To all the branches and foreign exchange administration departments of the State Administration of Foreign Exchange of provinces, autonomous regions and municipalities directly under the central government and the Shenzhen, Dalian, Qindao, Xiamen and Ningbo branch:

In order to encourage, support and guide the development of non-public economy, further improve the system of supporting venture capital investment by policies, and regulate the cross-border capital transactions involved in financing activities by domestic residents through offshore special purpose vehicles as well, according to the "Regulations of the People's Republic of China on the Administration of Foreign Exchange", the "Regulations on Foreign Exchange Administration of Overseas Investment" and the "Interim Provisions for Foreign Investors to Merge Domestic Enterprises", we hereby give our notice as follows regarding the relevant issues on foreign exchange administration for equity financing and roundtrip investment of domestic residents through offshore special purpose vehicles:

I. "Offshore special purpose vehicles" herein shall refer to overseas enterprises directly established or indirectly controlled by domestic legal person residents or domestic natural person residents for the purpose of raising funds by way of equity financing (including convertible bonds financing) outside the territory using assets or interests of domestic enterprises held by the domestic residents.

"Roundtrip investment" herein shall refer to any direct investment activity carried out within the territory by domestic residents through offshore special purpose vehicles, including but not limited to: purchase or exchange of the equity of Chinese parties in domestic enterprises, establishment of foreign-funded enterprises within the territory and consequently purchase or control by contract of domestic assets through such enterprises; contractual purchase of domestic assets and consequently establishment of foreign-funded enterprises using such assets as investments, and increase of investments to domestic enterprises.

"Domestic legal person residents" herein shall refer to legal person enterprises and public institutions and other economic organizations duly established within the territory of China; "Domestic natural person residents" herein shall refer to natural persons holding legal identification certificates such as PRC identification cards or passports or natural persons who have no legal identification of PRC but have habitually resided in China because of economic involvements.

"Control" herein shall refer to domestic residents, through purchase, entrustment, holding on behalf, votes, buy-back, convertible bonds and other manners, obtain the rights on operation, rights on profits and decision-making rights of special purpose vehicles or domestic enterprises.
 

II. Prior to establishing or controlling special purpose vehicles, domestic residents shall, holding the following materials, apply to the sub-branch of administration of foreign exchange or foreign exchange administration department at the locality of the domestic resident (the "Foreign Exchange Bureau") for foreign exchange registration of overseas investments.

(1) written application (specifying in details the basic information of domestic enterprises, the shareholding structure of the offshore special purpose vehicles and the arrangements of funds after overseas financing);

(2) (for domestic legal person residents) registration documents within the territory of China and (for domestic natural person residents) identification certificates;

(3) commercial proposal of overseas financing;

(4) (for domestic legal person residents) approval reply on foreign exchange fund sources (asset sources) and approval documents of competent authorities of overseas investments;

(5) (for domestic legal person residents) fill in "Foreign Exchange Registration Certificate of Overseas Investment"; (for domestic natural person residents) fill in "Form of Foreign Exchange Registration of The Domestic Individual Resident's Overseas Investments" (see Annex );

(6) other materials for certifying the truthfulness.

After the foreign exchange bureau has checked and verified all the above mentioned materials, it shall affix a special seal for capital account foreign exchange business on "Foreign Exchange Registration Certificate of Overseas Investment" or "Form of Foreign Exchange Registration of The Domestic Individual Resident's Overseas Investments".
 

III. Where domestic residents input their assets or equities of domestic enterprises into special purpose vehicles or carry out equity financing overseas after inputting their assets or equities into special purpose vehicles, the domestic residents shall complete the foreign exchange modification registration of overseas investments in connection with their holding of net assets, rights and interests in the special purpose vehicles and any modifications. The following materials shall be submitted for such registration application:

(1) written application (specifying in details the modification process of the shareholders and shareholdings of domestic enterprises and special purpose vehicles, pricing methods of the assets or equities of domestic enterprises and special purpose vehicles);

(2) (for domestic legal person resident) provide "Foreign Exchange Registration Certificate of Overseas Investment"; (for domestic natural person residents) provide "Form of Foreign Exchange Registration of The Domestic Individual Resident's Overseas Investments";

(3) approval and filing documents for the roundtrip investment issued by the foreign investment administrative departments;

(4) documents confirming the value of assets or equities of domestic enterprises by the administrative department of state-owned assets shall be provided where state-owned assets are involved;

(5) documents certifying the overseas registration, filing of the offshore special purpose vehicle and its business license, etc.;

(6) other materials for certifying the truthfulness.
 

IV. After completing overseas financing through special purpose vehicles, the domestic residents may, according to capital using plan set forth in commercial proposal or prospectus, repatriate the funds into China which shall be arranged to be used within the territory of China.
 

V. Where special purpose vehicles make roundtrip investments or provide shareholder's loan or other debt funds to a domestic enterprise using funds obtained from overseas financing, the relevant domestic enterprises shall complete foreign exchange administration formalities according to the currently-effective laws and regulations on utilization of foreign investment and administration of foreign debt. When the foreign exchange bureau completes for the relevant domestic enterprises the establishment registration of foreign-funded enterprises and modification registration, foreign debt registration or completes for the special purpose vehicles the foreign exchange registration of investments in the form of foreign exchange upon transfer of stock rights, the "Foreign Exchange Registration Certificate of Overseas Investment" or the "Form of Foreign Exchange Registration of The Domestic Individual Resident's Overseas Investments" shall be examined and verified.
 

VI. After completing the foreign exchange registration and modification registration of foreign investments as required, domestic residents can make such payment from profits, dividends, liquidation, equity transfer and capital decrease to special purpose vehicles.

The profits, dividends and foreign exchange incomes from capital modification obtained by a domestic resident from special purpose vehicles shall be repatriated into the territory within 180 days as of the day when it is obtained. The profits and dividends can be paid into the foreign exchange current accounts or used for settlement. The foreign exchange incomes from capital modification can be kept in capital account or used for settlement upon examination and approval of foreign exchange bureau.
 

VII. Where offshore special purpose vehicles meet with any material modification on capital such as capital increase or decrease, equity transfer or exchange, merger or division, long-term equity or credit investment, provision of guarantee to a foreign party, and no roundtrip investment is involved, the domestic residents shall, within 30 days after the occurrence of such material issue, apply to the foreign exchange bureau for foreign exchange modification registration or filing of overseas investments.
 

VIII. Where domestic residents (natural person or legal person), prior to the implementation of this Notice, have established overseas or controlled special purpose vehicles and have completed roundtrip investments but have not completed foreign exchange registration of overseas investments yet as required, the domestic resident shall, before 31 March 2006, go to the foreign exchange bureau at its locality to make up foreign exchange registration of overseas investments. After such foreign exchange registration, the foreign exchange bureau can complete for the relevant domestic enterprises the foreign exchange registration of foreign investment and foreign debt.
 

IX. Any domestic venture capital investment enterprise may establish special purpose vehicles to engage in venture capital investment activities with reference to this Notice.
 

X. Where more than one domestic residents are involved in the same administration issue above, the relevant domestic residents shall issue power of attorney and entrust one or two of them to complete the relevant foreign exchange administration formalities.
 

XI. Matters not covered by this Notice shall be subject to the relevant currently-effective provisions on foreign exchange administration in connecting with foreign investment and overseas investment.
 

XII. If any domestic resident violates these regulations and such violator shall be deemed to have committed evasion of foreign exchange and other violations of foreign exchange administration regulations and shall be punished by the foreign exchange bureau according to the "Regulations of the People's Republic of China on the Administration of Foreign Exchange" and other relevant regulations.

XIII. This Notice shall go into effect as of November 1, 2005. The implementation of the "Notice of the State Administration of Foreign Exchange Concerning Relevant Issues on Improving Foreign Exchange Administration for Merger and Acquisition with Foreign Investments" (No. 11 [2005] Promulgated by the SAFE) and the "Notice of the State Administration of Foreign Exchange on Relevant Issues of Registration of Overseas Investments Contributed by Domestic Individual Residents and Foreign Exchange Registration of Merger or Acquisition with Foreign Investments" (No. 29[2005] Promulgated by the SAFE) shall be stopped simultaneously.

Annex :
Form of Foreign Exchange Registration of The Domestic Individual Resident's Overseas Investments
Name of the Resident (Principal): Permanent Residence:
Number of the Resident's Identification Card or Passport:
Name of the Overseas Enterprise Registration Place Date of Registration Place of Listing Date of Listing Net Assets Total Assets Proportion of Shares Held
 
 

Amount of the Consolidated Statement ___ ___ ___
Total Book Value of the Shares Held: Total Market Value:
Name of the domestic enterprise with roundtrip investment Serial Number of the Approval Certificate for the Foreign-Funded Enterprise:
Filing Status Record
Declaration of the Principal: The above information truthfully and entirely reflects the overseas shares held by the principal(or all domestic individual residents whom are represented by the principal); if there is any act of making false statement or defrauding foreign exchange registration, the principal will bear the legal liabilities caused therefrom. The principal undertakes to complete the full and true foreign exchange registration and modification registration as required and transfer funds from overseas financing, overseas profits and capital modification obtained through special purpose vehicles into the territory; if there is any violation, the principal will bear the legal liabilities caused therefrom.

Principal :(Signature)_______ Handler: _______ Verifier: _______

State Administration of Foreign Exchange, _______
Branch (Foreign Exchange Administration Department)

Notes:

1. This form shall be submitted by the domestic individual residents who directly or indirectly hold the equities of overseas enterprises to the foreign exchange bureau at the locality of the domestic enterprise in which the special purpose vehicle makes roundtrip investment. The special purpose vehicles which make up the foreign exchange registration of foreign investment as required hereby shall have been completed roundtrip investment and obtained approval certificate for foreign-funded enterprises prior to the promulgation of this Notice.

2. "Permanent Residence" shall mean the principal's habitual working or living residence inside the territory; a principal of Chinese nationality shall fill out his identity card number, and a principal of foreign nationality shall fill his passport number; "Overseas Enterprises" include any enterprise registered outside the territory (including in Taiwan, Hong Kong or Macao) whose shares are directly held by the principal, or indirectly held in such ways as overseas re-investment, trust, exchange of shares, etc.; if the overseas enterprise is not listed, the "Place of Listing" and the "Date of Listing" do not need to be filled out.

3. The "Net Assets" and "Total Assets" shall be filled out with the book value. For example: if the registered capital of an overseas company is 5000 USD, while an investment company participates 20% of the shares, contributes 30 million USD, and has no debts, then either the net assets or the total assets of this company are 150 million USD; if the investment company purchases 30 million USD of convertible bonds issued by the overseas company, then the net assets of the company are 5000 USD, and the total assets are 30.0050 million USD. The amount of consolidated statement shall be calculated according to the internationally applied accounting principles and accounting treatment methods.

4. "Proportion of Shares Held" shall be the total proportion of the enterprise's shares held directly and indirectly by the domestic individual resident. The indirect "Proportion of Shares Held" shall be calculated by multiplying the proportion of directly held shares(or trusted assets) by the proportion of another enterprise's shares held by the enterprise whose shares are directly held, while the "Total Market Value" shall be calculated according to the market value of all stock right assets up to the end of last month.

5. Where more than one domestic natural person resident are involved in the above registration items, the relevant domestic natural person residents shall issue power of attorney and entrust one or two of them to complete the relevant foreign exchange administration formalities. The entrusted resident shall, when making registration, submit the power of attorney to the local foreign exchange bureau, and attach another form to this form to state the name and permanent residence of each domestic resident it represents, and the shareholding in offshore special purpose vehicles and listed companies. The contents in this Form shall be signed and confirmed by domestic individual residents.

6. The columns in this form on amount shall be filled out in the currency of USD, with precision up to two digits after the radix point.

7. This form is in two copies. One copy shall be preserved by the foreign exchange bureau and another by the registration applicant. The foreign exchange bureau shall send a photocopy of it to send by letter to the foreign investment administrative department at its locality.