By King & Wood Mallesons’ Finance Group
In May 2010, the State Council issued the Opinions on Encouraging and Guiding the Healthy Development of Private Investment (Guo Fa [2010] No.13) to promote private investment activities . In order to solve the difficulties faced by private companies in terms of overseas financing and the lack of liquidity, and to simplify the foreign exchange control policies for outbound investment activities by private companies, SAFE released new rules on private outbound investments, 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[1] granted by domestic enterprises and relaxes the administration of external security provided by individuals.
The Circular’s main content includes:
Simplifying the management of outbound direct investment capital remittance
The difference between the total investment amount of the outbound direct investment project and the actual registered capital can be remitted back to China after registering the remittance with SAFE. Previously, domestic enterprises needed to register outbound investment reduction or outbound investment withdrawal before it could remit such differences back to China.
Simplifying the administration of offshore loans
The Circular relaxes the funding sources of offshore loans, permitting domestic companies to use foreign exchange loans borrowed from domestic banks to grant offshore loans to companies they have invested offshore.
Meanwhile, the Circular abolishes the approval requirements for the purchase, payment and remittance of foreign exchange used for offshore loans. The Circular prescribes that 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 and after the completion of the registration formalities .
Allowing individuals to provide external security together with corporate external security
Individual external security: The Circular permits individuals to provide external security for the financing granted by offshore lenders to offshore invested companies if external security is also provided by domestic enterprises for the same financing. Individual external security can be provided in the form of guarantees, mortgages, or pledges in favor of offshore lenders and other manners permitted by Security Law.
External security applications: Domestic individuals shall entrust the domestic company providing the corporate external security to apply for the individual external security at the bureau of SAFE where the company located. If SAFE approves the domestic company to provide the external security, SAFE may register the individual external security together with the external security provided by the company.
Approval: SAFE will not verify the terms of the individual security, such as the individual’s qualifications, manner of security and the scope of the secured assets.
Registration: SAFE can, on the external security registration certificate for the corporate external security, make a note that a domestic individual is providing an external security for the same debt.
Enforcement: when a domestic individual external security is enforced, the local SAFE will verify the relevant evidence.
Notes:
[1] Under current foreign exchange regulations, a domestic enterprise (except for financial institutions) can only grant offshore loans (境外放款) to the offshore companies in which it has equity interest. “Offshore loans”, when used in this newsletter, specifically means the loans granted by a domestic enterprise to offshore invested companies.
Contacts
For further information on the matters covered in this newsletter, please contact:
BEIJING OFFICE
Li Jinnan
40th Floor Office Tower A, Beijing Fortune Plaza
7 Dongsanhuan Zhonglu, Chaoyang District Beijing China
Tel: +86 10 5878 5156
Fax: +86 10 5878 5599
Email: lijinnan@cn.kwm.com
SHANGHAI OFFICE
Chen Yun
16-18/F, One ICC, Shanghai ICC,
999 Huai Hai Road (M), Shanghai, China
Tel: +86 21 2412 6052
Fax: +86 21 2412 6350
Email: chenyun@cn.kwm.com