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SAFE Relaxes Foreign Exchange Control to Encourage Chinese Private Companies Invest Overseas

To address the challenges faced by private companies to finance overseas investment and to simplify the foreign exchange control policies for outbound investment activities by private companies, SAFE released new rules " the Circular of State Administration of Foreign Exchange on Foreign Exchange Administration in Relation to Encouraging and Guiding the Healthy Development of Private Investment"  (Hui Fa [2012] No.33) (the “Circular”) on 11 June 2012.

The Circular simplifies the regulation processes for the remittance of foreign direct investment capital as well as offshore loans granted by domestic enterprises and relaxes the administration of external guarantee provided by Chinese individuals. The Circular's main content includes:

Simplifying the management of outbound direct investment capital remittance.  The balance between the total investment amount of the outbound direct investment by a Chinese enterprise and that of the pre-registered overseas investment capital with the government can be remitted back to China after registering the remittance with SAFE.   Previously, domestic enterprises needed to register and report the amount of realized investment overseas and deduct the total pre-registered investment capital before they could remit the balance back to China. 

Simplifying the administration of offshore loans.   The Circular allows domestic companies to use foreign currency loans borrowed from Chinese banks to grant offshore loans.  Meanwhile, the Circular abolishes the procedure to review and approve the purchase, payment and remittance of foreign exchange used for offshore loans.  Domestic companies may receive/make payments through a special account for offshore loans opened with a bank with foreign exchange businesses within the offshore loan quota approved by SAFE with the completion of the registration formalities.

Allowing individuals to provide guarantee together with corporate guarantors.   The Circular allows a Chinese individual to join a corporate to provide guaranee services for a Chinese company which is seeking debt financing overseas.   A Chinese guarantor shall entrust the corporate guarantor to apply with the local SAFE on his behalf.   If SAFE approves the domestic corporate guarantor to provide the guarantee, SAFE may register the individual gaurantor at the same time.  SAFE will skip the steps to validate the individualguantor's qualifications, format of guarantee and the scope of the secured assets.  SAFE will add the information of the individual guarantor to the registration certificate for the corporate guarnator and indicate that this individual guarantor will jointly guarantee the same debt together with the corporate guarantor.   When the time comes for the individual guarantor to fulfill his guanantee obligations he only needs to present his guarantee documents to the local SAFE for approval.

For the original of the Circular, please visit SAFE.