The branches and administrative departments of the State Administration of Foreign Exchange (SAFE) in various provinces, autonomous regions, and municipalities directly under the Central Government, the SAFE branches in Shenzhen, Dalian, Qingdao, Xiamen, and Ningbo, and Chinese-funded banks:

In order to further deepen the reform of foreign exchange administration of the capital account, streamline the procedures for administrative examination and approval, and promote trade and investment facilitation, and in accordance with the Regulations of the People’s Republic of China on Foreign Exchange Administration and other relevant provisions, the SAFE has decided to further improve the method of foreign exchange administration for the capital account and to adjust some of the administrative measures under the capital account. The relevant issues are hereby notified as follows:

I. Simplifying foreign exchange administration of external claims of financial leasing companies

(I) Financial leasing companies comprise three entities, namely financial leasing companies established upon the approval of banking regulators, foreign-funded leasing companies established upon the approval of the relevant commercial departments, and domestic-funded financial leasing companies jointly confirmed by the Ministry of Commerce (MOFCOM) and the State Administration of Taxation (SAT) (hereinafter collectively referred to as financial leasing companies).

(II) When conducting foreign financial leasing business, financial leasing companies or their project companies shall register the external claims for financial leasing at the local SAFE branch, along with submission of the following materials within 15 working days after the occurrence of the financial leasing external claims. The local SAFE branch shall check the compliance and authenticity of such transactions.

1. The application form, including but not limited to basic information about the company and the leasing project;

2. The approval document from the relevant department for establishing the financial leasing company or the project company, and its business license;

3. The audited financial report for the previous year and the financial statement for the last period;

4. The leasing contract and evidentiary materials regarding the lease transfer (e.g., the customs declaration form, the archival filing checklist, invoice, and so forth).

(III) When conducting foreign financial leasing business, financial leasing companies are not limited by the current overseas lending quota for domestic enterprises.

(IV) Financial leasing companies may open a special account for overseas lending directly at the local bank to retain the rental income from the foreign financial leasing.

When depositing the said foreign exchange funds into the account, the bank shall check their sources. When the foreign exchange receipts in the account are to be settled, the financial leasing companies can apply directly to the bank to handle the settlement.

(V) In the capital account information system, the local SAFE branch shall use the “overseas lending” function to register the external claim contract information of the financial leasing companies and shall collect the withdrawal information with a paper statement.

Upon receiving rental income from foreign financial leasing, financial leasing companies shall make a declaration in accordance with the relevant declaration requirements for the balance of payments, fill in the business number of the external claim under the column “number of the approval document of the SAFE/number of the filing form/business number,” and report the occurrence of the external claims and rental income from the financial leasing to the local SAFE branch on a monthly basis. The bank shall provide feedback about the rental income from the foreign financial leasing and other information through the capital account information system. Relevant information shall be collected as per the new requirements after the module functions related to the capital account information system are improved.

II. Simplifying foreign exchange administration for transfers of domestic non-performing assets to overseas investors

(I) Cancelling the SAFE’s leading management of foreign exchange receipts and payments and exchange approvals involved in the disposal of non-performing assets (NPAs) by financial asset management companies (FAMCs).

(II) Simplifying the registration formalities for the transfer of domestic NPAs to overseas investors. Within 30 days after the relevant department approves the transfer of NPAs from domestic institutions to overseas investors, the overseas investors or their domestic agents shall go through the registration formalities for the transfer of domestic NPAs to overseas investors at the SAFE branch where the main assets or their domestic agents are located and shall present the following materials.

1. The application form, and the completed Registration for Transfers of Domestic Non-performing Assets to Overseas Investors (see attachment);

2. The approval or record-keeping documents from the relevant department on the external transfer of NPAs from domestic institutions;

3. A copy of the main terms of the transfer contract signed between the domestic institutions and the overseas investors (they are not require to provide data on individual performing assets and guarantees);

4. The agency agreement is also required if it is handled by a domestic agent;

5. The necessary supplementary materials for the abovementioned materials.

(III) Cancelling the SAFE’s approval of foreign exchange settlements of income from NPA disposals by FAMCs, with the accounting or foreign exchange settlement formalities directly handled instead by the bank.

After receiving the consideration from the overseas investors, domestic institutions transferring NPAs may apply directly to the bank to open a foreign exchange account to retain the foreign exchange proceeds or to settle the foreign exchange proceeds from the NPAs along with submission of the following materials.

1. An application form;

2. The Agreed Handling Certificate (copy) of the capital account information system obtained during the registration of the transfer of the NPAs to overseas investors;

3. A copy of the main terms of the claim assignment contract;

4. Necessary supplementary materials for the abovementioned materials.

When opening a foreign exchange account to retain foreign exchange proceeds or to handle the settlement procedures for foreign exchange proceeds from NPAs, domestic institutions shall make a declaration in accordance with the relevant declaration requirements for the balance of payments, foreign exchange account and foreign exchange settlement, and fill in the corresponding business number of the registered transfer of the domestic NPAs to the overseas investors under the column “number of the approval document of the SAFE/number of the filing form/business number.”

(IV) For changes or losses of ownership by overseas investors of registered assets due to counter purchases, sales (transfers), clearing and recovery, share transfers, or other reasons, the overseas investors or their agents shall go through the change of registration or cancellation procedures for the transfer of domestic NPAs to overseas investors within 30 working days after the change or loss of ownership.

(V) Cancelling the SAFE’s approval of foreign exchange purchases and payments of NPA disposal income by FAMCs, and instead to be checked and handled by the bank.

For proceeds obtained from clearing and recovery, reassignment, and so forth, overseas investors with transferred NPAs can directly apply to the bank to go through the foreign exchange purchase and payment formalities with the following materials.

1. An application form;

2. The Agreed Handling Certificate of the capital account information system;

3. A copy of the Registration Form for the Transfer of Domestic Non-performing Assets to Overseas Investors;

4. Documents certifying the sources of the income of the disposed NPAs;

5. The agency agreement is also required if it is handled by a domestic agent;

6. Necessary supplementary materials for the abovementioned materials.

When handling the foreign exchange purchase and payment procedures, the overseas investors shall make a declaration in accordance with the relevant declaration requirements for the balance of payments, and shall fill in the business number of the registered transfer of domestic NPAs to overseas investors under the column “number of the approval document of the SAFE/number of the filing form/business number.”

(VI) The bank shall carefully verify the business number of the registered transfer of domestic NPAs to overseas investors completed by the domestic institutions when opening a foreign exchange account to retain the foreign exchange proceeds and to settle the foreign exchange proceeds from NPAs, and completed by the overseas investors when going through the foreign exchange purchase and payment formalities.

(VII) In the case that the original guarantee beneficiary is changed to an overseas investor due to a transfer of domestic NPAs, the guarantee is not included under the external guarantee management.

The new external guarantee after the transfer of domestic NPAs to overseas investors shall be managed in accordance with the current foreign exchange administration provisions for external guarantees.

III. Further relaxing management of upfront expenses for overseas direct investments by domestic institutions

(I) If the accumulated remitted amount of upfront expenses for overseas direct investments (ODI) (hereinafter referred to as upfront expenses) is not more than USD3 million and 15 percent of the aggregate investment on the Chinese side, the domestic institutions may register the upfront expenses at the local SAFE branch with the business license and organization code certificate.

(II) If the accumulated remitted amount of upfront expenses is more than USD3 million or 15 percent of the aggregate investment of the Chinese side, the domestic institutions shall provide the local SAFE branch with the written application that has already been submitted to the relevant ODI department and the relevant materials certifying the authenticity of their participation in bidding, M&As, or joint venture projects, in addition to the business license and organizational code certificate to register the upfront expenses.

(III) If the upfront expenses still have not been approved or filed by the relevant ODI department within 6 months after they are remitted, the domestic institutions shall report the use of these expenses to the local SAFE branch and return the remaining funds. If there are sound objective reasons, the domestic institutions may apply to the local SAFE branch for an extension of no longer than 12 months.

IV. Further relaxing management of overseas lending by domestic enterprises

(I) Relaxing the restrictions on overseas lending entities of domestic enterprises. Domestic enterprises are allowed to extend loans to their overseas counterparts with which they have an equity relationship. Domestic enterprises shall register the overseas lending quota at the local SAFE branch by providing the overseas lending agreement and the latest financial audit report. The accumulated overseas lending quota of a domestic enterprise may not exceed 30 percent of its ownership interest. If it is indeed necessary to exceed the said proportion, it shall be handled by the SAFE branch (administrative department) where the domestic enterprise is located by means of a collective deliberation on a case-by-case basis.

(II) Lifting the restriction on the two-year term of validity of the overseas lending quota. Domestic enterprises may apply to the local SAFE branch for the term of validity based on their actual business needs.

(III) If the principal and interest of the overseas lending cannot be recovered for sound objective reasons, the domestic enterprises may apply to the local SAFE branch (administrative department) to write off the overseas lending, which shall be handled by the latter by means of collective deliberation on a case-by-case basis. If the principal of the overseas lending is repaid with interest (including debt-to-equity swaps, debt relief, and performance guarantees) or the overseas lending is written off and no longer provided, the domestic enterprises may apply to the local SAFE branch to write off the overseas lending quota.

V. Simplifying management of profit remittances by domestic institutions

(I) To remit profits equivalent to USD50,000 or less for a domestic institution, in principle the bank no longer needs to check the transaction documents; and to remit profits more than the equivalent of USD50,000, the bank no longer needs to check the financial audit report or capital verification report.  The bank instead  shall check the original copy of the profit distribution resolution of the board of directors (or the resolution for the distribution of the profits among the partners) and the tax registration form related to the remittance of the profits based on the principle of the real transaction. After each profit is remitted, the bank shall endorse the actual amount remitted and the date of remittance of the profit with its seal on the original copy of the tax registration form.

(II) Removing the restriction that in principle the amount of profits disposed in the current year by the enterprise may not exceed the total amount of “dividends payable” and “undistributed profits” that belong to foreign shareholders during the latest financial audit report.

VI. Simplifying management of foreign exchange sales and payments of personal property transfers

(I) Foreign exchange purchases and payments for property transfers due to immigration shall be examined and approved by the local SAFE branch in the place of the immigrant’s original registered permanent residence. Foreign exchange purchases and payments for property transfers due to inheritance shall be examined and approved by the local SAFE branch in the place of the decedent’s original registered permanent residence prior to death. The requirement that the total amount of property transfer exceeding the equivalent of RMB500,000 shall be reported to the SAFE for the record shall be cancelled.

(II) The requirement that an immigrant’s property can be transferred several times is cancelled. After the applicant goes through the approval procedures for the property transfer due to immigration at the local SAFE branch where the original permanent residence of the applicant is registered, the bank may remit the relevant funds in a lump sum or in several batches within the limit specified in the approval document.

(III) The requirement that property inherited from different decedents shall be applied and remitted separately is cancelled. To inherit property from different decedents, the inheritor may choose to submit combined application materials to the local SAFE branch in the place where the permanent residence of one decedent is registered, and the relevant funds will be remitted in a lump sum or in several batches at the bank upon approval.

(IV) The notarization requirement for documents concerning property rights (e.g., the property ownership certificate, the real estate sales contract or the location compensation and resettlement agreement, the contracting or lease contract or agreement, the property transfer agreement or contract, the franchise use agreement or contract, and so forth) and documents concerning the entrusted agency agreement and the agent’s identification is cancelled.

VII. Improving management of the License for Foreign Exchange Operations in the  Securities Business for securities companies

To run foreign exchange businesses, securities companies shall obtain a License for Foreign Exchange Operations in the Securities Business (hereinafter referred to as the License) from the SAFE according to the relevant provisions. Except for timely applying for a renewal of the License in accordance with the relevant provisions due to a change in the company name, an adjustment in the foreign exchange business scope, and so forth, the securities companies do not need to regularly replace the License from the date of implementation of this Circular.

Securities companies engaged in foreign exchange businesses that have already obtained the License shall submit a written report on the operation of the foreign exchange business (covering the company’s specific foreign exchange business operations, foreign exchange business lines, foreign exchange purchases and settlements, inward and outward remittances of funds, compliance with the foreign exchange business, and the balance sheet of the relevant foreign exchange business) for the previous year to the local SAFE branch prior to January 31 of each year.

This Circular shall take effect as of February 10, 2014. In cases of any discrepancy with the previous regulations, this Circular shall prevail. All branches and administrative departments of the SAFE shall timely transfer this Circular to the central sub-branches, sub-branches, and banks under their jurisdictions; and Chinese-funded banks shall forward this Circular to their branches as soon as possible. Any problems during implementation shall be reported to the Capital Account Management Department of the SAFE in a timely fashion.

Attachment: Registration Form for the Transfer of Domestic Non-performing Assets to Overseas Investors

State Administration of Foreign Exchange

January 1, 2014