To further deepen the reform of foreign exchange administration under the capital account, advance the streamlining of administration and delegating power to lower levels, and promote the facilitation of trade and investment, the State Administration of Foreign Exchange (SAFE) recently released the “Circular of the SAFE on Further Improving and Adjusting Policies on Foreign Exchange Administration under the Capital Account” (HuiFa [2014] No. 2, hereafter referred to as the Circular)

The highlights of the Circular are as follows:

First, streamlining foreign exchange administration under the foreign debts of financial leasing companies. Overseas financial leasing of these companies should be implemented after registration with the local foreign exchange bureaus. These companies can open a special account directly at a local bank for overseas lending to retain the rental income from overseas financial leasing, with the foreign exchange income under the account settled directly with the bank. The companies will not be subject to the existing limits on overseas lending for domestic companies.

Second, simplifying  foreign exchange administration under non-performing assets (NPA) transferred to foreign investors. Approvals by the SAFE for foreign exchange receipts, payments, and conversions involved in the disposal of NPAs by financial asset management companies will be cancelled. The registration procedures for transferring domestic NPAs to foreign investors will be simplified. Verification by the SAFE for settling the foreign exchange in the disposal of the income from NPAs by financial asset management companies will be canceled. Verification by the SAFE of purchases and payments of foreign exchange using returns from the disposal of NPAs by foreign investors will also be canceled. Guarantee items involved in the overseas disposal of NPAs will be clarified.

Third, further liberalizing upfront management of expenses for outbound direct investments. Chinese institutions can carry out the relevant business after registering with a local foreign exchange bureau if the upfront expenses are less than USD 3 million and less than 15 percent of the total investments by the Chinese side.

Fourth, further liberalizing management of overseas lending by Chinese companies. Qualification requirements for overseas lenders will be lowered to allow Chinese companies to lend money to associated overseas companies that have either direct or indirect shareholding relationships with them. The 2-year limits on the  validity of overseas lending limits will be removed and domestic companies can apply to a local foreign exchange bureau to extend the validity of the overseas lending limits based on their business needs. Domestic companies will also be allowed to apply to a local foreign exchange bureau to write off the registration, if they are really unable, for objective reasons, to recover the principal and interest from overseas lending.

Fifth, streamlining verification of the profit remittances by Chinese institutions. The requirement that, in principle, the amount of profits disposed of in the current year should not exceed, in principle, the combined dividend payable and the unappropriated profits of foreign shareholders during the latest issue of the financial audit report will be removed.

Sixth, improving management of the “Business License for Foreign Exchange Involved in the Securities Business for Securities Companies.” The requirement that licenses be renewed every three years will be canceled and securities companies will be required to report to the SAFE their foreign exchange business every year for filing.

The Circular will come into force as of February 10, 2014.