In addition to the new policies on outbound investment covered in our latest legal flash, [4] on January 26, 2017, the SAFE released Circular Hui Fa [2017] No. 3 on Further Carrying Forward the Reform of Foreign Exchange Administration and Improving Authenticity and Compliance Examination. 

The new measures:

  • Allow payment of domestic loans in foreign currency for companies with a background in exporting goods. Domestic enterprises can repay domestic loans with funds earned from exporting goods, but not with purchased foreign exchange funds.
  • Facilitate multinational corporations’ centralized management and operation of foreign exchange funds.
  • Enhance foreign exchange control on trade in goods. Domestic enterprises must receive and pay in foreign currency for trade under the principle of “exporter receives foreign currency as exporter, importer pays foreign currency as importer,” and timely settle receipt of proceeds in foreign currency, unless otherwise stipulated by the SAFE.
  • Allow funds of overseas loans under domestic guarantee to be transferred back for domestic use.
  • Require the audited financial report to be submitted with the relevant board resolution and tax filing form when distributing profits abroad. This requirement had been exempt in 2015 and required again in 2016. 
  • Require domestic investors, apart from submitting all required documentation for outbound direct investment, to explain to the relevant banks their investment capital source and planned use, and provide the board resolution, contracts and other evidence.

Although SAFE has conveyed that China’s strengthened management of outbound investment will not affect or restrict FIEs’ general profit distribution, the slightly heavier requirement does not ease the fear of a stricter procedure. 

Date of issue: January 26, 2017. Effective date: January 26, 2017