On February, 28, 2015 the State Administration of Foreign Exchange (“SAFE”) released the Circular of the State Administration of Foreign Exchange Further Simplifying and Improving Policies on the Administration of Foreign Exchange for Direct Investments Hui Fa [2015] No. 13 (the “Circular”). As suggested by its title, the Circular aims to simplify the administration of foreign exchange for direct investments. The Circular will come into effect on June 1, 2015.

The main points of the Circular are as follows:

Administrative Registration and Approval of Foreign Exchange for Domestic and Offshore Direct Investments Cancelled

Domestic investors of domestic foreign-invested enterprises and offshore investment enterprises no longer need to apply to SAFE to conduct registration and approval of foreign exchange. Rather, they may register such foreign exchange for their direct investments with banks that have already obtained the relevant qualifications, and subsequently they may open direct investment accounts and handle the exchange of funds.

Simplifying the Administration of Confirmation Registration for a Foreign Investor’s Direct Domestic Investments

According to the Circular, confirmation registration for the following two types of contributions by foreign investors is no longer required: (1) non-monetary contributions relating to direct domestic investments; (2) contributions relating to the acquisition of stock from Chinese shareholders. Monetary contributions by foreign investors still must be  booked  and  registered  as monetary contributions relating to their direct domestic investments.

Foreign Exchange Filing for Offshore Reinvestment Cancelled

Record keeping procedures for foreign exchange are no longer required when domestic investors who own or control offshore enterprises intend to establish or obtain control over new offshore enterprises by means of overseas reinvestment.

Annual Inspection of Foreign Exchange Direct Investments Cancelled

The Circular cancels the annual inspection of foreign exchange direct investments. Rather, domestic and offshore direct investments shall now be subject to stock equity registration. The Circular extends the time deadline for such registration and the channels through which such registration can be made. The deadline for registration is now September 30 each year. The channels through which such registration can be made include the enterprise itself, through accounting firms, or through banks, each using a common information system. Those enterprises that fail to make such registration will have their business supervised and controlled by SAFE through the common information system. Furthermore, banks are not permitted to handle foreign exchange business for non-complaint enterprises.

Supervision after Registration Strengthened

Since banks will directly process foreign exchange registrations, SAFE’s will now supervise and manage enterprises following such registrations.

The Circular notes, however, that quarterly submissions of required data to SAFE’s office at the place of registration is still required for foreign-invested enterprises that have participated in SAFE’s stock equity direct investment sample survey. The Circular does not elaborate on how such sample survey will take place.

Supervision of Banks Strengthened

Since banks will now be responsible for foreign exchange registrations following the implementation of the Circular, there are express instructions in the Circular on enhanced training and guidance for relevant banks. There must be improved compliance at banks, and rule-breaking banks are subject to specified punishments.Policies in Pilot Areas Reforming Capital Exchange Settlement by Foreign-Invested Enterprises Remain Unaffected.The implementation of the Circular does not affect the discretionary settlement policy set forth by SAFE’s Circular on Several Issues with respect to the Establishment of Pilot Projects to Reform the Administration of Foreign Exchange Capital Exchange Settlement by Foreign-Invested Enterprises in Several Areas Hui Fa [2014] No. 36.1