Following last year’s issue of the
Rules on Foreign Exchange Administration for Outbound Direct Investments by Onshore Entities
, SAFE has announced clearer registration procedures that onshore banks must follow for their own outbound direct investments. Onshore banks include; policy banks, State-owned commercial banks, joint stock commercial banks, urban and local banks and locally incorporated foreign banks.
Once a bank obtains approval from the China Banking Regulatory Commission, they must register with the local branch of SAFE. Banks are only required to register with SAFE when establishing branches or subsidiaries, purchasing equity interests in an offshore entity, or select other direct investment projects. After registration, the bank is free to complete its transaction, but must re-report to SAFE within 3 days of the transaction. If the outbound investment project is not approved by the CBRC, the remaining amount of funds that have been removed from the PRC must be remitted back to the PRC within one year.
Following a transaction, the profits generated from outbound direct investments must be consolidated into the overall foreign exchange profits of the bank and converted to RMB in accordance with the rules. “This seems to be a more stringent requirement compared with other onshore entities,” said Edward E. Lehman, Managing Director of Lehman, Lee & Xu. “Other onshore entities have the discretion to either keep foreign currency funds or convert into RMB,” added Lehman.