China Clarifies Issues Regarding RMB Cross-Border Direct Investment

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Dec. 18 – China’s Ministry of Commerce released the “Announcement on Issues Regarding the RMB Cross-Border Direct Investment (Announcement [2013] No.87, hereinafter referred to as “Announcement”),” which is scheduled to take effect on January 1, 2014. Detailed information can be found below.

According to the Announcement, RMB cross-border direct investment refers to the following activities conducted by foreign investors (including investors from Hong Kong, Macao and Taiwan) in China with RMB funds legally obtained from abroad:

  • Establishing companies;
  • Increasing existing investment;
  • Participating in equities;
  • Engaging in mergers or acquisitions of domestic enterprises; and
  • Other direct investment activities.

“RMB funds legally obtained from abroad” refers to:

  • RMB funds obtained by foreign investors through settlement from cross-border trade in RMB, RMB profits lawfully obtained within China and remitted out of China and RMB funds obtained from stock transfer, capital reduction, liquidation and early recovery of investment; and
  • RMB funds obtained outside China by foreign investors through legal channels, including the overseas issuance of RMB-denominated bonds or stocks.

The Announcement provides that foreign investors applying to exchange the foreign currency for capital contribution into RMB do not have to go through the approval procedures for modification of contracts and articles of associates with relevant authorities.

Moreover, RMB cross-border direct investment shall be in compliance with the following regulations and policies:

  • Laws, regulations and relevant provisions on foreign investment;
  • State industrial policies on foreign investment; and
  • Provisions on anti-monopoly review and security review of foreign mergers and acquisitions.

In addition, the Announcement clarifies that foreign-invested companies are not allowed to use RMB cross-border direct investment funds to invest directly or indirectly in negotiable securities, financial derivatives and entrusted loans in China, except where they make strategic investment in listed companies.

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