In May 2020, the People’s Bank of China (the “PBOC”) and the State Administration of Foreign Exchange (the “SAFE”) issued the Administrative Provisions on the Domestic Securities and Futures Investment Funds of Overseas Institutional Investors (《境外机构投资者境内证券期货投资资金管理规定》, the “Administrative Provisions”). On 10 November 2023, the PBOC and SAFE issued a revised draft of the Administrative Provisions (《境外机构投资者境内证券期货投资资金管理规定（征求意见稿）》, the “Draft Provisions”) for public comments until 10 December 2023. We highlight below some key amendments proposed under the Draft Provisions, which primarily aim to promote the foreign exchange management of qualified foreign investors (“QFIs”).
Removing Administrative Approval Requirement on Capital Registration with SAFE
As required under Article 5 of the Administrative Provisions, a QFI shall register with the SAFE its domestic investment funds (the “SAFE Registration”). Article 6 further provides that the SAFE shall then provide the relevant business registration certificate after processing such registration.
Under Articles 5 and 6 of the Draft Provisions, whilst the SAFE Registration is still required, this registration would no longer have to be given an administrative approval by the SAFE. This is made clear in the Draft Provisions’ explanatory notes which were also issued by the PBOC and SAFE (the “Explanatory Notes”).
Expanding Avenues of FX Settlement/Sale and Derivatives Transactions
Articles 10 and 11 of the Draft Provisions propose expanding QFIs’ avenues of FX settlement/sale and derivatives transactions by allowing QFIs to use their FX/RMB special account to, among others:
- transfer funds to conduct FX settlement/sale (境内办理结售汇相关资金划出), and
- transfer funds to their special capital account for China bond market investments (向同名中国债券市场投资专用资金账户划出).
Allowing Inbound Remittances in FX and Outbound Remittances in RMB
Article 15 of the Administrative Provisions provides that, in principle, the inbound remittance and outbound remittance by a QFI shall be in the same currency, without involving cross-currency arbitrage between RMB and foreign currencies. However, Article 16 of the Draft Provisions allows for a QFI, after remitting funds into China in a foreign currency, to remit funds out in RMB (以外币汇入进行投资的，可以人民币汇出), should it choose to do so.
Simplifying Process of Repatriating Proceeds
To repatriate proceeds, QFIs are required under Article 14 of the Administrative Provisions to submit, among others, a letter of undertaking on paying taxes and fees in accordance with PRC laws and regulations. Such requirement is removed under Article 15 of the Draft Provisions. As clarified in the Explanatory Notes, this letter of undertaking would no longer be required because QFIs shall have already submitted an undertaking letter on compliance with PRC laws broadly (including those related to tax) upon their initial SAFE Registration.