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SAFE News
  • Index number:
    000014453-2019-0173
  • Dispatch date:
    2009-07-15
  • Publish organization:
    State Administration of Foreign Exchange
  • Exchange Reference number:
  • Name:
    Responsible Person of the SAFE Answers Questions on the Improvement and Perfection of Foreign Exchange Administration Policies on the Overseas Direct Investment of Domestic Institutions
Responsible Person of the SAFE Answers Questions on the Improvement and Perfection of Foreign Exchange Administration Policies on the Overseas Direct Investment of Domestic Institutions

The State Administration of Foreign Exchange (SAFE) recently issued the Regulations on Foreign Exchange Administration of the Overseas Direct Investment of Domestic Institutions (hereinafter referred to as the Regulations). The responsible person of the SAFE was interviewed on the relevant content of the Regulations.
Q: What are the context and significance of issuing the Regulations?
A: In the context that the world economy and finance are progressively becoming globalized and integrated, there has been a growing demand of domestic enterprises, including private enterprises, to make overseas direct investments, in parallel with a louder voice for streamlining the existing examination and approval procedures for overseas direct investment as well as for providing financing support for enterprises under overseas direct investment. In order to promote the development and expansion of the overseas direct investment of domestic institutions, on the premise of fulfilling the needs for the balanced management of the balance of payments, the SAFE issued successively over the past several years a series of policies and measures with respect to the reform and standardization of foreign exchange administration approaches to overseas direct investment.
To systematically straighten out the separate regulatory documents regarding overseas direct investment issued during recent years and to work out a new set of foreign exchange administration regulations that fits with the needs of the current foreign exchange receipt and payment situation as well as with overseas direct investment administration practices, the SAFE has drawn up the Regulations on Foreign Exchange Administration of the Overseas Direct Investment of Domestic Institutions, and has extensively solicited opinions from overseas investment authorities, relevant industry authorities, and all circles of society. The Regulations were formally promulgated on July 13, 2009, and will be implemented as of August 1, 2009.
China is currently at the critical stage of coping with the global financial crisis. The overall economic situation is favorable and promising. Further streamlining the foreign exchange administration of overseas direct investment and the launching of  foreign exchange administration policy aimed at encouraging the go-global move of enterprises will be conducive for enterprises to better grasp the opportunities of overseas direct investment, to reduce the costs of overseas investment, to promote the facilitation of trade and investment, to promote the opening-up process of cross-border capital transactions in a steady and orderly manner, and to promote a basic equilibrium in the balance of payments of our country.   
Q: What reform measures are specified in the Regulations?
A: First, the sources of foreign exchange funds for overseas direct investment have been expanded. Domestic institutions can make overseas direct investments by use of various fund sources, such as self-owned foreign exchange funds, domestic foreign exchange loans in line with the regulations, foreign exchange purchased with RMB or tangible assets, intangible assets, or profits retained overseas. Second, the examination and verification of foreign exchange fund sources for overseas direct investment have been altered from ex ante examination to ex post registration. Third, domestic institutions are allowed to provide support for follow-up financing of enterprises under overseas direct investment by means of commercial loans and financing guarantees. Fourth, the SAFEs administration of outward remittances of overseas investment funds by domestic institutions has been adjusted from the previous examination and approval system to a registration system. Foreign exchange designated banks can handle the outward remittances of investment funds for domestic institutions after conducting authenticity examinations and verifications of the relevant documents presented by the domestic institutions. Fifth, domestic institutions are allowed to remit outward preceding expenses of a certain proportion of the total amount of investment at the preparatory stage prior to the formal establishment of their overseas projects after obtaining approval from the SAFE. Sixth, the disposal and administration principle for overseas retention or inward remittances of profits of enterprises under overseas investment and earnings from capital variations such as capital reductions, equity transfers, liquidations, and so forth have been clarified. Seventh, a full aperture exchange administration system for overseas direct investment has been established. Besides the traditional domestic non-financial institutions, the foreign exchange administration and applicability of regulations of overseas direct investment of domestic financial institutions have been clarified and standardized. Eighth, by making full use of the foreign exchange management information system for direct investment, a statistical and monitoring mechanism for cross-border fund inflows and outflows under overseas direct investment has been established.
Q: What possible risks might occur in terms of foreign exchange administration of overseas direct investment after implementation of the said Regulations? How can we guard against such risks?
A: As specified by the Regulations, the previous examination of foreign exchange fund sources for overseas direct investment has been altered to ex post recording for file and registration. In order to guard against possible risks when there are marked changes in the situation of the national balance of payments, the Regulations have made it clear that the SAFE can make adjustments to the relevant policies concerning the scope of the sources and the management modes of the foreign exchange funds for the overseas direct investment of domestic institutions and the overseas retention of profits generated from overseas direct investments of domestic institutions. In practice, the foreign exchange designated banks are required to first examine the situation of the foreign exchange fund sources for overseas direct investments of domestic institutions which are registered with the SAFE, and to handle the outward remittances of overseas investments for the domestic institutions. All in all, risks arising from the change in the examination of the foreign exchange fund sources for overseas investment are limited, and can be prevented through collaboration with other departments as well as through the registration procedures of the SAFE.   
Q: Which kinds of investment do the overseas direct investments made by banks and non-bank financial institutions belong to?
A: The overseas direct investment stated herein refers to acts by banks and non-bank financial institutions through which the said banks and non-bank financial institutions establish subordinate or affiliated institutions outside the territory of China, or make equity acquisitions of overseas banks or non-bank financial institutions so as to acquire the rights and interests of such overseas institutions, including ownership, rights of control, or business management rights. For example, as banks and non-bank financial institutions set up subsidiaries or branches outside the territory of China, they may purchase the equity of former shareholders of overseas banks or non-bank financial institutions and the like. Such kinds of investment are different from the indirect investment made by banks and non-bank financial institutions outside the territory of China, i.e., purchases made by banks and non-bank financial institutions of overseas assets such as products on the overseas capital market or currency market tools after obtaining approval from the relevant authorities of China. 
Q: What are the foreign exchange administration principles for overseas direct investment by banks and non-bank financial institutions?
A: The regulations clarify the legal basis for foreign exchange administration of overseas direct investment of domestic financial institutions, which implement full aperture administration of overseas direct investment of domestic institutions, i.e., both financial institutions and non-financial institutions, if ready to make overseas direct investment, shall complete the foreign exchange registration and exchange procedures in accordance with the Regulations. Currently, the procedures for overseas direct investment of domestic institutions are completed via the foreign exchange management information system for direct investment of the SAFE. Thus, to facilitate the smooth operation of overseas direct investment, financial institutions shall make sure the following tasks are completed after the promulgation of the Regulations:
1. Given that the foreign exchange management information system for direct investment has already been put online, for the purpose of ensuring the completeness and accuracy of the statistical data on cross-border fund inflows and outflows under overseas direct investment as well as guaranteeing the smooth operation of the foreign exchange registration and foreign exchange business for overseas direct investment, financial institutions that have already made overseas direct investments shall, prior to the formal implementation of the Regulations, complete the procedures for additional input of relevant information about their overseas investments at the Foreign Exchange Administrations in their localities, which shall be completed before December 31, 2009.
2. The examination of the foreign exchange fund sources for overseas direct investments of financial institutions has been altered to ex post registration, which requires these financial institutions to complete the procedures for foreign exchange registration for overseas investment at the Foreign Exchange Administrations in their localities and to demonstrate the sources of their foreign exchange funds after obtaining approval from the relevant departments.
Q: What are the differences in the administration of outward remittances between preceding expenses and overseas investment funds?
A: If domestic institutions need to remit outward a certain amount of preceding expenses prior to the establishment of projects or enterprises under overseas direct investment, the said institutions shall file an application with the Foreign Exchange Administrations in their localities, and shall go through the procedures for outward remittances at the banks by presenting the examination and approval documents issued by the Foreign Exchange Administrations. If the domestic institutions need to remit outward overseas investment funds other than the preceding expenses, the banks shall only ask that the domestic institutions present the approval documents issued by the overseas direct investment authorities and the foreign exchange registration certificate for overseas direct investment, and shall handle the relevant procedures after querying the relevant information in the foreign exchange management information system for direct investment.
Q: Do domestic institutions still need to receive a paper-copy foreign exchange registration certificate after the foreign exchange management information system for direct investment is put online?
A: The online operation of the foreign exchange management information system for direct investment means that all businesses under direct investment will be processed via the system, thus realizing electronic informational management over overseas direct investment of domestic institutions. As a result, the previous paper copy foreign exchange registration certificate issued by the Foreign Exchange Administrations will be replaced with the IC card for foreign exchange registration, which will facilitate electronic operations and management of the relevant business.





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