The State Administration of Foreign Exchange (SAFE), China’s foreign exchange regulatory authority, recently clarified the PRC’s overall attitude with respect to offshore VC investments by setting out clearer registration procedures and expressly permitting VC transactions involving offshore SPV structures, subject to compliance with foreign exchange registration requirements. This clarification was set forth in the Circular on Issues Relating to Financing through Offshore Special Purpose Vehicles by Domestic Residents and Round Trip Investment (Circular No. 75), promulgated on October 21, 2005, with effect from November 1, 2005. Circular No. 75 supersedes two SAFE circulars promulgated earlier this year, Circular No. 11 (January 24, 2005) and Circular No. 29 (April 8, 2005), which were widely regarded as a major roadblock to most VC transactions involving PRC domestic assets and residents. Circular No. 75 retains the core element of the two earlier circulars, i.e., SAFE’s authority to review the establishment or acquisition of offshore entities by PRC domestic residents or entities for the purpose of foreign exchange control and indirectly to prevent tax evasion and for other purposes. It nevertheless clarifies some key vague or ambiguous provisions and alleviates concerns aroused by the earlier circulars.


Antitrust and Trade Regulation

Date of this Version

January 2006