Laws of the People's Republic of China

State Administration of Foreign Exchange

Circular of the State Administration of Foreign Exchange on Issues Concerning Deepening the Reform of Foreign Exchange Administration on Foreign Investment

Hui Fa [2003] N0. 120

October 15, 2003

The branch offices / departments of the State Administration of Foreign Exchange in all provinces, autonomous regions, and municipalities directly under the jurisdiction of the Central Government, and the branch offices in Shenzhen, Dalian, Qingdao, Xiamen and Ningbo:

In order to promote the implementation of the "going out" strategy, and deepen the reform of the foreign exchange administration on foreign investment, as well as further improve the foreign exchange administration on foreign investment, we hereby make the following notice on relevant issues:

I.

For those foreign investment projects in which the amount of foreign exchange investment of the Chinese party is less than 3 million US dollars, the branch offices and departments of foreign exchange administration at the districts where the experiments on the reform of the foreign exchange administration on foreign investment are carried out on the approval of the State Administration of Foreign Exchange (hereinafter referred to as the "Experimental Branches"), may directly propose opinions on the examination of the sources of foreign exchange. And for those foreign investment projects in which the amount of foreign exchange investment of the Chinese party is less than one million US dollars, the Experimental Branches may, after reporting to and getting approval from the State Administration of Foreign Exchange, authorize their sub-branches within the territory of China, which have larger overseas investment portfolio, to directly issue opinions on the examination of the sources of foreign exchange.

The authority to examine the sources of foreign exchange for overseas investment in non-experimental districts shall remain unchanged.

II.

Before the registration and foundation of the overseas enterprises, an investor may remit overseas the prophase capital of a project according to the principle of actual needs after being examined and approved by the Experimental Branches. The Experimental Branches shall examine and verify the application of the investor for the remittance of the preliminary capital of the project on the basis of the business operating rules (See Attachment I).

1.

The preliminary capital of a project consists of the preparatory fees needed for preparing the foundation of an overseas enterprise, the deposit for the performance of contract paid for acquiring the assets and capitals or equity of the overseas enterprise, etc. The preliminary capital shall be considered as part of the total foreign exchange investment of the Chinese party for administration, and shall be utilized by the investor according to the particular circumstances of the project.

2.

For the preliminary capital under the preparatory establishment fees, the investor shall pay directly to the foreign organizations or individuals, and it is not necessary to open a special overseas account for the deposit. The investor shall submit an application to the Experimental Branches at the place where it is located for carrying out the formalities on the remittance of the capitals under the preparatory establishment fees, by virtue of the documents as follows:

(1)

A written application (consisting of the reasons for the payment, name of the payee, the opening bank, account number, kind of currency, and the amount of payment, as well as the list for the use of the preparatory establishment fees, thereof, etc);

(2)

The opinions issued by the foreign exchange administration on the examination of the source of foreign exchange for the foreign investment;

(3)

The official and written reply and the certificate of approval for the foreign investment project issued by the authority of examination and approval for a project;

(4)

The certification documents issued by the relevant overseas organizations showing that the preparatory establishment fees is really needed; and

(5)

Other documents as required by the Experimental Branches depending on the particular circumstances.

3.

For the preliminary capital under the deposit for the performance of contract, a special overseas account need to be opened by the investor to deposit it, and the capital shall not be paid directly to the overseas organizations or individuals. The investor shall submit an application to the Experimental Branches at the place where it is located for opening a special overseas account and for purchasing and paying the foreign exchange, during which process the documents as follows shall be submitted:

(1)

A written application (consisting of the reasons for opening the account, the opening bank to be chosen, the kind of currency, the amount of money, and the time limit for use, as well as the illumination for its purpose, etc);

(2)

The business license of the investor that has passed the annual examination performed by the department of industry and commerce administration;

(3)

The relevant ordains on account administration of the country (district) where the special overseas accounts are opened;

(4)

The introduction of the conditions of the assets and capitals or equity to be purchased, the evaluation report of the special intermediary agencies on the assets and capitals or equity to be purchased, and the certificates of payment to the deposit for the performance of the contract in actual need issued by the relevant organizations overseas, etc; and

(5)

Other documents required by the Experimental Branches depending on the circumstances.

The opening of the special overseas accounts shall be in the name of the investor, and the opening bank shall be selected firstly from the overseas Chinese-funded banks, and any alteration shall be examined and verified by the Experimental Braches beforehand. The investors shall, carry out the formalities for the purchase and payment of the foreign exchange for the prophase capital under the deposit for the performance of the contract by virtue of the approval documents and the certification documents for opening the overseas account, and the approval documents for the purchase and payment of the foreign exchange.

4.

After the foundation of the overseas enterprise as invested by the investor, the remaining part of the preliminary capital may be transferred directly into the account of the overseas enterprise. In case that the remaining capital needs to be transferred, the investor shall, within 7 days after the foundation of the overseas enterprises, transfer it into the account of the overseas enterprise (in case there is already a special overseas account, the special overseas account shall be closed simultaneously), and shall, within 20 days after the foundation of the enterprise, report to the former Experimental Branches approving the remitted capital on the use of the preliminary capital, the transfer of the remaining capital, and the opening and closing of the special overseas accounts which shall be kept in record.

In case that the overseas enterprise invested fails to be founded due to the failure of the preparing work or the failure in purchasing the equity, the investors shall, within 7 days after making decisions on terminating the investment, transfer the remaining preliminary capital to China (where there is already a special overseas account, the special overseas account shall be closed simultaneously), and shall, within 20 days after making decisions on terminating the investment, report to the Experimental Branches that originally approved the remitted capitals on the use of the prophase capital, the transfer of the remaining capital, as well as the opening and closing of the special overseas account, which shall be kept in records.

III.

In the case that an investor makes overseas investment, it shall, in addition to submitting the relevant documents according to the provisions of the Circular of the State Administration of Foreign Exchange on Relevant Issues concerning Simplifying the Examination on the Source of Foreign Exchange for Overseas Investment (No. 43 [2003] of the State Administration of Foreign Exchange), submit to the foreign exchange administration at the place where it is located such certification documents as the statements of assets and capitals or equity to be purchased, the purchase agreement, the evaluation report of the intermediary agencies on the objects to be purchased, etc. In case an investor adds capitals to the overseas enterprise that has been established, the investor shall submit to the foreign exchange administration at the place where it is located the documents in accordance with the regulations, such as the official or written reply for the foundation of an overseas enterprise, the opinions of the foreign exchange administration on the examination of the capital sources in the foundation of the overseas enterprises, the documents of approval for the remittance of the foreign exchange, the certificate of registration on foreign exchange for the foreign investment , and the certificate of registration on the overseas enterprise, as well as the business license thereof, etc.

IV.

In the case that a project has been established overseas but the formalities on foreign exchange of which fail to be carried out, the investors shall before May 31, 2004, by virtue of the documents as follows, apply for making a makeup foreign exchange registration of the foreign investment at the foreign exchange administration where it is located:

1.

A written application (including an introduction of the history of the project and the capital sources, etc);

2.

The official and written reply of the department of foreign investment on the project, and the certificate of approval or the confirmation letter;

3.

The registration certificate and the business license of the overseas enterprise;

4.

The Articles of Association of the overseas enterprise and the contract thereof;

5.

The composition of the board of directors of the overseas enterprises and the name lists thereof;

6.

The statement on the opening of the accounts of the overseas enterprises (including the opening bank and the account number, etc);

7.

The balance sheet of the overseas enterprise during the past year; and

8.

Other documents that are required by the foreign exchange administration depending on the circumstances.

The foreign exchange administration shall, after receiving a complete set of the documents mentioned above and finding no mistakes after examination, carry out the makeup registration on the overseas investment for the investors within 15 working days, and the "Certificate of Registration on Foreign Exchange for Overseas Investment" shall be issued. In the case that an investor has submitted an application for making up the registration of an overseas investment project, but fails to provide the documents listed in item 2 of the preceding paragraph, the foreign exchange administration shall firstly keep the relevant information on the overseas investment project in records, and shall not issue the "Certificate of Registration on Foreign Exchange for Overseas Investment" until a confirmation letter has been issued by the department of the overseas investment.

V.

Each of the branches shall, within the first ten office days of each month, reports to the department of the capital project administration under the State Administration of Foreign Exchange the new "Statistical Statement for the Foreign Exchange Business of the Overseas Investment" (See Attachment II), and the "Statistical Statement for the Experiment on Overseas Investment" reported by the Experimental Branches before shall no longer be submitted.

The present Circular shall go into effect on November 1, 2003. Any problem that may be encountered in its implementation, please feed back to the department of capital project administration under State Administration of Foreign Exchange.

Attachment:

I. Operating Rules for Remittance of the Preliminary Capital of the Foreign Investment (Omitted)

II. Statistical Statement for Foreign Exchange Business of the Foreign Investment (Omitted)