In order to boost outbound investments by PRC private enterprises, the PRC State Administration of Foreign Exchange (the "SAFE") issued the Notice of State Administration of Foreign Exchange on Issues concerning Foreign Exchange Control in relation to Encouraging and Guiding the Healthy Development of Private Investments (Circular No.33 of 2012) (the "Notice") which shall come into effect on 1 July 2012.

The key points of the Notice are:

1. Removal of restriction on funding of outbound lending

The Notice has lifted the restrictions on the sources of funding of outbound lending i.e. a foreign currency loan advanced by a PRC onshore enterprise to its offshore subsidiary, permitting use of onshore foreign currency loans obtained by the PRC onshore enterprise to fund such lending. It has also removed the verification requirements for purchasing foreign currency for outbound lending and funds repatriation from overseas.

2. Providing foreign security by individuals

When a PRC onshore enterprise provides foreign security to secure borrowings of its offshore subsidiary, PRC individuals can, in the capacity of a joint security provider, provide foreign security for the same financing by way of personal guarantee, mortgage, pledge or other legitimate means permitted under the relevant PRC laws governing the provision of security. The security provided by such PRC individuals can be registered with SAFE at the same time when the PRC onshore enterprise is applying to SAFE for registration of its foreign security.

For inquiries related to this Legal Update, please contact Joe Tam, Irene Lau or your usual contacts with our firm.