Provisions for Foreign Exchange Control in Connection with Direct Investment in China by Foreign Investors

Article 2: For the purposes of these Provisions, the phrase “direct investment in China by a foreign investor” (DI) means the act whereby a foreign investor (either a foreign organisation or individual) establishes a foreign-invested enterprise or project in China by new establishment, acquisition, etc. (an FIE) and thereby secures rights and interests therein such as ownership, control, and operating and management rights.

Article 3: Administration of DI is effected through registration. Organisations and individuals involved in DI activities shall register with the State Administration of Foreign Exchange and its branches (SAFE). A bank shall handle matters related to DI based on the information registered with SAFE.

Article 4: SAFE shall oversee DI registration, account opening and changes therein, receipt and payment of funds, conversion and sale of foreign exchange, etc.

Part Two: Administration of registration, accounts, and conversion and sale of foreign exchange

Article 5: A foreign investor that needs to inwardly remit start-up costs and other such relevant funds to prepare for the establishment of an FIE shall carry out registration procedures with SAFE.

Article 6: Once an FIE has been established in accordance with the law, it shall carry out registration procedures with SAFE. If a foreign investor makes its capital contribution to an FIE or pays the consideration for the equity of a Chinese party in an enterprise in China that it is acquiring in the form of cash, equity, physical assets, intangible assets, etc. (including income lawfully derived in China), the FIE shall register the capital contribution of the foreign investor and details of its equity with SAFE.

If a change in the capital of an FIE subsequently occurs, such as a capital increase, capital reduction or equity transfer, amendment of registration shall be carried out with SAFE. If an FIE is deregistered or is converted into an enterprise that is not an FIE, cancellation of its registration shall be carried out with SAFE.

Article 7: If an organisation or individual within or outside China needs to handle matters relevant to DI, such as an equity transfer or domestic re-investment, it/he/she shall carry out registration procedures with SAFE.

Article 8: Once an entity involved in DI carries out registration, it may, depending on what is actually needed, open DI accounts, such as those for start-up costs, capital, and asset realisation, with a bank.

Once the funds in a DI account have been exhausted, the bank may carry out account closing procedures for the entity that opened the account.

Article 9: The conversion and use of the capital of an FIE shall comply with relevant exchange control provisions. The capital of an FIE denominated in foreign exchange and the renminbi funds derived from the conversion thereof shall be used within the enterprise's scope of business and comply with the true self-use principle.

The conversion of funds in the start-up cost account and other such DI accounts shall be handled with reference to relevant provisions for the conversion of capital.

Article 10: For funds that need to be remitted abroad, such as those arising from a capital reduction, liquidation, early recovery of investment, profit distribution, etc., the FIE may carry out the procedures for the purchase of foreign exchange and foreign payment with the bank after having carried out the corresponding registration.

If funds need to be remitted abroad after the acquisition of the equity in an FIE held by a foreign investor, the acquirer in China of the equity may carry out the procedures for the purchase of foreign exchange and foreign payment with the bank after the FIE has carried out the corresponding registration

Article 11: SAFE shall conduct annual inspections of an FIE in accordance with relevant state provisions.

Part Three: Regulation

Article 12: Before a bank opens an account, credits funds to an account, converts or sells foreign exchange, carries out a domestic transfer, handles a foreign payment, etc. for an entity involved in DI, it shall confirm that such entity has carried out the corresponding registration with SAFE in accordance herewith.

The bank shall conduct a review of the truthfulness and consistency of the materials submitted by the entity involved in DI in accordance with exchange control provisions, and carry out relevant matters through the business system designated by SAFE.

A bank shall open the appropriate account for an entity involved in DI in accordance with exchange control provisions and, in a timely manner, completely and accurately submit information on the opening of, and changes to, accounts, receipt and payment of funds, the conversion and sale of foreign exchange, etc. to SAFE in accordance with provisions.

Article 13: Reporting of statistics on international balance of payments in connection with DI shall be carried out in accordance with relevant provisions.

Article 14: SAFE shall keep statistics on and monitor cross-border receipts and payments, conversion and sale of foreign exchange, changes in the equity of foreign investors, etc. related to DI through means such as registration, bank submissions, annual inspections and spot checks.

Article 15: SAFE shall conduct reviews or inspections of the compliance of DI matters handled by banks and their submission of information, and shall carry out reviews or inspections of organisations and individuals in whose DI are found irregularities or suspicious circumstances.

Reviews include offsite reviews and onsite reviews. Onsite review methods include, but are not limited to: requiring the entity that is the subject of the review to submit relevant written materials, interviewing the legal representative or person in charge of the entity that is the subject of the review, or the person authorised by him/her, viewing and/or taking copies onsite of relevant documentation of the entity that is the subject of the review, etc.

Relevant entities shall cooperate in the monitoring inspections conducted by SAFE, give true accounts of matters, provide relevant documents and information, and may not refuse, obstruct or withhold information.

Article 16: If an entity involved in DI violates these Provisions, SAFE shall impose penalties in accordance with the PRC Regulations for the Control of Foreign Exchange and related provisions.

Part Four: Supplementary provisions

Article 17: If a foreign investor is to establish a financial institution in China through new establishment, acquisition, etc., registration shall be carried out with reference to these Provisions.

Article 18: DI by investors from the Hong Kong Special Administrative Region, the Macao Special Administrative Region and Taiwan shall be administered with reference to these Provisions.

Article 19: The State Administration of Foreign Exchange is in charge of interpreting these Provisions and shall formulate operational guidelines based hereon.

Article 20: These Provisions shall be effective as of May 13 2013. In the event of an inconsistency between previous provisions and these Provisions, these Provisions shall prevail.