Laws of the People's Republic of China

The State Administration of Foreign Exchange

Reply of the State Administration of Foreign Exchange on Issues Concerning the Foreign Exchange Administration of Foreign Reinvestment in RMB

HuiFu [2000] No.129

May 10, 2000

Nanjing Foreign Exchange Administrative:

Your Letter for Instructions on Reinvestment in China by the Foreign Investor of Ashland (Nanjing) Chemical Co., Ltd. with Its Net Assets upon Liquidation (NanHuiFa [2000] No.1) and the Letter for Instructions on Reinvestment in China by the Foreign Party of Nanjiang Sanyi Feed Additive Co., Ltd. with its Net Assets upon Liquidation (NanHuiFa [2000] No.5) have been received. After deliberation and consultation with the Ministry of Foreign Trade and Economic Cooperation (see the Attachment), our reply on issues concerning foreign exchange administration is as follows:

1.

Foreign investors who reinvest in China with RMB denominated capital from the liquidation, stock equity transfer or advance investment recovery of the respective enterprises they invest in shall enjoy the same policy treatment as those reinvest in foreign currencies. The relevant local foreign exchange administrative bureau may examine such reinvestments on a case-by-case basis and grant its approval upon satisfaction of the following principles:

a.

The foreign investor can be proved to have legally withdrawn its investment from the foreign invested enterprise it originally invested in (such proof can be obtained through examination of the documents of the original enterprise such as replies from authorities of foreign trade and economy, contracts, regulations, and capital verification reports).

b.

The RMB capital to be invested is indeed the legal income of the foreign party generated through liquidation, stock equity transfer or advance investment recovery, and such liquidation, stock equity transfer or advance investment recovery has been conducted following the relevant procedures. (Examination shall be conducted on such materials as listed in the operational rules laid down by our administration on liquidation, stock equity transfer and advance investment recovery).

c.

The foreign investor is at the same time the shareholder of the enterprise with reinvestment and is indeed liable for providing capital to the enterprise. (The verification can be conducted by examining such documents of the enterprise with reinvestment as replies of relevant authorities of foreign trade and economy, approval certificates, contracts, regulations, and capital verification reports).

The relevant local bureaus may issue the Certificate for Providing RMB Denominated Capital to the foreign investor upon completion of verification according to the above principles; because no tax rebate is involved, the source of the RMB denominated capital shall be pointed out in the Certificate with a view to avoid confusion with reinvestment with RMB denominated profits.

2.

Problems confronted during the implementation process shall be timely reported to the State Administration.

This is the reply.

Attachment:Comments of the Ministry of Foreign Trade and Economic Cooperation

April 4, 2000

The Department of Capital Account Transaction Administration of the State Administration of Foreign Exchange:

Your "Letter on Issues Concerning Reinvestment by Foreign Investors in China with RMB Denominated Capital Generated from Liquidation, Stock Equity Transfer and Advance Investment Recovery" has been received. After consultation with the Department of Treaty and Law of MOFTEC, we now reply as follows:

The Circular on Issues Concerning Investment by Foreign Investors in RMB (WaiJingMaoZiZongHanZi [1998] No.492) of our ministry is still valid. At present, investment by foreign investors with RMB denominated non-profit capital is still not allowed in principle. Foreign investors who reinvest with RMB denominated capital gained legally from the liquidation, stock equity transfer and advance investment recovery of the respective enterprises they invested in shall enjoy the same policy treatment as those reinvest in foreign currencies.

The above comments are for your reference only.