PROCEDURES FOR THE ADMINISTRATION OF THE FOREIGN EXCHANGE INVOLVEDIN INVESTMENT ABROAD

PROCEDURES FOR THE ADMINISTRATION OF THE FOREIGN EXCHANGE INVOLVEDIN INVESTMENT ABROAD This English document is coming from the "LAWS AND REGULATIONS OF THE PEOPLE'S REPUBLIC OF CHINA GOVERNING FOREIGN-RELATED MATTERS" (1991.7) which is compiled by the Brueau of Legislative Affairs of the State Council of the People's Republic of China, and is published by the China Legal System Publishing House.

In case of discrepancy, the original version in Chinese shall prevail.

Whole Document PROCEDURES FOR THE ADMINISTRATION OF THE FOREIGN EXCHANGE INVOLVED IN INVESTMENT ABROAD (Approved by the State Council of the People's Republic of China on February 5, 1989 and promulgated by the State Administration of Foreign Exchange Control on March 6, 1989) Article 1 These Procedures are formulated for the purpose of promoting economic and technological co-operation with foreign countries, strengthening the administration of the foreign exchange involved in investment abroad and facilitating the achievement of a balance of international payments.

Article 2 The terms "investment abroad" referred to in these Procedures means the establishment of various kinds of enterprises abroad or the purchase of and holding shares abroad (hereinafter collectively referred to as "Chinese-invested enterprises abroad") by corporations, enterprises and other economic organizations registered inside China (not including enterprises with foreign investment) to engage in production and business activities. Matters related to the foreign exchange involved in investment abroad shall be governed by these Procedures.

Article 3 Corporations, enterprises or other economic organizations that intend to make investment abroad shall, prior to going through the procedures of application, examination and approval of investment abroad with the competent State authorities, provide the department for control of foreign exchange with the information on the administration exercised by the countries (or regions) where their investment is to be over the foreign exchange involved in investigated by foreign countries and the relevant data, and submit to the department the certifying documents on the source(s) of the funds in foreign exchange earmarked for investment abroad. The department for control of foreign exchange shall be responsible for the risk examination of the foreign exchange earmarked for investment abroad and for the examination of the source(s) of the funds in foreign exchange and shall present within 30 days the conclusions in writing drawn from the examinations.

Article 4 Corporations, enterprises or other economic organizations (hereinafter referred to as "domestic investors") that have been permitted to make investment abroad shall handle with the department for control of foreign exchange the procedures of registration and of remitting abroad the funds in foreign exchange earmarked for investment abroad by presenting the following materials: 1. the documents of approval issued by the competent State authorities; 2. the conclusions in writing drawn by the department for control of foreign exchange from the risk examination of the foreign exchange earmarked for investment abroad and the examination of the source(s) of the funds in foreign exchange; and 3. the contract of the investment project or other document(s) that may serve to certify the amount of the funds in foreign exchange that the domestic investors shall remit abroad.

In handling the procedures of registration and of remitting abroad the funds in foreign exchange earmarked for investment abroad as prescribed in the first paragraph of this Article, the department for control of foreign exchange shall re-examine the source(s) of the funds in foreign exchange of the domestic investors.

Article 5 In going through the procedures of registration, the domestic investors shall place a deposit as a guarantee that they shall remit the profit back to China (hereinafter referred to as "guarantee deposit") which is equal to 5 percent of the amount of funds in foreign exchange to be sent abroad.

The guarantee deposit shall be placed in a special account in a bank designated by the department for control of foreign exchange. The guarantee deposit shall be refunded when the total amount of profit remitted back to China is equal to the amount of funds in foreign exchange sent abroad. The interest on the guarantee deposit shall be paid to the domestic investors in accordance with the standard rate prescribed by the State.

If the domestic investors experience real difficulty in placing the guarantee deposit, they may give a written commitment to the department for control of foreign exchange that the enterprise abroad in which they invest shall remit regularly the profit or other incomes in foreign exchange back to China.

Article 6 The profit or other incomes in foreign exchange derived by domestic investors from their investment abroad shall be repatriated within 6 months as of the end of the local accounting year and settled as foreign exchange or retained as spot exchange in accordance with the pertinent provisions of the State. Without the approval by the department for control of foreign exchange, they may not be diverted to other uses or kept abroad.

Article 7 The share of profit or other incomes in foreign exchange that domestic investors receive from the enterprise abroad in which they invest shall be retained in full in the first five years as of the date of the establishment of the enterprise and shall be retained at a percentage calculated in accordance with the pertinent provisions of the State as of the end of the first five years.

Article 8 A Chinese-invested enterprise abroad may, on the basis of the need of its business operations, raise funds on its own. But without approval by the State Administration of Foreign Exchange Control, its domestic investors may not provide guarantee for it by any means.

Article 9 The annual accounting statements of a Chinese-invested enterprise abroad, including the statement of assets and liabilities and the statement of loss and profit, shall, within 6 months as of the end of the local accounting year, be submitted by its domestic investors to the department for control of foreign exchange.

Article 10 If a Chinese-invested enterprise abroad is to make changes in its capital, its domestic investors shall apply in advance to the original examining and approving authorities for approval and the changes shall be reported to the department for control of foreign exchange for the record.

Article 11 If domestic investors are to transfer the shares of stock of the enterprise abroad in which they invest, they shall submit to the local department for control of foreign exchange a report for the transfer thereof and shall repatriate the incomes in foreign exchange thus obtained within 30 days after the completion of the transfer.

Article 12 If a Chinese-invested enterprise abroad terminates its business operations or is dissolved in accordance with the laws of the country (or region) in which it is located, its domestic investors shall repatriate the assets in foreign exchange that they are entitled to obtain and may not divert them to other uses or keep them abroad without authorization.

Article 13 If a Chinese-invested enterprise abroad fails to remit back to China their profit or other incomes in foreign exchange in accordance with their profit plan, its domestic investors shall submit to the department for control of foreign exchange a report on their failure to fulfil their profit plan on schedule or on the losses sustained in business operations.

If they fail to offer sufficient justification, the department for control of foreign exchange may deduct from their guarantee deposit a corresponding proportion of foreign exchange and sell it to the State. If the domestic investors have not opened a guarantee deposit account, the department for control of foreign exchange shall deduct from their retained foreign exchange a corresponding amount and turn it over to the State, but the total amount deducted shall not exceed 20 percent of the amount of the funds in foreign exchange that has been remitted abroad.

Article 14 If domestic investors violate the provisions in Articles 6, 11 and 12, the department for control of foreign exchange shall order them to repatriate the foreign exchange involved within a prescribed period of time and may impose a fine amounting from 10 percent up to 20 percent of the amount that should be repatriated.

If domestic investors violate the provisions in Articles 9 and 10 to a serious extent, the department for control of foreign exchange may impose on them a fine of Renminbi 100,000 yuan or less.

Violators of the other provisions of these Procedures shall be dealt with in accordance with the provisions of the Rules for the Implementation of Penalties on Violations of Foreign Exchange Control.

Article 15 The domestic investors of the Chinese-invested enterprise abroad established before these Procedures go into effect shall, within 60 days starting from the day on which these Procedures go into effect and in accordance with the relevant provisions of these Procedures, approach the department for control of foreign exchange to make up for the submission of the relevant materials and go through the procedures of registration and shall repatriate their incomes in foreign exchange in accordance with the relevant provisions.

Article 16 The State Administration of Foreign Exchange Control shall be responsible for the interpretation of these Procedures.

Article 17 These Procedures shall go into effect as of the date of promulgation.

its capital, its domestic investors shall apply in advance to the original examining and approving authorities for approval and the changes shall be reported to the department for control of foreign exchange for the record.

Article 11 If domestic investors are to transfer the shares of stock of the enterprise abroad in which they invest, they shall submit to the local department for control of foreign exchange a report for the transfer thereof and shall repatriate the incomes in foreign exchange thus obtained within 30 days after the completion of the transfer.

Article 12 If a Chinese-invested enterprise abroad terminates its business operations or is dissolved in accordance with the laws of the country (or region) in which it is located, its domestic investors shall repatriate the assets in foreign exchange that they are entitled to obtain and may not divert them to other uses or keep them abroad without authorization.

Article 13 If a Chinese-invested enterprise abroad fails to remit back to China their profit or other incomes in foreign exchange in accordance with their profit plan, its domestic investors shall submit to the department for control of foreign exchange a report on their failure to fulfil their profit plan on schedule or on the losses sustained in business operations.

If they fail to offer sufficient justification, the department for control of foreign exchange may deduct from their guarantee deposit a corresponding proportion of foreign exchange and sell it to the State. If the domestic investors have not opened a guarantee deposit account, the department for control of foreign exchange shall deduct from their retained foreign exchange a corresponding amount and turn it over to the State, but the total amount deducted shall not exceed 20 percent of the amount of the funds in foreign exchange that has been remitted abroad.

Article 14 If domestic investors violate the provisions in Articles 6, 11 and 12, the department for control of foreign exchange shall order them to repatriate the foreign exchange involved within a prescribed period of time and may impose a fine amounting from 10 percent up to 20 percent of the amount that should be repatriated.

If domestic investors violate the provisions in Articles 9 and 10 to a serious extent, the department for control of foreign exchange may impose on them a fine of Renminbi 100,000 yuan or less.

Violators of the other provisions of these Procedures shall be dealt with in accordance with the provisions of the Rules for the Implementation of Penalties on Violations of Foreign Exchange Control.

Article 15 The domestic investors of the Chinese-invested enterprise abroad established before these Procedures go into effect shall, within 60 days starting from the day on which these Procedures go into effect and in accordance with the relevant provisions of these Procedures, approach the department for control of foreign exchange to make up for the submission of the relevant materials and go through the procedures of registration and shall repatriate their incomes in foreign exchange in accordance with the relevant provisions.

Article 16 The State Administration of Foreign Exchange Control shall be responsible for the interpretation of these Procedures.

Article 17 These Procedures shall go into effect as of the date of promulgation.