Today with this entry I would like to present briefly the new initiative by the Chinese legislator in order to simplify the rules for the realization of foreign investments in China. Substantially China is trying to reduce bureaucracy in order to render more attractive its investment environment to foreign investors. (Some interesting data on FDI in China are available at the following web-site:
http://www.fdi.gov.cn/pub/FDI_EN/Statistics/FDIStatistics/StatisticsofForeignInvestment/default.htm
).
Therefore, to encourage foreign direct investment into China, the country’s State Administration of Foreign Exchange (SAFE) has released the “
Regulations on the Foreign Exchange Administration of Domestic Direct Investment Conducted by Foreign Investors
(
Huifa
[2013] No. 21, hereinafter referred to as “Circular 21” (in effect from May 13, 2013).
Before to start with this new theme it is necessary to stress that China’s foreign direct investment topped $116 billion in 2012. This is a record according to the Commerce Ministry which aims to attract an average of $120 billion in each of these years from 2013 to 2015. China’s
economy
is acutely sensitive to external demand, despite a gradual rebalancing towards domestic consumption.
Government simplifies rules on foreign direct investment to attract more investors
China’s foreign exchange regulator with the above mentioned “Circular 21” has simplified the rules governing foreign direct investment (FDI). This represents the latest step towards deregulation and market reform under China’s new leadership. Substantially the State Administration of Foreign Exchange (SAFE) will abolish 24 regulations regarding foreign exchange registration, account openings, remittance, and conversions, the agency said in an announcement posted to its website on Saturday. It seems that this decision is part of the efforts to reduce bureaucracy, boost transparency and therefore improve FDI environment.
The move inches China closer to making its currency, the yuan, convertible under the capital account, and follows a previous round of FDI-related deregulation by SAFE in November last year.
“The abolished regulations were not in line with China’s economic development and were the target of complaints from overseas investors” as pointed out Mr. Lu Jinyong, director of the China Research Center for FDI at the University of International Business and Economics. “The changes will improve the FDI environment and facilitate the business operations of foreign companies” Mr. Lu Jinyong stressed also. China drew $29.9 billion in foreign direct investment in the first three months of 2013, up 1.4 percent from a year earlier, according to figures from the Ministry of Commerce. Deputy Commerce Minister Wang Chao said in the late April that China retains a comprehensive advantages in attracting FDI despite external uncertainties. It seems that the Chinese market has huge potential for FDI, but the key is to lift market obstacles and policy restraints.
The decision to introduce these new measures (i.e. “Circular 21”) comes after the Chinese regulator’s resolution in December (2012) to remove a ceiling on investments by overseas sovereign wealth funds and central banks in capital markets to promote long-term foreign ownership and shore-up the country’s slumping equity markets.
To be more specific on the content of this “Circular 21” it is also worth stressing that it abolishes 24 foreign exchange administrative regulations that are out of date or no longer applicable in order to clarify the regulation system. In particular the
abolished
regulations are listed as follows:
-
Interim Measures for the Administration of Foreign Exchange Registration for Foreign-Invested Enterprises ([96]
Huizihanzi
No. 187) -
Reply on Issues Concerning the Foreign Exchange Administration of Foreign Enterprises Undertaking Domestic Projects ([98]
Huizihanzi
No. 204) -
Notice of the State Administration of Foreign Exchange on Authorizing Local Offices to Handle Foreign Exchange Services Related to Equity Transfer and Liquidation of Foreign-Invested Enterprises (
Huifa
[1999] No. 397) -
Reply of the State Administration of Foreign Exchange on Issues Concerning the Foreign Exchange Control for Foreign Investors’ Reinvestment with Renminbi Amount (
Huifu
[2000] No. 129) -
Notice of the State Administration of Foreign Exchange on the Reform of the Administrative Method for the Settlement of Foreign Exchange Capital Funds Under Foreign-invested Projects (
Huifa
[2002] No. 59) -
Reply of the State Administration of Foreign Exchange Concerning Domestic Residents’ Purchase of Foreign Exchange to Pay Equity Transfer Price to Foreign Investors (
Huifu
[2002] No.231) -
Notice of the State Administration of Foreign Exchange on Issues Concerning Improving the Annual Foreign Exchange Inspection of Foreign Invested Enterprises (
Huifa
[2004] No.7) -
Notice of the State Administration of Foreign Exchange on Improving the Work on Administration of Examination and Verification of Foreign Exchange Settlement and Registration of Foreign Debts under the Capital Accounts of Foreign-Invested Enterprises (
Huifa
[2004] No. 42) -
Notice of the State Administration of Foreign Exchange on Capital Verification Inquiry into Foreign Direct Investment and Registration of Foreign Investment and Foreign Exchange in Export Processing Zones, Bonded Areas and the Shanghai Diamond Exchange (
Huifa
[2004] No. 108)
10. Notice of the General Affairs Department of the State Administration of Foreign Exchange on Issues Concerning the Opening of Foreign Exchange Capital Accounts of Insurance Intermediary Institutions (
Huizongfa
[2006] No. 6)
11. Notice of the General Affairs Department of the State Administration of Foreign Exchange on Releasing the List of the 1st Batch of Foreign Invested Real Estate Projects Approved by the Ministry of Commerce (
Huizongfa
[2007] No. 130)
12. Notice of the General Affairs Department of the State Administration of Foreign Exchange on Implementing Online Release of the List of Foreign Invested Real Estate Projects Approved by the Ministry of Commerce (
Huizongfa
[2007] No. 138)
13. Reply of the General Affairs Department of the State Administration of Foreign Exchange on Issues Concerning Foreign Exchange Settlement of the Fund used in Purchasing Commodity Premises by Foreign Individuals (
Huizongfu
[2007] No. 86)
14. Notice of the State Administration of Foreign Exchange on Issues Concerning Nationwide Expansion of Information System for Foreign Exchange Business of Direct Investment (
Huifa
[2008] No. 16)
15. Notice of the General Affairs Department of the State Administration of Foreign Exchange on Issues Relating to the Operation of the Information System of Foreign Exchange Transaction in Direct Investment and the Foreign Exchange Account System (
Huizongfa
[2008] No. 129)
16. Notice of the General Affairs Department of the State Administration of Foreign Exchange on Delegation of Examination and Approval of Special Foreign Exchange Deposit Account for Land Use Right Auction of Foreign Investors and Special Foreign Exchange Deposit Account for Equity Transaction of Foreign Investors to Lower Administrative Levels (
Huizongfa
[2008] No. 130)
17. Reply of the General Affairs Department of the State Administration of Foreign Exchange on Issues concerning the Use of Foreign Exchange Capital Settled by Foreign-invested Venture Capital Investment Companies for Investment in Domestic Equity (
Huizongfu
[2008] No. 125)
18. Notice of the General Affairs Department of the State Administration of Foreign Exchange on Issues Concerning Foreign Exchange Registration of Foreign Invested Real Estate Enterprises (
Huizongfa
[2009] No. 42)
19. Reply of the General Affairs Department of the State Administration of Foreign Exchange on Issues Concerning Foreign Exchange Registration of Receiving Foreign Exchanges by Foreign Shareholders in Cross-Border Share Swap (
Huizongfu
[2010] No. 5)
20. Notice of the State Administration of Foreign Exchange on Printing and Distributing the “Operating Rules for Foreign Exchange Administration Concerning Financing and Round-Trip Investment by Domestic Residents through Overseas Special-Purpose Companies” (
Huifa
[2011] No.19)
21. Reply of the General Affairs Department of the State Administration of Foreign Exchange on Issues Concerning Capital Verification Inquiry Involved in Capital Contribution by Foreign Investors with Non-Priced Equipment of Enterprises Engaging in Businesses of Processing with Materials Supplied by Clients, Manufacturing Products according to Samples Provided by Clients, Assembling Parts Supplied by Clients, and Compensatory Trade (
Huizongfu
[2011] No. 155)
22. Notice of the State Administration of Foreign Exchange on the Issues Related to the Administration of Foreign Exchange of Foreign-Invested Partnerships (
Huifa
[2012] No. 58)
23. Notice of the General Affairs Department of the State Administration of Foreign Exchange on Payment of Abandonment Fees for Offshore Cooperative Oil and Gas Fields with Funds within the Special Foreign Exchange Accounts of Foreign Investors after Exchange Settlement (
Huizongfa
[2012] No. 126)
24. Reply of the General Affairs Department of the State Administration of Foreign Exchange on Issues Concerning Alteration of Foreign Exchange Registration Involved in Share Reduction of Foreign Shareholders of Neusoft Corporation (
Huizongfu
[2012] No. 34)
It seems that all this ferment is also aimed at render the yuan (or RMB) more accepted internationally. Premier Li Keqiang told a meeting of the State Council, China’s cabinet, that the government would produce a detailed “operational plan” to achieve capital account convertibility this year (i.e. 2013), though he did not offer a timeline for convertibility.
So, we only need to sit and wait, in fact it is only a matter of time, and when the local currency will become fully convertible, there is no doubt China will attract more foreign investments not only in the form of FDI but also in the form of financial investments (allocated in its emerging capital markets) which influence of course M&A transactions and the market for corporate control in China.
Cristiano Rizzi