PRC revises regulations on foreign exchange administration

While the Renminbi is now readily convertible outside China, the PRC government maintains stringent capital controls into and out of China in an effort to control and direct inbound investment and monitor domestic investment abroad. China’s State Council has taken steps to remove some of the restrictions on foreign exchange regulation of investments by domestic institutions abroad while at the same time tightening its regulation of capital flowing into China (in particular, capital contributed to foreign invested enterprises) in the Revised Regulations of the State Administration of Foreign Exchange which took effect on 5 August 2008. Allens Arthur Robinson partner Nigel Papi and senior associates Campbell Izzard and Grace Tian outline the key changes.

Nigel Papi, Campbell Izzard and Grace Tian, Allens Arthur Robinson

How does it affect you?

• The State Administration of Foreign Exchange (SAFE) is entitled to inspect and control the use of a foreign invested enterprise’s (FIE) contributed capital and any changes to amounts of both foreign currency and Renminbi contained in capital accounts after settlement of the contribution. This new provision reinforces SAFE’s ability to inspect foreign currency capital flowing into China by explicitly limiting its use to the enterprise-approved business scope (in the case of FIEs).