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MEASURES FOR FOREIGN EXCHANGE CONTROL RELATING
TO OVERSEAS INVESTMENT

 (Issued on March 6, 1989 by the State Administration
of Foreign Exchange Control)

 

 

 

SUBJECT: FOREIGN EXCHANGE

ISSUING-DEPT: THE STATE ADMINISTRATION OF FOREIGN EXCHANGE CONTROL (064)

ISSUE-DATE: 03/06/1989

IMPLEMENT-DATE: 03/06/1989

LENGTH: 1287 words

TEXT:

[Article 1] These Measures are hereby formulated with a view to promote economic and technological exchange, strengthen foreign exchange control relating to overseas investment and facilitate balance of international payment.

[Article 2] Overseas investment referred to in these Measures is production and business activities undertaken by corporations, enterprises and other economic organizations (except foreign investment enterprises), registered within the territory of China, through establishing various kinds of business entities abroad and purchasing overseas stocks or making equity participation (hereinafter referred to as "overseas investment enterprises").

Foreign exchange matters relating to overseas investment shall be handled in accordance with these Measures.

[Article 3] Prior to going through the examination and approval procedures, corporations, enterprises and other economic organizations which are intended to make overseas investment shall submit information and materials on foreign exchange control of the country where they plan to make investment and also provide statements of the sources of foreign exchange to the department of foreign exchange control.  The department of foreign exchange control shall examine the risks of foreign exchange investment, the sources of foreign exchange and make a written assessment within 30 days.

[Article 4] Corporations, enterprises and other economic organizations (hereinafter referred to as "domestic investors") which obtained approval for overseas investment shall submit the following documents to the department of foreign exchange control for registration and go through the procedures for remittance of foreign exchange for overseas investment.

(1) Approval documents of the competent government authority;

(2) Written assessment made by the department of foreign exchange control concerning the examination of risks of foreign exchange investment and the examination of foreign exchange sources;

(3) Contracts of investment projects or other documents which show the necessity of domestic investors remitting certain amount of foreign exchanges abroad.

Prior to registration and remittance of foreign exchange needed by overseas investment, the department of foreign exchange control shall check the sources of foreign exchange to be used by a domestic investor for overseas investment.

[Article 5] Prior to going through the registration procedures, a domestic investor shall deposit 5% of the amount of foreign exchange to be remitted to abroad as guarantee for repatriation of profits generated from overseas investment.  The domestic investor shall deposit its guarantee in a special account of the bank assigned by the department of foreign exchange control.  The deposit will be returned to a domestic investor when the amount of foreign exchange repatriated from overseas reaches the amount of the deposit.

The interests of the deposit shall be paid to a domestic investor according to the interest rate provided by the State.

If a domestic investor has difficulties to provide deposit for guarantee, it may give the department of foreign exchange control a written promise which guarantees that its overseas investment enterprise shall remit its profits and foreign exchange earnings to China within a definite time.

[Article 6] Profits and other foreign exchange earnings made by a domestic investor through overseas investment shall be remitted to China within six months after the end of the local fiscal year and shall be cleared or retained in cash according to the relevant government regulations.  Without approval by the department of foreign exchange control, the above-mentioned profits and foreign exchange earnings shall not be used for other purpose and deposited abroad.

[Article 7] Domestic investors may retain all profits and other foreign exchange earnings generated from overseas investment for five years after the establishment of overseas investment enterprises.  After that period, the retention of profits and foreign exchange earnings shall be computed according to the relevant government regulations.

[Article 8] Overseas investment enterprises may raise funds by themselves based on the necessity of their business operations.  But their domestic investors shall not provide guarantees for them without approval by the State Administration of Foreign Exchange Control.

[Article 9] Annual financial statements including balance sheet and income statement of an overseas investment enterprise shall be submitted, within six months after the end of the local fiscal year, by its domestic investor to the department of foreign exchange control.

[Article 10] When an enterprise engaged in overseas investment needs to change its capital, its domestic parent corporation shall report in advance to the original examination and approval authority for approval and then report to the department of foreign exchange control for the record.

[Article 11] If a domestic investor transfers its shares of overseas investment enterprise, it shall submit a share transfer report to the department of foreign exchange control and repatriate its foreign exchange earnings to China within 30 days after the completion of share transfer.

[Article 12] After an overseas investment enterprise winded up or dissolved according to the local law, its domestic investor shall repatriate all its foreign exchange assets to China, shall not use these foreign exchange for other purpose or deposit abroad without authorization.

[Article 13] In case of an overseas investment enterprise can not repatriate its profits and other foreign exchange earnings according to the profit repatriation plan, its domestic investor shall submit a report of explaining this failure or a report of operational losses to the department of foreign exchange control.  If there is no good reason, the department of foreign exchange control may deduct same amount of foreign exchange from the deposit to sell to the State.  If there is no deposit account opened, the department of foreign exchange control may deduct foreign exchange retained by a domestic investor to sell to the State, but the accumulated amount shall not exceed 20% of the total amount of foreign exchange remitted abroad by a domestic investor.

[Article 14] In case of violation of Articles 6, 11 and 12 of these Measures, the department of foreign exchange control shall order a domestic investor to withdraw its overseas investment within a definite time and to pay 10% to 20% of the amount of investment withdrawn from overseas as foreign exchange penalty.

In case of serious violation of Articles 9 and 10 of these Measures, the department of foreign exchange control may penalize a domestic investor concerned with less than 10,000 Renminbi.

Violation of othe r provisions of these Measures shall be dealt with in accordance with "Detailed Rules for the Implementation of the Regulations Concerning Penalty for Violation of Foreign Exchange Control".

[Article 15] If overseas investment enterprises were established before the implementation of these Measures, their domestic investors shall submit, within 60 days of the implementation of these Measures, the relevant materials to the department of foreign exchange control, go through registration procedures and repatriate their foreign exchange earnings to China according to these Measures.

[Article 16] The State Administration of Foreign Exchange Control is responsible for interpreting these Measures.

[Article 17] These Measures shall come into force on March 6, 1989.