In May 2007 the Ministry of Commerce (MOFCOM) and State Administration of Foreign Exchange (SAFE) jointly issued Circular 50, "On Further Strengthening and Regularizing the Examination and Approval of and Supervision Over Direct Foreign Investment in Real Estate." Circular 50 requires foreign-invested real estate development enterprises (RE FIEs) to notify MOFCOM when they obtain an Approval Certificate from the local approval authority. Previously, approval for RE FIEs could be issued at the local level without supervision by the central government, so long as the registered investment fell below levels generally applicable to all foreign-invested entities.

In July 2007 SAFE issued Circular 130 on "Issuance of List of First Group of Foreign-invested Real Estate Companies Filed With Ministry of Commerce," imposing even more stringent restriction on RE FIEs.

According to Circular 130, SAFE will not allow registration of foreign loans (so that payments can be remitted overseas in foreign currency) for RE FIEs obtaining Approval Certificates and completing the SAFE registration process on or after June 1, 2007.

Generally after registering its foreign loans with SAFE, a FIE may freely borrow an amount equal to the difference between its registered capital amount and total investment level (i.e., registered capital + foreign loans = total investment). Under Circular 130, RE FIEs filed with MOFCOM after June 1, 2007 cannot register foreign loans at all. In other words, for new RE FIEs to fund their projects, they must either invest money as registered capital or borrow an RMB loan. Borrowing RMB loans usually requires obtaining all certificates for project development and mortgages for the entire project. Thus, under Circular 130, RE FIEs will face increasingly burdensome obstacles to obtaining financing and capitalization. If you have questions or concerns, please contact any of the Squire Sanders lawyers listed in this Alert or the one with whom you are most familiar.