China has issued proposed changes relating to the management of foreign exchange under the capital account. On 16 November 2023, the State Administration of Foreign Exchange issued the Guidelines for Foreign Exchange Business under Capital Accounts (2023 Edition) (Draft for Consultation) (《资本项目外汇业务指引 （2023年版）（征求意见稿）》), which is open to public comments until 26 November 2023. The new guidelines are aimed at making foreign exchange business under the capital account easier, lifting a number of current restrictions. The key points in the proposed changes are summarised in a short paper by our partners Zhiyi Ren and Blake Wang.
On 16 November 2023, the State Administration of Foreign Exchange (the “SAFE”) issued the Guidelines for Foreign Exchange Business under Capital Accounts (2023 Edition) (Draft for Consultation) (《资本项目外汇业务指引 （2023年版）（征求意见稿）》, the “Consultation Draft”) , which is open to public comments until 26 November 2023. The Consultation Draft aims to simplify the management of foreign exchange business under capital accounts, streamline business processes, and facilitate the processing of foreign exchange business under capital accounts.
The Consultation Draft amends the Guidelines for Foreign Exchange Business under Capital Accounts (2020 Edition) (《资本项目外汇业务指引（2020年版）》). The Consultation Draft contains provisions that will substantially ease restrictions on foreign exchange business under capital accounts. We summarize below some key aspects.
Direct Investments
The Consultation Draft optimizes the foreign exchange management of direct investments by, among others, removing the restrictions on upfront fees for outbound direct investments and lessening the scope of the “negative list” (which sets out items that funds under capital accounts cannot invest in or be used for) of foreign exchange income payments under capital accounts.
Cross-Border Financing
The Consultation Draft makes easier the management of cross-border financing business by, among other changes, clarifying the requirements for shared accounts for multiple foreign debts and removing the requirement for approval when opening a foreign debt account at different locations.
Cross-Border Securities Investments
So far as the management of cross-border securities investments is concerned, the proposed changes in the Consultant Draft should make the process easier by, for example, streamlining the review materials for ODII quota applications, simplifying the requirements for outbound remittances by qualified foreign investors (QFII/RQFII), and relaxing the time limit requirements for registration relating to the reduction of domestic shareholders’ shareholdings. There are also proposed changes relating to the deregistration of foreign employees’ participation in employee stock ownership plans (ESOPs) of domestic listed companies.
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