State Administration of Foreign Exchange, Circular on Issues Relevant to Launching a Pilot Project for Reform of the Administration Method for the Settlement of the Foreign Exchange Registered Capital of Foreign-invested Enterprises in Certain Regions

The registered capital of a foreign-invested enterprise and the renminbi proceeds derived from the conversion thereof may not be used for the following purposes:

(1) may not be directly or indirectly used for expenditures falling outside its scope of business or those that are prohibited by state laws and regulations;

(2) unless otherwise provided in laws or regulations, may not be directly or indirectly used for investment in securities;

(3) may not be used directly or indirectly to extend entrusted renminbi loans (except where this is permitted by the scope of business), repay inter-enterprise loans (including third party advances) or repay bank renminbi loans on-lent to third parties; or

(4) with the exception of foreign-invested real property enterprises, may not be used to cover expenses related to the purchase of real property not for the enterprise's own use (Article 3).

Provided that the domestic projects in which they invest are genuine and compliant, foreign-invested enterprises that have investment as their main business (including foreign-invested companies with an investment nature, foreign-invested venture capital enterprises and foreign-invested equity investment enterprise) shall, in line with the actual scale of the investment, be permitted, after directly converting the foreign exchange registered capital, to transfer the proceeds thereof into their investee enterprises' accounts (Article 4).

The Circular on the Transaction Operational Issues Relevant to Improving the Foreign Exchange Settlement Control in Connection with Payments of Foreign Exchange Registered Capital of Foreign-invested Enterprises and the Supplementary Circular on the Transaction Operational Issues Relevant to Improving the Foreign Exchange Settlement Control in Connection with Payments of Foreign Exchange Registered Capital of Foreign-invested Enterprises shall provisionally not be applicable to the settlement of the foreign exchange registered capital of foreign-invested enterprises in the pilot regions (Article 8).

Issued: July 4 2014

Effective: August 4 2014

Main contents: With a view to better satisfying and facilitating the operational and capital application requirements of foreign-invested enterprises, the State Administration of Foreign Exchange has decided to launch a pilot project for reform of the method of control of the foreign exchange settlement of the registered capital of foreign-invested enterprises in certain regions (Tianjin Binhai New Area, Shenyang Metropolitan Area, Suzhou Industrial Park, East Lake National Independent Innovation Demonstration Area, Guangzhou Nansha New District, Hengqin New Area, Chengdu Hi-Tech Industry Development Zone, Zhongguancun Science Park, Chongqing Liangjiang New Area, Heilongjiang Border Development and Exchange Control Liberalization Reform Pilot Area, Wenzhou Comprehensive Financial Reform Experimental Area, Pingtan Comprehensive Pilot Zone, China-Malaysia Qinzhou Industrial Park, Guiyang Free Trade Zone, Shenzhen Qianhai Shenzhen-Hongkong Modern Service Industry Cooperation Zone of Shenzhen and Qingdao Municipal Wealth Management and Financial Comprehensive Reform Pilot Zone).

Foreign-invested enterprises registered and established in the pilot areas may convert their foreign exchange registered capital at their own discretion, meaning that foreign exchange settlement for the foreign exchange registered capital in the registered capital account of a foreign-invested enterprise for which the local SAFE has carried out confirmation as capital contribution equity may be carried out with a bank as required by the enterprise for its actual operations. The percentage of registered capital that may be so converted is provisionally set at 100% (Article 1).

The registered capital of a foreign-invested enterprise and the renminbi proceeds derived from the conversion thereof may not be used for the following purposes:

(1) may not be directly or indirectly used for expenditures falling outside its scope of business or those that are prohibited by state laws and regulations;

(2) unless otherwise provided in laws or regulations, may not be directly or indirectly used for investment in securities;

(3) may not be used directly or indirectly to extend entrusted renminbi loans (except where this is permitted by the scope of business), repay inter-enterprise loans (including third party advances) or repay bank renminbi loans on-lent to third parties; or

(4) with the exception of foreign-invested real property enterprises, may not be used to cover expenses related to the purchase of real property not for the enterprise's own use (Article 3).

Provided that the domestic projects in which they invest are genuine and compliant, foreign-invested enterprises that have investment as their main business (including foreign-invested companies with an investment nature, foreign-invested venture capital enterprises and foreign-invested equity investment enterprise) shall, in line with the actual scale of the investment, be permitted, after directly converting the foreign exchange registered capital, to transfer the proceeds thereof into their investee enterprises' accounts (Article 4).

The Circular on the Transaction Operational Issues Relevant to Improving the Foreign Exchange Settlement Control in Connection with Payments of Foreign Exchange Registered Capital of Foreign-invested Enterprises and the Supplementary Circular on the Transaction Operational Issues Relevant to Improving the Foreign Exchange Settlement Control in Connection with Payments of Foreign Exchange Registered Capital of Foreign-invested Enterprises shall provisionally not be applicable to the settlement of the foreign exchange registered capital of foreign-invested enterprises in the pilot regions (Article 8).