Circular on Reforming the Management of the Settlement of Foreign Capital from Foreign-Invested Enterprises (Huifa No. 19 【2015】)
On 30 March 2015, the State Administration of Foreign Exchange of People’s Republic of China (“SAFE”) issued the Circular on Reforming the Management of the Settlement of Foreign Capital from Foreign-Invested Enterprises (《关于改革外商投资企业外汇资本金结汇管理方式的通知》) (Huifa No. 19 【2015】) in which it announced that from 1 June 2015 onwards, new legislation for reforming the management of the settlement of foreign capital from foreign-invested enterprises will become effective in the whole country.
The primary function of this reform is to implement willingness exchange settlement (意愿结汇) for foreign capital from foreign-invested enterprises, thereby the use of the exchanged Renminbi (“RMB”) is relaxed. The new legislation will nevertheless maintain restrictions to the use of the exchanged Renminbi on: (1) expenditures other than those that are within the scope of business or not prohibited by legislations; (2) direct or indirect investment in securities; (3) direct or indirect issuance of RMB-denominated entrusted loans, repayment of inter-enterprise lending (including those with third-party advances) or repayment of third-party banks that has taken up the lending; and (4) purchase of real estate not for self-use (foreign-invested enterprises with registered businesses in investment of real estate are exempted).
Previously, foreign capital from foreign-invested enterprises was not permitted to be used in equity investments in China. The substantial change to be brought about by this new legislation is that the investee enterprise in China will first need to apply with SAFE for a domestic re-investment registration (境内再投资登记) and then open a relevant settled foreign currency receiver account (结汇待支付账户). After which, the investing foreign-invested enterprise may remit settled foreign capital (which is in RMB) to the said account.