Laws of the People's Republic of China

Circular of the State Administration of Foreign Exchange on Adjusting Some Foreign Exchange Management Policies about Overseas Investments

Hui Fa [2006] No. 27 June 6, 2006

The branches and foreign exchange management departments under the State Administration of Foreign Exchange (SAFE) in all provinces, autonomous regions, and municipalities directly under the Central Government, and the branches of SAFE in the cities of Shenzhen, Dalian, Qingdao, Xiamen and Ningbo:

For the purpose of adapting to the demands for overseas economic development, perfecting the supporting policies for encouraging overseas investments and facilitating domestic investors to implement transnational business operations, SAFE decides to adjust some foreign exchange management policies for overseas investments, and the relevant matters are hereby notified as follows:

I.

The "overseas investments" as mentioned in this Circular means such acts whereby varieties of legal persons inside the territory of China (hereinafter referred to as "domestic investors") establish enterprises abroad or obtain the ownership, managerial right or other rights and interests of the existing enterprises by way of new establishments (sole proprietorship, equity or contractual joint ventures), purchase, merger, share holding, capital injection, or change of stock rights, etc.

II.

The overseas investments shall be consistent with the national industrial policies for overseas investments, and be in favor of promoting the transnational flow and optimized allocation of production elements. The overseas investment projects of domestic investors shall go through the examination and approval of the competent administrative departments.

III.

The necessary foreign exchange for the domestic investors to invest abroad may be the self-owned foreign exchange, the foreign exchange brought by RMB or the domestic and overseas foreign exchange loans. Since the day of July 1, 2006, all the branches (foreign exchange management departments) of SAFE shall not verify the quota for buying foreign exchange for overseas investments. After an overseas investment project of domestic investors is examined and approved by the relevant administrative departments, the domestic investor may be subject to the examination and approval formalities for buying and paying foreign exchange in light of the existing provisions on the foreign exchange management.

IV.

After a domestic investor submits an application for the examination and approval of overseas investment project or the intent of investment to the relevant administrative departments, before getting a formal approval, and upon examination and approval of the local branch or foreign exchange management department under SAFE (hereinafter referred to as the "foreign exchange bureau"), it may use the self-owned foreign exchange, the foreign exchange purchased by RMB or the domestic and overseas foreign exchange loans to pay the initial expenses related to the overseas investment project to abroad.

V.

The initial expenses with which the domestic investor remits abroad for the overseas investment project shall be for the purposes prescribed as follows:

(1)

The guaranty money required to be paid in light of the laws of the place where the project lies or according to the request of the transferring party in the case of the purchase of the overseas enterprise's stock rights or the overseas property rights;

(2)

The guaranty money for the bidding required to be paid in the process of bidding for overseas projects;

(3)

The expenses necessary for implementing market surveys, leasing offices and facilities, hiring workers and intermediary institutions before investing overseas; and

(4)

Other initial expenses related to the overseas investment.

VI.

A domestic investor shall apply to the local foreign exchange bureau for dealing with the examination and approval formalities for remitting the initial expenses abroad upon the strength of the materials as follows:

(1)

An application form (including such information as the total investment amount of the overseas investment project, the contributions of all parties, means of contribution, amount of foreign exchange to be used, as well as the amount, purpose and source, etc. of the necessary initial expenses);

(2)

The business license or registration certificate of the domestic investor;

(3)

The relative documents on the domestic investor's participation in the bidding, merger or on the equity or contractual joint venture (like the letter of intent, memorandum or framework agreement, etc. signed by the Chinese and foreign parties);

(4)

A letter of commitments issued by the domestic investor to the local foreign exchange bureau (for the promise that the initial expenses remitted abroad will only be used to the approved overseas investment projects, otherwise, the domestic investor shall bear the corresponding legal liabilities);

(5)

An explanation on the name of the country (region) of the overseas account to which the initial expenses will be remitted, the overseas bank, the name of the owner of account and the account; and

(6)

Other relative materials required by SAFE.

After examining and verifying that there is no error in the materials, the local foreign exchange bureau shall issue a document on approval of the foreign exchange business under the capital accounts. The domestic investor shall go through the formalities for buying and paying foreign exchange at the designated local foreign exchange bank upon the strength of the approval document.

VII.

If a domestic investor applies for remitting the initial expenses abroad to the local foreign exchange bureau, the initial expenses remitted abroad shall not exceed 15% of the total amount of overseas investment that it applies to the relevant overseas administrative department. If the initial expenses really need to exceed 15% because of the business, they shall be examined and approved by the local foreign exchange bureau (foreign exchange management department).

The initial expenses that a domestic investor remits abroad upon examination and approval shall be listed in the total amount of the overseas investment project of the domestic investor. When it examines and approves all the capital remitted abroad for the overseas investment project, the foreign exchange bureau shall examine and reduce the amount of the remitted initial expenses.

VIII.

If a domestic investor needs to open an overseas account for the overseas investment project, it shall apply to the local foreign exchange bureau in light of the relevant provisions on the management of overseas foreign exchange accounts.

IX.

If a domestic investor fails to go through all the formalities for examining and approving the overseas investment project within 6 months as of the day when the initial expenses are remitted abroad, it shall transfer the remainder in the overseas account to the domestic foreign exchange account from which the foreign exchange is remitted abroad. If the foreign exchange remitted back to China is brought by RMB, the domestic investor shall settle the foreign exchange at the designated foreign exchange bank upon the strength of the original documents on the purchase of foreign exchange.

X.

The foreign exchange bureau shall strengthen the examination, statistics-making and monitoring to the foreign exchange purchase and payment with overseas investment capital, fill the net amount of initial expenses of its own jurisdiction in Column 1.2.1.3 of the monthly statements on the fluidity and remittance under capital accounts and appended items month by month, and report them to SAFE in accordance with the legal provisions.

XI.

Any domestic investor that violates the provisions in this Circular shall be punished by the foreign exchange bureau in accordance with the Regulation of the People's Republic of China on the Foreign Exchange Administration and other relative laws.

XII.

This Notice shall enter into effect as of the day of July 1, 2006. If any prior provision conflicts with this Circular, the latter shall prevail.