To further deepen the foreign exchange administration system reform, and better satisfy the requirements for and facilitate operations and capital operations of foreign-invested enterprises, the State Administration of Foreign Exchange (SAFE) recently issued the Circular of the State Administration of Foreign Exchange Concerning Reform of the Administrative Approaches to Settlement of Foreign Exchange Capital of Foreign-invested Enterprises (Huifa No. 19 [2015], “the Circular”).

The Circular is highlighted as follows: firstly, the settlement of foreign exchange capital of a foreign-invested enterprise is conducted on a voluntary basis, allowing enterprises to freely choose the timing for settlement of foreign exchange capital; secondly, the use of capital and funds from foreign exchange settlement of foreign-invested enterprises shall conform to relevant regulations on foreign exchange administration, with a negative list approach adopted for the use of capital; thirdly, efforts shall be made to facilitate domestic equity investment with RMB funds acquired from exchange settlement by foreign-invested enterprises; fourthly, the management of the payments with funds from foreign exchange settlement will be further standardized to make sure banks conduct authenticity review in line with the three principles of business development; fifthly, management of the settlement and utilization of funds in the foreign exchange accounts under other direct investments are clarified and streamlined; sixthly, the SAFE shall strengthen ongoing and ex-post administration to further reinforce ex-post monitoring and investigation and punishment of violating activities.

The release of the Circular is a key move by the SAFE to implement the relevant requirements of the State Council on promoting the replicable pilot reform experience of China (Shanghai) Pilot Free Trade Zone and to transform foreign exchange administration concepts and approaches. The implementation of the Circular will give the full decision-making power and the right of choice on foreign exchange capital settlement to enterprises, thus providing policy spaces for enterprises to avoid the risk of exchange rate fluctuations and helping reduce social costs to further facilitate trade and investment and serve the development of the real economy.

The Circular shall come into force on June 1, 2015. (The End)