Laws of the People's Republic of China

The State Administration of Foreign Exchange

Official Reply of the State Administration of Foreign Exchange on the Relevant Issues Concerning Foreign Exchange Registration for Purchase of Right to the Use of Land Within China by Foreign Investors

HuiFu [2002] No.156

July 4, 2002

Shanghai Branch of the State Administration of Foreign Exchange:

The Request for Instructions on the Relevant Issues of Registration of Foreign Capital in Foreign Exchange of Foreign Direct Investment (ShangHaiHuiFa [2002] No.62 ) has been received, we reply as follows after deliberation:

The advance payment for assignment of land use right made by foreign investors before they legally establish an enterprise with foreign investment within China is land security deposit. In order to ensure the correct use of land security deposit and the successful implementation of the registration of foreign capital in foreign exchange, the following provisions are stipulated on the inward remittance, use, capital verification, transfer, outward remittance, etc. of the land security deposit of foreign investors:

1.

If the foreign investors need to pay the land security deposit to the land administrations before legally establishing enterprises with foreign investment within China, they shall apply to the foreign exchange administrations to open temporary land security deposit accounts, which shall be used to keep the foreign exchange remitted in by the foreign investors to pay the land security deposit, and the foreign investors shall settle the exchange through those accounts to pay the land security deposit to the land administrations.

2.

The term of temporary account of land security deposit is 6 months, if it is necessary to be extended upon expiration, an application shall be filed with the foreign exchange administration, which shall examine and decide whether to approve the extension on the basis of the use of the account and the examination and approval of the establishment of the enterprise with foreign investment. If the account has been used against the rules or the establishment of the enterprise with foreign investment hasn't been approved, the foreign exchange administration shall demand the enterprise to close that temporary security deposit account and to remit out the capital therein.

3.

The maximum limit of a temporary land security deposit account shall be approved according to the actual needs of the purchase of land use right by the foreign investors, during the term of the account, the accumulated credit arising in that account shall not exceed the approved limit.

4.

Settlements of exchange under a temporary land security deposit account must be verified by the foreign exchange administration one by one, and the use shall be limited only to the purchase of land use right and real properties attached to the land, you should specify the materials of verification according to the actual situations. The prior-establishment expenditure incurred by the foreign investors for establishing the enterprise with foreign investment shall still be paid from the temporary capital account.

5.

Foreign investors may not, before registering and establishing economic entities with the purchased land use right, engage in business activities such as leasing, reselling, mortgage loaning, etc. of that land use right within China.

6.

After paying the land security deposit, if the foreign investor fails to establish the enterprise with foreign investment, they shall apply to the foreign exchange administration for closing the temporary land security deposit account, and the remaining capital in the account and the returned land security deposit may be remitted out of China upon the approval of foreign exchange administration. You should specify the examination materials according to the actual situations.

7.

The capital in foreign exchange remitted into a temporary land security deposit account by foreign investors may be used as the capital contribution after the establishment of the enterprise with foreign investment.

If the capital remitted into that account has been approved to be settled, certified public accountants may handle the capital verification of the foreign party to the enterprise with foreign investment on the basis of the Document of Approving Foreign Exchange Transactions under Capital Account issued by the foreign exchange administration for approving the settlement of exchange. If there is still foreign exchange capital left in that account after the enterprise is established, the capital may be transferred to the capital account of the enterprise with foreign investment, and certified public accountants shall certify to the bank that opened the capital account of the foreign party's capital contribution, the specific procedures for the certification and the registration of foreign capital in foreign exchange shall conform to the requirements of Document CaiKuai [2002] No.1017and Document HuiFa [2002] No.42.

You should, in accordance with the foregoing principles, formulate operation rules to direct and regulate the operation of the banks and accounting firms under your jurisdiction. The operation rules shall, after being formulated, be reported to the Capital Department of the State Administration of Foreign Exchange Control for record.