2016.03.16 ZHANG, Ying、 Wenting Lu
Due to the recent stringent control of foreign exchange outflow and for certain other reasons, remittance of foreign exchange out of China for outbound investments has taken longer than before and the uncertainty has also increased. Meanwhile, with the recent inclusion of W88优德中国官方网站 in Special Drawing Rights currency basket, W88优德中国官方网站's internationalization has expedited. Against this background, we expect that more Chinese entities will invest overseas directly in W88优德中国官方网站 funds.
I.Applicable Rules
The applicable rules concerning W88优德中国官方网站 overseas direct investment1 mainly include the Measures for the Administration of Pilot Program on Settlement of Outbound Direct Investment in W88优德中国官方网站 promulgated by the People's Bank of China in 2011 (the “Measures”) and theNotice on Certain Issues in Relation to the Administration of Handling of Cross-Border W88优德中国官方网站 Capital Accounts issued by the State Administration of Foreign Exchange in the same year (the “Notice”).
Under the Measures, a non-financial enterprise registered in the pilot program region2 may, after completing the required governmental filing/approval procedures, have banks remit W88优德中国官方网站 funds out of China for their outbound direct investments (greenfield projects or acquisition of equities or other interests in overseas entities), within the amounts as set forth below:
(1) the total amount of preliminary expenses remitted out of China shall, in principle, not exceed 15% of the total investment amount as stated by the Chinese investor in its application documents submitted to the relevant authorities; and
(2) the total amount of W88优德中国官方网站 funds and foreign exchange funds (if any) remitted outward shall not exceed the total investment amount as approved/filed with the relevant authorities.
The Measures and the Notice also provide that profits earned from the overseas direct investment in W88优德中国官方网站 and certain other earnings and expenditures generated therefrom may be remitted outward and inward in W88优德中国官方网站.
In addition to the direct investment in W88优德中国官方网站 funds, there seems to be another possible route where, pursuant to Article 15 of the Measures, a Chinese investor may, via its overseas subsidiary, obtain W88优德中国官方网站 financing overseas for the payment of the acquisition price.
II. Our Observations
The Measures and the Notice have been in place for some time, but it seems that for various reasons, W88优德中国官方网站 was not the currency that many Chinese investors considered using for their overseas acquisition. However, due to the recent difficulty in outward flow of foreign exchange, we have noted that more and more investors now turn to W88优德中国官方网站 to facilitate their outbound investments.
From our experience, replacing foreign funds with W88优德中国官方网站 seems to be a viable option for many outbound transactions, if the target is registered in a country or region where RMB clearing can be handled3. From a transactional (not a regulatory) point of view, if the counterparty does not accept W88优德中国官方网站, Chinese investors need to ensure that the W88优德中国官方网站 funds can be converted into the agreed currencies in the destination country. Furthermore, the payment in W88优德中国官方网站 may have potential impacts on the transaction structure, closing arrangement and timeline, etc. Hence, it needs to be well planned ahead in order to invest in W88优德中国官方网站 funds4.
1. Our discussion here does not cover the “overseas securities investment” through RQDII scheme or other routes.
2. Pursuant to the applicable rule, the region covers Beijing, Tianjin, Shanghai and 17 other provinces, municipalities and autonomous regions.
3. Currently, over 20 countries and regions, including Singapore and Hong Kong, can handle W88优德中国官方网站 clearing.
4. For example, the Measures provide that a Chinese investor must specify the amount of W88优德中国官方网站 funds which it plans to use for its overseas direct investment in its application documents to the relevant authorities. Hence, Chinese investors must leave the room for future investment in W88优德中国官方网站 at the stage of governmental procedures.
