China's State Administration of Foreign Exchange (SAFE) promulgated the Circular on Further Improving and Adjusting Foreign Exchange Administrative Policies on Foreign Direct Investment (Circular No. 59) on 21 November 21 2012. With effect on 17 December 2012, it replaces more than 30 approval requirements with simpler registration procedures, streamlines many administrative procedures for foreign exchange transactions and relaxes some restrictions on the utilization of funds used for foreign direct investment (FDI). The changes resulting from it include the following:
Registrations instead of approvals - the following foreign exchange transactions, which previously required approvals from SAFE, may now be done upon the completion of registration procedures with banks which have been given access to SAFE's online data systems:
- The opening of FDI-related foreign exchange bank accounts for start-up costs, investment capital, asset realization (for asset sales) and security deposits
- The use of foreign exchange income of a foreign investment enterprise (FIE) for reinvestment or increase of registered capital
- The conversion of the registered foreign debt of a FIE into registered capital
- Remittances of start-up costs for outbound investment by domestic enterprises (companies which are not FIEs)
- Location and number of accounts - FIEs are now permitted to open foreign exchange bank accounts outside their registered places of business and to open more than one foreign exchange bank account.
- Equity acquisition of domestic enterprises - Equity acquisitions of domestic enterprises made with cash consideration are no longer required to be registered directly with SAFE when the bank processes the incoming payment in China.
- Re-investment by foreign-invested holding companies - Foreign-invested holding companies, venture companies and equity investment companies no longer need to register their investments with SAFE.
- Outbound financing - FIEs are now permitted to provide their overseas parent companies with financing equivalent to the aggregate of their distributed but unremitted profits and their proportion of undistributed profits, and allowed to use their foreign exchange loans in China to provide overseas lending.
- Capital verification and confirmation formalities - Accounting firms are now permitted to submit materials online when undertaking capital verification and confirmation procedures with SAFE. And the reduction of capital in FIEs by foreign investors is no longer subject to a confirmation process at SAFE.