SAFE Simplifies Forex Rules for Direct Investment

The Notice of the State Administration of Foreign Exchange on Further Improving and Adjusting Foreign Exchange Control Policies on Direct Investment (Circular 59) took effect on December 17, 2012. Circular 59 continues China’s policy of relaxing its foreign exchange control requirements and procedures. Of particular importance, it abolishes SAFE’s verification requirements for (1) foreign exchange capital account opening and settlement of preliminary direct investment costs, (2) reinvestment in China by foreign investors and foreign invested enterprises, including foreign invested “holding companies,” of foreign exchange profits and proceeds from equity transfers, (3) conversion of “foreign debt” (i.e. a properly registered foreign loan) to registered capital, and (4) conversion to and payment in foreign exchange by onshore companies for the purchase of offshore assets. In most cases, China’s designated foreign exchange banks are now charged with supervising these activities and SAFE retains extensive powers to supervise and discipline the banks. Circular 59 also simplifies capital verification procedures for foreign invested enterprises and registration procedures for the purchase by foreign investors and foreign invested enterprises of equity interests in onshore companies. More…