Key Points

  • Defines “inbound direct investment”
  • Explains the situations when investors must register with SAFE
  • Allows SAFE-registered parties to deal with certain banks directly


On 11 May 2013, China’s State Administration of Foreign Exchange (“SAFE”) released a new circular, “Circular on Issuing the Provisions on the Foreign Exchange Administration of the Inbound Direct Investment of Foreign Investors and Supportive Documents (Huifa[2013] No. 21) (“Circular 21”) which came into effect on 13 May 2013.

Circular 21 represents a further step by SAFE to simplify and unify the relevant foreign exchange registration procedures following issuance of the Circular on Further Improvement and Amendment of Foreign Exchange Control Policies on Direct Investment, effective in December 2012(“Circular 59”).

Highlights of Circular 21

Circular 21 contains three documents which cover different aspects of the foreign exchange registration procedures.

  1. Definition of Inbound Direct Investment

Inbound direct investment by foreign investors refers to the setting up of foreign-invested enterprises (“FIEs”) or projects in China via new establishment, mergers and acquisitions, or other means, through which rights and interests including ownership, rights of control, or operation and management rights are acquired. Notably, such definitions also apply to foreign investors’ investments in domestic financial institutions.

  1. SAFE Registration Requirements

SAFE foreign exchange administration shall be on foreign direct investment (“FDI”) related foreign exchange registration and settlements, account opening and usage, and fund remittances.

The following actions require registration with SAFE branches:

  • Remittances of pre-operating expense for establishing FIEs.
  • Establishment of FIEs.
  • Foreign investors’ contribution of capital in the form of foreign exchange, equity, tangible or intangible assets (including onshore lawful profits), or payment of consideration to a Chinese shareholder when purchasing the equity of a domestic enterprise of such Chinese shareholder.
  • Capital changes to an FIE such as capital increase, capital reduction, equity transfer.
  • Deregistration of an FIE or conversion of an FIE into a non-FIE.
  • Equity transfer, onshore reinvestment and relevant matters related to FDI by onshore and offshore institutions and individuals.

SAFE’s processing time for a registration application is five business days, which may be extended to 20 business days in special circumstances. This has created a more efficient turnaround than previously, with the timescale for a standard turnaround being only 20 business days for an approval or registration from SAFE.

However, Circular 21 hasn’t defined “registration,” leaving a question of whether a registration process will contain a review and examination process. For example, According to Article 6 of the Operating Guidelines and Specifications on Matters Relating to the Inbound Direct Investment Business (the “Guidelines”), SAFE is entitled to request an applicant to provide proof of the reasonableness of the transaction consideration under certain special circumstances relating to foreign exchange incomes and expenses.

  1. Banking Matters

Circular 21 allows the relevant party who has completed SAFE registrations to deal with banks directly for following banking matters:

  • FIE can open a pre-operating expense account, capital account and asset conversion account with a bank.
  • To remit money offshore by the reason of capital reduction, liquidation, advance recovery of investment, distribution of profit, FIE can purchase foreign exchange and do outbound payments with a bank.
  • To remit money offshore by the reason of the equity transfer of an FIE held by foreign investors, the domestic transferee can purchase foreign exchange and do outbound payments with a bank.

Circular 21 also issued detailed guidelines containing 23 registration forms, providing a full set of registration forms in relation to FDI. Each form provides detailed instructions and specific registration application documents for each specific FDI transaction, making the registration procedures relatively transparent. Circular 21 abolishes 24 regulations for foreign exchange registration and settlement, accounts opening and usage, fund remittances, and thus simplifies and systemizes the foreign exchange administration of foreign direct investment.


Circular 21 has shown clear signs that SAFE is reducing administrative procedures and establishing a registration system in order to facilitate FDI and monitor capital inflows and outflows in a better way. As quoted by SAFE, “it further simplifies, standardizes and clarifies the foreign exchange administration of FDI into China, and offers a registration system for FDI and outbound direct investment”.