The branches and foreign exchange administrative departments of the State Administration of Foreign Exchange (SAFE) in all provinces, autonomous regions, and municipalities directly under the Central Government; the branches of the SAFE in Shenzhen, Dalian, Qingdao, Xiamen, and Ningbo:

To further deepen the reform of foreign exchange administration system, better serve and facilitate the business and capital operations by foreign-invested enterprises, the SAFE decides to implement the reform of the administrative approach to settlement of foreign exchange capital by foreign-invested enterprises across the country, based on the experience from the preliminary pilot program conducted in some regions. To ensure the smooth implementation of such reform, the relevant issues are hereby notified as follows:

I. Voluntary settlement of foreign exchange capital of foreign-invested enterprises (FIEs)

Voluntary settlement of foreign exchange capital of a FIE means that foreign exchange capital in the FIE's capital account, recognized by the foreign exchange authority as the right and interest of cash contribution (or registered by the bank for accounting entry of cash contribution), can be settled in banks according to its actual business requirements. The provisional percentage for the voluntary settlement of foreign exchange capital of FIEs is 100 percent. The SAFE may adjust the aforesaid percentage in due time according to the international receipts and payments situation.

During the course of implementing the voluntary settlement of foreign exchange capital, the FIEs can still choose the existing procedures for settlement upon payment for the use of foreign exchange capital. For each foreign exchange settlement for enterprises, based on the principle of foreign exchange settlement upon payment, the banks shall examine the authenticity and compliance in the use of the funds for prior transaction of foreign exchange settlement (including voluntary settlement of foreign exchange and foreign exchange settlement upon payment).

Domestic transfers and cross-border outward payments of foreign exchange capital of FIEs shall be processed pursuant to the prevailing regulations on foreign exchange administration.

II. RMB Funds from the Voluntary Settlement of Foreign Exchange Capital of FIEs Included in Management of Accounts for FX Settlement and Pending Payment

The FIEs shall, in principle, open accounts with their banks for capital account– foreign exchange funds settled and to be paid (“accounts for FX settlement and pending payment”) for the deposits of RMB funds from the voluntary settlement of foreign exchange on a one-to-one corresponding basis, and make various payments through these accounts. The capital account, domestic asset realization account and domestic reinvestment account under the same name which are opened by a FIE with the same bank outlet may share an account for FX settlement and pending payment. The RMB funds of FIEs from foreign exchange settlement upon payment shall not be used for payments through the accounts for FX settlement and pending payment.

Receipts in the FIEs' capital accounts include: foreign exchange capital remitted from overseas or capital subscribed to and contributed by foreign investors (including contributions from non-resident deposit accounts, offshore accounts, and domestic foreign exchange accounts of foreign individuals); foreign exchange capital or capital subscribed to and contributed as transferred from the special accounts for security deposits of overseas remittances; funds returned after transfers, pursuant to the regulations; funds received from the capital account under the same name; funds returned due to revocation of the transactions; received interest income; and other receipts registered by the foreign exchange authority (bank) or approved by the foreign exchange authority.

The scope of the payments from the capital accounts includes: foreign exchange settlement within the business scope; transfers through the foreign exchange settlement into the accounts for FX settlement and pending payment; domestic transfers in the original currency to the special accounts for security deposits domestically transferred, capital accounts under the same name, accounts for entrusted loans, special accounts for concentrated funds management, special accounts for overseas lending, special accounts for domestic reinvestments; outward remittances owing to capital reductions or withdrawals by foreign investors; outward payments under the current account; and other payment under the capital account registered by the foreign exchange authority (bank) or approved by the foreign exchange authority.

The scope of the receipts in the accounts for FX settlement and pending payment includes: funds transferred through foreign exchange settlement from capital account, domestic asset realization account and domestic reinvestment account under the same name or held by an enterprise for domestic equity investments; funds transferred from the account for FX settlement and pending payment under the same name or held by an enterprise for domestic equity investment; funds returned after transfer from these accounts, pursuant to the regulations; funds returned due to revocation of the transactions; RMB interest income; and other receipts registered by the foreign exchange authority (bank) or approved by the foreign exchange authority.

The scope of payments in the accounts for FX settlement and pending payment includes: payments within the business scope, payments of funds for domestic equity investments and security deposits in RMB, funds transferred to the special account for centralized funds management and the account for FX settlement and pending payment under the same name; repayment of RMB loans after completed utilization; foreign exchange purchases and payments or direct outward repayments of foreign debts; foreign exchange purchases and payments or direct outward payments owing to capital reductions or withdrawals by foreign investors; foreign exchange purchases and payments or direct outward payments under the current account; and other payments under the capital account registered by the foreign exchange authority (bank) or approved by the foreign exchange authority.

RMB funds in the accounts for FX settlement and pending payment shall not be transferred back to the capital accounts through purchase of foreign exchange. RMB funds transferred from the accounts for FX settlement and pending payment for the purpose of guarantees or payments of other security deposits, unless guarantee contract is performed or deductions occur due to default, shall be returned to the accounts for FX settlement and pending payment through the original route.

III. Utilization of FIEs’ Capital according to the Principles of Authenticity and Self-use within the Business Scope

FIEs' capital and RMB funds from their settlement shall not be used for the following purposes:

(I) directly or indirectly used for payment beyond the business scope or prohibited under the laws and regulations of the State;

(II) directly or indirectly used for securities investments, unless otherwise prescribed under the laws and regulations;

(III) directly or indirectly used for the extension of RMB entrusted loans (unless permitted by the business scope), repayments of inter-enterprise borrowings (including third-party advances), and repayments of RMB bank loans already refinanced to any third party;

(IV) Used for the payment of expenses related to the purchase of real estate not for self-use, except for foreign-invested real estate enterprises.

IV. Facilitation of Domestic Equity Investments by FIEs with Funds from Foreign Exchange Settlement

Except for transfers in the original currency owing to equity investments, it is acceptable for FIEs with investment as their main business (including foreign-funded investment companies, foreign-funded venture capital enterprises, and foreign-funded equity investment enterprises) to directly settle the foreign exchange capital into RMB or transfer the RMB funds in the account for FX settlement and pending payment to the account of the invested enterprise according to the actual scale of investment, provided that the domestic investment project is authentic and compliant with the regulations.

When ordinary FIEs other than the above-mentioned enterprises invest in domestic equities with capital in the original currency, the existing regulations on domestic reinvestments shall prevail. When RMB funds settled with foreign exchange are used for domestic equity investments, the investee shall first register for a domestic reinvestment with the foreign exchange authority (bank) at the place of registration and open a corresponding account for FX settlement and pending payment, then the investor shall transfer the RMB funds settled with the foreign exchange, according to the actual scale of investment, to the said account, which is opened by the investee. When the investee continues to invest in domestic equities, the aforesaid principles shall apply.

V. Further Standardizing the Management of Payments with Funds from Foreign Exchange Settlement

(I) Foreign investors, FIEs, and other relevant applying entities shall provide, on an accurate and authentic basis and according to the regulations, the relevant documents certifying the authenticity to the banks, and complete the Order of Payments with Funds in Accounts Related to Direct Investments (see the Appendix) when applying for payments with RMB funds from the settlement of capital (including direct payments with foreign exchange capital).

(II) The banks shall, according to the business development principles of “knowing your customers,” “understanding your businesses,” and “due diligence reviews,” be responsible for verification of the authenticity of outward payments with capital and payments with RMB funds from the foreign exchange settlement by the FIEs. When handling each payment with such funds, the authenticity and compliance of the certifying documents with respect to the prior payment transaction shall be examined. The banks shall keep the certifying documents relevant to the settlement and use of the foreign exchange capital of the FIEs for five years for future reference.

The banks shall report the data, including the accounts related to the capital accounts and the accounts for FX settlement and pending payment (account nature code: 2113), cross-border receipts and payments, domestic transfers, foreign exchange settlement and sales within the accounts, on a timely basis and according to the Circular of the State Administration of Foreign Exchange on Issuing the Standards Version 1.0 for Collecting Data on Foreign Exchange Transactions by Financial Institutions (Huifa No. 18 [2014]). In case of transfers of funds between the accounts for FX settlement and pending payment and other RMB accounts, the information on the domestic transfers shall be reported by filling in the documents for domestic payments and receipts and indicating the fund purpose code under the “invoice number” column (according to “7.10: Code of Purpose for Foreign Exchange Settlement” in the Circular of Huifa No. 18 [2014]) ; the transaction code for other transfers than that for payments under verification of trade in goods shall be indicated as “929070”.

(III) When enterprises fail to provide documents certifying authenticity for special reasons at the moment, the banks may make the relevant payments for the enterprises, provided that the obligation of due diligence review has been performed and the authentic background of the transactions has been verified, and may file with the foreign exchange authority through its relevant business system with respect to the special items on the date of payment. The banks shall collect and examine the full set of relevant certifying documents resubmitted by the enterprises within 20 working days upon completion of the payment and report to the foreign exchange authority through relevant business system with respect to the resubmission of the documents certifying the authenticity of the filing of special items.

Where FIEs use capital for the purpose of reserve funds, the banks may not require submission of the aforesaid documents certifying authenticity. The cumulative amount of payments for reserve funds by a single enterprise each month (including voluntary settlement of foreign exchange and foreign exchange settlement upon payment) shall not exceed an equivalent of USD 100,000.

Where a FIE applies for settlement upon payment with all the foreign exchange capital on a one-off basis, or payments with all the RMB funds in the account for FX settlement and pending payment, but fails to provide the relevant documents certifying the authenticity, the bank concerned shall not handle for the enterprise the foreign exchange settlement and payment.

VI. Management of the Settlement and Utilization of Funds in the Foreign Exchange Accounts under Other Direct Investment Items

The foreign exchange funds in the domestic asset realization accounts and domestic reinvestment accounts opened by domestic institutions shall be settled with reference to the regulations for management of the FIEs' capital accounts.

The foreign exchange funds in the domestic asset realization accounts and domestic reinvestment accounts opened by domestic individuals and those in the overseas asset realization accounts opened by domestic institutions and individuals shall be settled directly through the banks, against the relevant business registration certificates.

The foreign exchange funds in the foreign investors’ accounts for preliminary expenses shall be settled according to the principle of settlement upon payment.

The foreign exchange funds in the special accounts for security deposits of overseas remittances and special accounts for security deposits domestically transferred shall not be used through the foreign exchange settlement. In case that guarantee contract is performed or deduction occurs due to default, the relevant security deposits shall be transferred into another foreign exchange account under the capital account of the recipient of the deposits that have been registered by the foreign exchange authority (bank) or approved by the foreign exchange authority, and shall be used according to the relevant regulations.

The interest income and investment income in the above-mentioned accounts under direct investments can be retained in these accounts, and afterwards transferred to and retained in the settlement account under the current account or directly settled and paid through the bank against the detailed list of the interest and income.

VII. Further Strengthening Ex-post Supervision and Investigations of Irregularities by the Foreign Exchange Authority

(I) The foreign exchange authorities shall strengthen the guidance and examination on the compliance of banks in handling such business as settlement and utilization of capital for FIEs in accordance with relevant regulations including the Regulations of the People's Republic of China on Foreign Exchange Administration and the Provisions on Foreign Exchange Administration of Domestic Direct Investments by Foreign Investors. The manner of examination includes request for submission of written explanatory and transaction documents by the relevant entities, an interview with the persons in charge, field inspections or duplication of the relevant documents of the entities, and notification of any irregularities. With respect to banks with serious or malicious irregularities, their foreign exchange transactions under the capital account may be suspended according to the relevant procedures. With respect to FIEs with serious or malicious irregularities, their qualifications for voluntary settlement of foreign exchange may be revoked. Prior to the submission of the written explanatory documents and proper rectification, any other foreign exchange transactions under the capital account shall be prohibited.

(II) For FIEs and banks with violations against this Circular with respect to foreign exchange settlement and utilization of FIEs' capital, the foreign exchange authorities shall investigate and treat them according to the Regulations of the People's Republic of China on Foreign Exchange Administration and other relevant provisions.

VIII. Others

This Circular shall take effect as of June 1, 2015. In case of any discrepancies with prior regulations, this Circular shall prevail. The Circular of the State Administration of Foreign Exchange on Business Operational Issues Concerning Improving Administration for the Payment and Settlement of the Foreign Exchange Capital of Foreign-Invested Enterprises (Huizongfa No. 142 [2008]) and the Supplementary Circular of the General Affairs Department of the State Administration of Foreign Exchange on Business Operational Issues Concerning Improving Administration for the Payment and Settlement of the Foreign Exchange Capital of Foreign-Invested Enterprises (Huizongfa No. 88 [2011]) and Circular of the State Administration of Foreign Exchange on Relevant Issues Concerning Pilot Reform in Some Regions on Administrative Approaches to Settlement of Foreign Exchange Capital of Foreign-invested Enterprises (Huifa No. 36 [2014]) shall be abolished at the same time.

After receiving the Circular, the branches and foreign exchange administrative departments of the SAFE shall timely forward it to the central sub-branches, sub-branches, and banks within their respective jurisdictions. Please contact the Capital Account Administration Department of the SAFE in a timely manner if any problems are encountered in implementation of this Circular.

Appendix: Order of Payments with Funds in Accounts Related to Direct Investments

State Administration of Foreign Exchange

March 30, 2015