October 12, 2009

SAFE Relaxes Regulation of Sharing of Foreign Exchange by Domestic Enterprises and Their Affiliates

On October 12, 2009, the State Administration of Foreign Exchange (“SAFE”) released the Administrative Provisions Regarding the Common Usage of Foreign Exchange by Affiliates of Domestic Enterprises (the “Provisions”), effective November 1, 2009. The Provisions now permit qualified Chinese enterprises to share a central pool of foreign exchange (i.e., not RMB) funds (“FX”), and also clarify methods for use of FX funding pools in China and related operational protocol. In accordance with the Provisions and other relevant regulations relating to FX management, permissible shared use of FX by affiliates of qualified Chinese enterprises includes the lending of FX among affiliates of Chinese enterprises, the use of common FX funding pools available to all Chinese affiliates, as well as the sale and purchase of spot FX through a qualified internal financial company for use by an enterprise and its affiliates. Under the Provisions, the shared use of FX by Chinese enterprises is subject to approval by local counterparts of SAFE, but specific matters in connection with the centralized use of FX (e.g., the opening of special FX accounts, FX transfer in China) can be directly handled by relevant banks without prior approval by local counterparts of SAFE, which approval had been required under previous regulations.

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