Cross-Border Trade & Investment – The New SAFE Update

SAFE (The State Administration of Foreign Exchange) issued a Circular on Further Promoting Cross-border Trade and Investment Facilitation (“Circular No. 28”) last October 2019, which introduced 12 measures to further facilitate cross-border trade and investment. Amongst them, there are 3 key reforms in recognition of foreign investment, foreign debt and sale of non-performing credit assets.

Foreign Investment

All foreign-invested businesses are accepted to make fairness investments within the mainland with its capital finances. formerly, only foreign-invested funding groups, whose business is equity funding (the “investment company”) were entitled to making fairness funding with its capital finances. other overseas-invested companies (the “Non-investment organisation”) were handiest allowed to invest with its earnings from its operation in China.

Pursuant to circular No. 28, a Non-funding organization is now allowed to make home fairness investment with its capital finances, provided that (i) the funding does not violate the present special administrative measures for foreign funding get entry to (negative list); (ii) the projects invested are actual and in compliance with regulation; and (iii) the investment is in conformity with the country wide macro-control guidelines.

With this reform, all overseas-invested companies, whether or not installed to conduct funding corporations, will be able to make home equity investment. As there are much less than three,000 investment corporations in China, accounting for less than 1% of all overseas-invested enterprises, an excellent variety of Non-investment companies will benefit from this reform.

Registration of Foreign Money Owed

considering that 2016, people’s financial institution of China (PBOC) and SAFE adopted the guidelines of full-coverage macro-prudent control of move-border financing, which permits any business enterprise in China to borrow foreign debt inside the restrict of twice of its internet property. for the reason that then, earlier approval from SAFE for such overseas debt were abolished and replaced by using publish submitting to the nearby department of SAFE.

Circular No. 28 in addition simplifies the secure filing technique from two elements:

>> A non-monetary company in Guangdong-Hong Kong-Macau extra Bay vicinity (“GBA”) or Hainan will not be required to do the secure filing each time while borrowing a foreign debt. companies in GBA and Hainan might also practice for a one-off SAFE filing.

>> Banks are authorized by using SAFE to behave the secure submitting in order that the borrower does not need now to visit the workplace of a nearby branch of secure.

SALE OF NON-acting credit score property

In 2017, secure legal its Shenzhen branch to set up a pilot program for cross-border switch of non-appearing loans. On 8 may 2018, the pilot software turned into more advantageous by using (i) putting off the expiration date of the program; (ii) changing the “pre-approval” of pass-border transfers with a “pre-filing” method; and (iii) allowing receipt of trading deposits from foreign investors via foreign debt money owed.

round No. 28 further upgraded the pilot software with the aid of: (i) increasing the geographical scope to cover GBA and Hainan; (ii) allowing banks to promote non-appearing credit score assets immediately to foreign traders, rather than via the asset management agencies; and (iii) expanding the scope of assets to non-performing alternate finance assets, further to loans. This reform will offer greater possibilities for foreigners to take part in China’s non-performing market.


round No. 28 grants greater autonomy to banks and businesses and makes it greater convenient and efficient for honest establishments to carry out move-border enterprise activities.

In step with the press conference of secure, the regulatory authorities will, continuously promote the liberalization and facilitation of cross-border exchange and funding, and progressively improve the opening-up regarding capital money owed. it is going to be anticipated that further guidelines can be released in the near destiny, which include for instance (i) enhancing the pilot program on forex agreement and income businesses of securities businesses so that greater individuals might also take part in the foreign exchange market; (ii) assisting the improvement of buying and selling guidelines on “Sci-Tech Innovation Board” and improving the move-border fund control of depository receipts under the “Shanghai-London Interconnection”; and (iii) standardizing the management of bond issuance on the mainland by means of foreign establishments. we are able to maintain a close eye on it.

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Assessing the Risk of Doing Business in China using Offshore Companies

China has historically been one of the world’s leading powers and today, China’s economy is best known for its manufacturing sector. As the number of foreign enterprises investing in China and doing business with Chinese partners has increased so has the number of legal disputes. Earlier, foreign companies prefer to conduct business in China with the help of offshore entities.

There are many reasons behind this approach. The most important one is the corporate law of offshore jurisdictions is often very flexible. For instance, setting up a company in Hong Kong is well regulated and very quick. Within one week of receiving due diligence, foreign businesses can incorporate their companies in Hong Kong. Along with the easy setup option, offshore companies add an additional layer of limited liability, removing risk from its valuable parent company. The option of selling goods ‘Free On Board’ (FOB) from China has become a huge success factor for foreign companies that have set up shop in HK.

But things have changed a lot over the years. The US-China trade war and the political unrest in Hong Kong complicated the once easy process of doing business in China with an offshore company. Beijing has tightened up its grip more particularly on the US based companies that are operational in China from an offshore entity.

The world is going through a politically tensed environment. Overseas companies with a business interest in China should be more cautious in their approach of doing business in China.

It’s no surprise that business optimism hit a five-month low in August, confirming a recent survey by CNBC that revealed that small business confidence has dropped to a level not seen since 2017. The escalating trade tensions will have a negative impact on the global economy. Business owners of both the countries cannot outsmart the political and economic repercussions of the US-China trade embargo. It is impossible to safeguard your business interest by adopting offshore formula. Of course, offshore companies offer many advantages to investors, but there are many traps one could fall into.

In a blink of an eye law changes in China. The Company Law in China, first published in 1993 and last amended in 2014, is applicable to both domestic enterprises and FIEs. However, various special rules governing EJVs, CJVs and WFOEs continue to subsist alongside the Company Law.

While China is a large and growing market for U.S. firms, its incomplete transition to a free-market economy has resulted in economic policies deemed harmful to U.S. economic interests, such as industrial policies and theft of U.S. intellectual property. Assessing the challenges of entering into the Chinese market via offshore firms has become an increasingly important one of Western companies of all shapes and sizes.

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