In order to improve foreign exchange administration regarding the conversion of external debts into loans (loan conversion), to streamline administration, to institute decentralization, and to promote facilitation of investment and financing, the State Administration of Foreign Exchange (SAFE) recently released the Circular of the State Administration of Foreign Exchange on the Issuance of the Foreign Exchange Administration Regulations on the Conversion of External Debts into Loans (Huifa No.5 [2014], hereinafter referred to as “the Circular”).

The Circular mainly includes the following: (1) Ending deal-by-deal registration and remittance approval of loan conversions at the SAFE, and replacing them with a centralized registration of creditors for loan conversions; (2) Terminating the account opening and approval for loan conversions; as a result, loan conversion debtors will be allowed to complete account-opening procedures at the banks by presenting an application to open an account and an agreement to convert the loan; (3) Loan conversion creditors or debtors will be allowed to complete the procedures for the transfer of the relevant funds within China directly at the opening bank by presenting the agreement regarding the loan conversion; (4) Ending examination and approval of policy-based foreign exchange settlements for loan conversions; loan conversion debtors will be allowed to complete the procedures for foreign-exchange settlements of funds for the loan conversions directly at the opening bank by presenting the agreement for the loan conversion; (5) Removing the procedures for the approval of capital repayments with interest and foreign exchange purchases under the item of loan conversions; as a result, loan conversion debtors will be allowed to complete repayment procedures directly at the banks by presenting items such as the agreement on the loan conversion and the repayment notification.

This Circular will enter into effect as of March 1, 2014.