In late 2019, the PRC’s State Administration of Foreign Exchange announced 12 measures to relax cross border commerce and investment finance controls in order to streamline transactions between domestic and foreign entities. While some of the measures will apply across the country, most of them are only effective in Free Trade Zones (Shenzen, Zhejiang, Jiangsu, Fujian and Shanghai)
- Investment financing
Foreign invested enterprises were previously barred from investing, aside from equity issuance investments in enterprises that do not distribute dividends to shareholders. This prevented foreign investors from participating in investments in unprofitable enterprises or companies that distribute profits.
According to the announcement, foreign invested companies that are not carrying out investment activities are now permitted to engage in domestic equity investments with capital funds as long as they comply with the Negative List, granting foreign investors more options and opportunities for their PRC portfolio.
- Settling Capital accounts with foreign exchange
Under the new currency exchange policies, shareholding transactions between domestic and foreign entities will be more efficient, while foreign exchange funds can more easily be used for depots. Domestic assets can now be more freely converted to foreign currencies with the removal of restrictions. To receive consideration from foreign investors for equity transfers, parties can now directly open accounts, transfer and receive funds and settle currency exchange with banks.
- Foreign loan registration reform
Registered foreign debts can now be canceled at banks directly, instead of through the government, thus speeding up the process. Non financial enterprises in the Greater Bay Area and Hainan will be able to register overseas debts at a value of up to two times the net worth of their assets. Non financial enterprises will be able to borrow at the registered amount and settle the funds directly with the bank.
- Foreign Exchange of Capital in Free Trade Zones
Companies in Shanghai and the 12 Free Trade Zones can use foreign debts, capital funds and funds raised by listing domestic payments overseas without applying for approval on a case by case basis. This makes transactions process faster without delays arising from verification procedures and preparing supporting documentation. This is expected to boost economic activity in the Free Trade Zones, particularly among newly registered enterprises.
- Unrestricted foreign exchange accounts
Enterprises in the PRC can open as many foreign exchange capital accounts as needed, provided they meet risk control and capital holding requirements set out by relevant financial regulations.
- Domestic credit assets transferrable to overseas jurisdictions
Foreign investors can arrange cross border transfers for non performing assets and directly leverage foreign capital in order to invest in the domestic non performing asset market.
- Trade financing
Under the new rules, foreign exchange can be used for payments in the service industry all over the country. Banks will be able to process foreign exchange for the trade in products and services for companies in good standing, while administrative processes for verifying documents and payments will be streamlined. Registrations of special foreign exchange refund businesses will be revoked.
These policy changes allow banks to operate more flexibly with foreign exchange transactions. Companies should note that banks now bear responsibilities previously carried out by government authorities, and that this implies more detailed scrutiny at every transaction level prior to establishing good standing with the institution.
- Simplified Cross Border E-Commerce payments for small businesses
Small and independently owned CBEC businesses that process foreign exchange payments for merchandise valued under 200,000 USD per year will no longer face requirements to register under the list of foreign exchange trade services. This is expected to boost economic activity and profits across the sector.
- Streamlined foreign exchange reporting
From January 1st, 2020, most companies will be able to report foreign exchange transactions online, without having to submit documentation at their local foreign exchange bureau.
- Export income reporting
Enterprises can now easily open an account for export income that has not yet been verified. Without opening this type of account, such income will have to be reviewed by banks before it is accessible from foreign exchange accounts directly.
- Enterprise branch registration
Any changes to company branch registrations will now only require a copy of the office’s Business License.
- Centralized management of overseas funds for engineering contractors
Engineering contractors will be able to open accounts for centralized fund management in foreign jurisdictions in order to efficiently develop their overseas operations. Overseas fund centralized management accounts should follow local laws and regulations in the jurisdiction of operation.
Should you have any questions about cross border business set up and operations in 2020 and beyond, please don’t hesitate to contact us with any enquiries.