseas Direct Investment of Banks in China

1. For the purposes of this Circular, the term “bank in China” means a policy bank, state-owned commercial bank, commercial bank limited by shares, the Postal Savings Bank of China, a foreign-funded legal-person bank, municipal commercial bank, rural commercial bank, rural cooperative bank, etc. in China with legal person status.

2. A bank in China involved in any of the overseas direct investments set forth below shall, after securing the approval document from the banking regulatory department or other relevant competent department, carry out the foreign exchange registration procedures for overseas direct investment with the (sub-)branch of the State Administration of Foreign Exchange of the place where it is located (Safe Bureau) on the strength of the materials required in Article 7 of the Provisions on Foreign Exchange Control in Connection with Overseas Direct Investment by Organisations in China (the Provisions):

(1) setting up of an establishment abroad (other than a representative office);

(2) establishment of a subsidiary abroad;

(3) purchase of an equity interest in an overseas organisation in accordance with the law; or

(4) another direct investment project approved by the relevant competent department.

For a transaction relating to Item (1), the operating capital allocation plan submitted to the banking regulatory department shall be provided.

3. A bank in China shall complete the Foreign Exchange Registration Application for Overseas Direct Investment (the Application) attached to the Provisions in the following manner:

(1) it shall fill in the specific “nature of the investment” based on the scope of business of the investee organisation; if the investee organisation is a financial institution, the option “other” may be selected and the specific financial type (bank, insurance, securities or other) shall be stated in the remarks;

(2) if the capital contribution is made using its own foreign exchange or purchased foreign exchange (including a remittance from a domestic or overseas account), the capital contribution method option “amount of capital contribution made in domestic cash foreign exchange and currency” shall be filled in; if the bank in China is to make the overseas investment using the profit or dividend distributed from another overseas investee organisation, the option “translated amount of capital contribution resolved abroad and currency” shall be filled in; and

(3) if foreign exchange funds are to be paid directly to a foreign party (including a remittance from a domestic or overseas account), the option “domestic outward remittance” under the item “source of foreign exchange funds” may be selected; if no purchase of foreign exchange is involved, the option “self-owned foreign exchange funds” shall be selected; if a purchase of foreign exchange is involved, the option “purchased foreign exchange” shall be selected.

4. After reviewing and determining that the relevant materials and information are in order, the Safe Bureau of the place where the bank in China is located shall carry out overseas direct investment-related foreign exchange registration for the bank in China through the relevant business system and issue to the bank in China an Overseas Direct Investment-related Foreign Exchange Registration Certificate if it is carrying out overseas direct investment-related foreign exchange registration for the first time.

5. The procedures for the purchase and payment of foreign exchange in connection with the overseas direct investment-related outward remittance of foreign exchange funds by a bank in China may be carried out directly through the relevant business system based on the Overseas Direct Investment-related Foreign Exchange Registration Certificate that records the information on the contemplated overseas direct investment.

A bank in China that has carried out the procedures for the purchase and payment of foreign exchange shall carry out the feedback procedure through the relevant business system within three working days.

6. A bank in China shall, in respect of a change in the relevant particulars of an overseas direct investment that has already been made, carry out overseas direct investment-related foreign exchange registration, amendment or de-registration procedures with the Safe Bureau of the place where it is located in accordance with the requirements of the first two paragraphs of Article 9 and Article 10 of the Provisions. A bank in China shall, with respect to a material change in a registered overseas organisation that does not involve a change in capital, such as a long-term equity investment, carry out overseas direct investment-related foreign exchange record-filing procedures with the Safe Bureau of the place where it is located.

7. A bank in China may remit directly purchased foreign exchange or its own foreign exchange funds outward to cover the initial costs related with an overseas direct investment. A bank in China that has not secured the approval of the banking regulatory department or other relevant competent department for an overseas direct investment shall repatriate the balance of the funds within one year from the date on which it remitted out the initial costs. If the funds originally remitted out were foreign exchange funds purchased with renminbi, the bank in China may itself convert the foreign exchange on the strength of the original foreign exchange purchase receipt.

8. The profit arising from an overseas direct investment by a bank in China may not be converted into renminbi separately, but shall be included in the bank's foreign exchange profits and centrally managed, and they shall be converted into renminbi in accordance with provisions.

9. The feedback procedure shall be carried out for foreign exchange receipts on the capital account derived from a capital reduction, transfer of the equity, liquidation, etc. of an overseas organisation in which a bank in China has invested and for the foreign exchange receipts and expenditures mentioned in Articles 7 and 8 hereof through the relevant business system within three working days after the occurrence of each foreign exchange receipt or expenditure.

10. If a bank in China wishes to convert the foreign exchange receipts on the capital account derived from a capital reduction, transfer of the equity, liquidation, etc. of a foreign organisation in which it has invested, it shall do so after reporting the same to and securing the approval of the State Administration of Foreign Exchange or the local branch (including the office) of the State Administration of Foreign Exchange in accordance with its own rules on the management of the conversion and sale of foreign exchange in connection with capital account and financial items. The bank in China shall carry out the feedback procedure through the relevant business system within three working days after the date of each such conversion.

11. If a bank in China transfers to another organisation in China all or part of its equity interest in an overseas organisation obtained as the result of an overseas direct investment, the relevant funds shall be paid in China in renminbi. The equity transferor shall carry out overseas direct investment-related foreign exchange registration amendment or cancellation procedures with the Safe Bureau of the place where it is located, and the equity transferee shall carry out overseas direct investment-related foreign exchange registration procedures in respect of the acquired equity with the Safe Bureau of the place where it is located.

12. If a bank in China has carried out an overseas direct investment before the issuance of this Circular, it shall, with reference to Article 2 hereof, carry out the makeup overseas direct investment-related foreign exchange registration procedures with the Safe Bureau of the place where it is located by October 31 2010. If, for historical reasons, it cannot provide the approval document from the relevant competent department, it shall submit to the Safe Bureau of the place where it is located an Application Form filled out for each investment together with a list of the summarised information of each investment. The local Safe Bureau shall input the relevant overseas direct investment-related foreign exchange registration information for it.

If a bank in China fails to carry out the aforementioned makeup registration procedures by the specified deadline and procedure, the Safe Bureau shall impose penalties in accordance with relevant provisions on the violation of the administration of foreign exchange registration.

13. This Circular shall be effective as of September 1 2010. Banks in China shall handle foreign exchange control matters relating to their overseas direct investment not expressly addressed herein with reference to the Provisions.

After receipt of this Circular, branches and offices of the State Administration of Foreign Exchange shall forward the same to the lower-level branches, foreign-funded banks with legal personality, municipal commercial banks, rural commercial banks and rural cooperative banks in their jurisdictions in a timely manner.