SAFE to Further Regulate Certain Payment and Conversion of Foreign Exchange

On August 29, 2008, the State Administration of Foreign Exchange ("SAFE") released a notice (the "Notice") regarding Implementation Rules of the Administration of Payment and Conversion of Registered Capital of Foreign Invested Enterprises (the "FIEs"). The Notice places additional restrictions on the payment and conversion of registered capital of FIEs. The registered capital of a FIE cannot be settled until the capital contribution is verified by a certified public accountant. The RMB amount converted from the registered capital of a FIE may only be used within the business scope of the FIE, and unless otherwise provided, the converted RMB amount cannot be used for either domestic equity investments or for the purchase of "not-for-self-use" real estate in China. The Notice also substantially modifies the administrative method of currency conversion by domestic entities or individuals who sell their equity interest in domestic companies to foreign investors by making it more difficult for the sellers to convert the equity purchase price from foreign currency to RMB.


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