China liberalises settlement of foreign exchange capital through SAFE Circular 19: a game-changer for the foreign investment fund industry?

China's foreign exchange regulator, the State Administration of Foreign Exchange ("SAFE"), has for some time now been gradually relaxing restrictions on capital account transactions.  However the issuance on 8 April 2015 of the Circular on Reforming the Administrative Approach in relation to the Conversion of Foreign Exchange Capital of Foreign-Invested Enterprises (国家外汇管理局关于改革外商投资企业外汇资本金结汇管理方式的通知, Hui Fa [2015] No. 19, "Circular 19"), which came into effect on 1 June 2015, may just be the most significant development in the recent line of measures designed to loosen existing restrictions over the conversion and use of foreign exchange in the capital accounts of foreign-invested enterprises, including Sino-foreign joint ventures and wholly foreign-owned enterprises ("FIEs").

Importantly, Circular 19 may have the effect of opening up the RMB denominated fund market to foreign private equity fund managers and investors.  This article discusses the changes brought about to China's foreign exchange control regime by Circular 19, including the repeal of the Circular on Operational Issues in relation to Improving the Administration of the Payment and Conversion of Foreign Exchange Capital of Foreign-Invested Enterprises issued by SAFE (国家外汇管理局综合司关于完善外商投资企业外汇资本金支付结汇管理有关业务操作问题的通知, Hui Zong Fa [2008] No. 142, "Circular 142"), which had been a significant regulatory hurdle to the establishment of foreign-invested RMB investment funds.

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