The State Administration of Foreign Exchange’s Shenzhen branch has unveiled a policy document aimed at deepening the reform of foreign exchange management in the Qianhai Free Trade Zone. The policy has a number of innovative features regarding the use of capital account foreign exchange for investment purposes as well as facilitating foreign exchange income payments and cross-border financing.

The document，issued in July，is formally known as the Detailed Rules for the Implementation of Promoting the Pilot Program for Foreign Exchange Reform in China (Guangdong) Pilot Free Trade Zone Qianhai & Shekou Area of Shenzhen (SAFE Shenzhen Branch Document No. 19 [2019]). It is a more detailed version of a reform document issued in 2018 and will be referred to in this article as Document 19 for the sake of convenience.

As stipulated in Document 19，“non-investment foreign-funded enterprises within this zone may use capital account foreign exchange income or renminbi funds acquired through foreign exchange settlement to purchase stakes in domestic companies. The renminbi funds used for this purpose must conform with the actual investment scale and be in accordance with relevant law”. This article examines the use of overseas capital for investment in domestic companies.

According to the Notice of the State Administration of Foreign Exchange on Reforming the Settlement Management Mode of Foreign Exchange Capital for Foreign-Funded Enterprises (SAFE Document No. 19 [2015])，foreign capital and renminbi funds obtained from foreign exchange settlement by foreign-funded enterprises shall not be directly or indirectly used for expenditures outside the scope of business operations or in areas prohibited by national laws and regulations. Investment-oriented foreign-funded enterprises  may transfer the renminbi funds from direct settlement of foreign exchange capital or “accounts for settled foreign exchange to be paid” to the invested enterprise. The sums transferred must conform with actual investment amounts.