On June 18, 2025, the State Administration of Foreign Exchange (the "SAFE") released the "Notice of the State Administration of Foreign Exchange on Matters Related to Deepening Reforms in Foreign Exchange Administration for Cross-border Investment and Financing (Draft for Public Comments)" (hereinafter referred to as the "Notice") and solicited public comments.

I. Cross-border Investment Foreign Exchange Administration Policy

The Notice proposes the following key reforms regarding foreign exchange administration for cross-border investment.

(a) Abolition of Basic Information Registration for FDI Preliminary Expenses

The Notice abolishes the basic information registration requirement for foreign direct investment (FDI) preliminary expenses, and instead specifies the operational guidelines for "preliminary expense accounts and fund remittance for domestic direct investment" in the Operational Guidelines for Facilitating Cross-border Investment and Financing Foreign Exchange Administration (the "Guidelines") attached to the Notice. After the Notice takes effect, foreign investors will be able to directly open preliminary expense accounts with banks and remit preliminary funds before establishing foreign-invested enterprises in China, without the need for prior registration.

Under the currently effective Foreign Exchange Business Guidelines for Capital Accounts (2024 Edition) (the "Capital Accounts Guidelines") and relevant regulations, where a foreign investor intends to establish a foreign-invested enterprise (FIE) in China and needs to remit preliminary expenses (such as market research and office preparation costs), it shall first complete the basic information registration for preliminary expenses at a bank located in the place where the FIE is to be established, before it can open a preliminary expense account with the bank and remit funds. Under the requirements of the Notice and the Guidelines, a foreign investor no longer needs to apply to a bank for basic information registration for FDI preliminary expenses, and may directly proceed with opening preliminary expense accounts and remitting funds at the bank. The handling bank will be responsible for reviewing whether the amount of preliminary expenses matches the intended payment purposes, and will process the relevant fund deposits based on the remaining inflow amount specified in the Application Form for Preliminary Expense Business of Domestic Direct Investment submitted by the foreign investor. Furthermore, the Guidelines stipulate that if no FIE is ultimately established, the foreign investor shall apply to the bank to close the account, and any remaining funds shall be repatriated through the original channel, with the bank calculating the remaining balance of preliminary expenses. These policies will help accelerate the efficiency of investment fund inflows and facilitate the prompt implementation of foreign investment.

(b) Abolition of the Domestic Reinvestment Registration for Foreign-invested Enterprises (FIEs)

The second reform under the Notice regarding foreign exchange administration for cross-border investment is the abolition of the domestic reinvestment registration requirement for foreign-invested enterprises (FIEs). Under the Capital Accounts Guidelines and related regulations, when a FIE conducts domestic reinvestment using its foreign capital or RMB funds obtained from foreign exchange settlement, the domestic entity receiving the consideration is required to complete the basic information registration or subsequent amendment registration for such reinvestment (except where an investment-oriented foreign-invested enterprise makes reinvestment payments or pays equity transfer considerations in RMB). Pilot programs exempting this registration requirement has already been implemented in 19 provinces, municipalities and cities across China[1]. Under the requirements of the Notice and the Guidelines, this policy is to be extended nationwide, whereby, provided that the investment does not violate the Special Administrative Measures for Foreign Investment Access and the domestic investment project is genuine and compliant, the relevant investee enterprise or equity transferor will no longer need to complete such registration, and the domestic reinvestment funds may be directly transferred to the relevant accounts.

(c) Permitting Domestic Reinvestment of Foreign Exchange Profits under Foreign Direct Investment

The Notice permits domestic reinvestment of foreign exchange profits under foreign direct investment. FIEs’ legally generated foreign exchange profits in China and foreign investors’ legally obtained foreign exchange profits may be directly used for domestic reinvestment, and the funds may be transferred to the capital accounts of the investee enterprises or the capital settlement accounts of the equity transferors. The use of funds shall comply with the relevant accounts administration requirements.

Unlike the previous relatively strict controls on foreign exchange profits under foreign direct investment, the Guidelines newly establish a section for "domestic reinvestment of foreign exchange profits under foreign direct investment". According to the Guidelines, where a FIE conducts reinvestment using foreign exchange profits legally generated in China, and fund remittance is required, it shall submit a written application, business licenses of itself and the fund recipient (or other identity certification materials, except where such submission is not required under regulations), authenticity certification materials for such foreign exchange profits (i.e., profits obtained through lawful and compliant operations and not from foreign currency purchases) such as audited financial reports, and relevant authenticity certification materials for the reinvestment such as investment agreements/equity transfer agreements. For account opening and fund deposit, only a written application shall be submitted. Where the reinvestment is conducted using foreign exchange profits legally obtained by a foreign investor, applying for fund remittance requires submission of a written application, authenticity certification materials for obtaining such legal foreign exchange profits, and relevant authenticity certification materials for the domestic reinvestment of foreign exchange profits. For account opening and fund deposit under such scenario, only a written application shall likewise be submitted. The fund-remitting bank and the recipient bank shall conduct reviews according to their respective authorities as required by the Guidelines during the relevant procedures.

(d) Facilitating Domestic Non-enterprise Research Institutions in Receiving Foreign Funds

The Notice also introduces policies to facilitate domestic non-enterprise research institutions in receiving foreign funds. Specifically, when non-enterprise research institutions receive foreign funds, they shall refer to the procedures for foreign direct investment in terms of foreign exchange registration, account opening, and fund exchange. If non-enterprise research institutions use inbound foreign funds or RMB funds obtained through foreign exchange settlement for domestic reinvestment, such reinvestment shall be processed with reference to FDI-related domestic reinvestment rules. Qualified non-enterprise research institutions may also participate in the facilitation policy for capital accounts income and payment. Previously, a pilot policy allowing domestic non-enterprise research institutions to receive foreign funds (known as "Ke Hui Tong") has been implemented in 16 provinces, municipalities and cities in China[2]. The Notice now extends this policy nationwide. Enhancing the efficiency of foreign fund receipt by non-enterprise research institutions will help streamline upstream processes such as scientific research within related industry ecosystems, thereby promoting long-term R&D and corporate development benefits for businesses across multiple sectors, including FIEs.

II. Cross-border Financing Foreign Exchange Administration Policy

The Notice proposes the following key reforms regarding foreign exchange administration for cross-border financing.

(a) Expanding Facilitation Measures for Cross-Border Financing

The Notice introduces policies to further facilitate cross-border financing. It explicitly states that eligible small and medium-sized enterprises (SMEs) nationwide – including high-tech enterprises, "specialized, sophisticated, distinctive, and innovative" enterprises, and sci-tech enterprises (collectively referred to as "Eligible Technology Enterprises") - may each be granted to a foreign debt facilitation quota of up to USD 10 million equivalent. Furthermore, eligible enterprises selected through the "innovation credit scoring system" may each borrow foreign debts with a quota of up to USD 20 million equivalent.

These technology-based FIEs (e.g., biopharmaceutical enterprises) typically exhibit characteristics such as asset-light structures, prolonged R&D cycles, and high research expenditures, making them heavily reliant on equity financing to supplement cash flow. Once equity financing becomes constrained or difficult, while substantial domestic funding needs remain unmet, foreign debt financing emerges as a practical alternative. Under existing policies, in addition to retaining the traditional "total investment-registered capital gap" model available to FIEs, China also implements macro-prudential administration for cross-border financing, whereby an enterprise’s foreign debt cannot exceed a certain proportion of its net assets. However, startups in this category often face challenges such as lack of profitability or limited net assets, and their paid-in registered capital may also be relatively small. As a result, under conventional cross-border financing foreign exchange administration policy, their financing capacity is often constrained. In light of this, since 2022, the SAFE has introduced policies allowing Eligible Technology Enterprises in over ten pilot regions to independently borrow foreign debt with a quota of up to USD 10 million equivalent. Eligible Technology Enterprises in other regions may borrow foreign debt with a quota of up to USD 5 million equivalent[3]. The Notice now extends this pilot policy nationwide, unifying the quota at USD 10 million equivalent, while eligible enterprises under the "innovation credit scoring system" may each be granted to a quota of up to USD 20 million equivalent.

Accordingly, the Guidelines also specify the corresponding section on "contract registration, modification, and cancellation of foreign debt by non-bank debtors". Regarding the documentation required for foreign debt contract registration approval, in addition to the existing registration procedures under the macro-prudential administration model and the "total investment-registered capital gap" model, the Guidelines provide a streamlined foreign debt contract registration process under the cross-border financing facilitation policy, with reduced documentation requirements (see details below). Under this policy, relevant enterprises may choose the most suitable foreign debt registration pathway. For Eligible Technology Enterprises, this policy will help reduce their financing costs and expand their funding sources for R&D investment.

(b) Simplifying Administration of Facilitation Services for Cross-border Financing Registration

The Notice requires to simplify the administration of facilitation services for cross-border financing registrstion. In terms of review materials, under the streamlined foreign debt contract registration mode under the cross-border financing facilitation policy, enterprises are not required to submit the audited financial reports for the previous year or the most recent period. Under such mode, the review materials required for an enterprise’s foreign debt contract registration only include the application form, its business license, documents certifying the enterprise as an Eligible Technology Enterprise, and the loan letter of intend or foreign debt contract (original and copies of its main clauses).

III. Facilitation Policy for Capital Accounts Income and Payment

The Notice also proposes 3 key reforms regarding facilitating capital accounts income and payment.

(a) Shortening the Negative List for the Use of Capital Accounts Income

The Notice proposes to shorten the negative list for the use of capital accounts income. Compared with previous policies such as Hui Fa [2023] No. 28, the Notice removes the restriction that foreign exchange income under capital accounts and the RMB funds obtained from foreign exchange settlement shall not be used to purchase non-self-use residential properties[4]. The Notice reiterates that the use of foreign exchange income under capital contributions and foreign debts of non-financial enterprises and the RMB funds obtained from foreign exchange settlement shall comply with the principles of authenticity and self-use. Under this premise, the aforementioned funds shall not be used in the following areas: (i) expenditures explicitly prohibited by the laws and regulations of the State, (ii) (unless otherwise explicitly stipulated) securities investment or other high-risk investment and wealth management (except for wealth management products and structured deposits with risk ratings not higher than Level II), (iii) issueing loans to non-affiliated enterprises (except for the cases expressly permitted by the business scope). These provisions substantially follow the existing wording of Hui Fa [2023] No. 28. The adjustment to the aforementioned negative list regulations will help FIEs flexibly utilize their existing funds and appropriately allocate their real estate resources. Meanwhile, it maintains the basic requirement to restrict the flow of such funds into high-leverage wealth management and securities markets.

(b) Improving Facilitation Services for Foreign Exchange Income and Payment under Capital Accounts

The Notice proposes that banks may independently determine the proportion and frequency of post-event random sampling for facilitation services based on clients’ compliance records and risk ratings. The Capital Accounts Guidelines require that banks handling capital accounts foreign exchange income payment facilitation services shall conduct quarterly post-event random sampling of such services. The master reporting banks (provincial branches of Chinese-funded banks or first-tier branches of equivalent level, branches of foreign-funded banks, and local corporate banks) are the entities responsible for implementing the relevant sampling. Among them, for master reporting banks that received an "A" rating in the previous year’s compliance and prudent operation assessment for foreign exchange business, the minimum sampling proportion shall be 5% of the facilitation payment amount during the sampling period. For those that received a "B" rating (including B+ and B) in the previous year’s assessment, the minimum sampling proportion shall be 10% of the facilitation payment amount during the sampling period. The provincial branches of the SAFE may adjust the minimum sampling proportion for banks and the frequency of submitting sampling reports based on actual circumstances. The Notice no longer specifies concrete sampling proportions or frequencies, and its Guidelines further state that branches of banks undergoing foreign exchange business reform may uniformly use post-event risk transaction monitoring mechanisms as the means of risk investigation, on which basis they may independently decide whether to conduct post-event sampling. The aforementioned optimization measures will be conductive to improving payment efficiency for enterprises with strong compliance records, reducing invisible "reviews", and providing greater convenience to enterprises while enhancing banks’ trust in such enterprises.

(c) Facilitating Foreign Exchange Settlement and Payment for Real Property Purchases by Overseas Individuals

The Notice stipulates that overseas individuals may, subject to local real property purchase policies, proceed with foreign exchange settlement and payment for real property purchases at banks by presenting the purchase contract or agreement first, and subsequently supplement the real property purchase record-filing documents issued by the real estate authorities to the bank. The Notice extends the pilot policy on foreign exchange settlement and payment facilitation for real property purchases by Hong Kong and Macao residents in the Guangdong-Hong Kong-Macao Greater Bay Area to the entire country. For overseas individuals with urgent needs to purchase real properties in China, this will allow them to "lock in" the real property without waiting for the completion of the record-filing process, thereby providing them with certain conveniences.

IV. Conclusion

Overall, through policies such as simplified registration procedures, expanded quotas, and optimized payment administration, the Notice facilitates cross-border investment, financing, and payments for enterprises across three dimensions (including investment access, financing channels, and payment facilitation), offering new mechanisms to support high-tech enterprises and the real economy while enhancing foreign capital utilization efficiency.

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