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News Shanghai 3-2012

NEW SAFE RULES OF EXCHANGE CONTROL OVER INBOUND AND OUTBOUND INVESTMENT

On November 21st, 2012, China’s State Administration of Foreign Exchange (“SAFE”) issued the Circular Regarding Further Improvement and Adjustment of Foreign Exchange Administration Policy of Foreign Direct Investments (the “Circular”), which will become effective on December 17th, 2012.

The Circular’s main aim is to improve the investing environment in China, by removing and simplifying some of the relevant administrative procedures and increasing their efficiency. In total, the Circular eliminates 35 administrative approvals and simplifies another 14. After these amendments, registration procedures will be more common than time-consuming administrative approval procedures, and banks will be responsible for some procedures based on the information provided by SAFE. Even though the reform is mostly procedural, the Circular will be very significant because of the extension of changes and the general lessening of the investing and foreign exchange control they entail.

The Circular is mainly a response from the authorities to the recent decline of foreign investment into China. Between January and October 2012, foreign investment amounted USD91.736 billion, down by 3.45% year on year, according to the Ministry of Commerce. However, the Circular also fosters Chinese outbound investment overseas, as some of the measures affect the investment by domestic companies abroad.