July 1, 2009 -- According to the Regulations for the Administration of Foreign Exchange for Offshore Direct Investment by Domestic Institutions (Draft) issued by the State Administration of Foreign Exchange (SAFE), the scope of forex capital for offshore investment will be expanded. SAFE will replace its previous approval system for the outward remittance of capital by domestic institutions for offshore investment with a registration system.

The draft clearly states that domestic institutions may conduct offshore direct investment using self-owned forex capital, domestic forex loans, forex purchased with renminbi, or real goods, intangible assets and other forex assets approved by SAFE. Meanwhile, profits made from the offshore direct investment by domestic institutions may be retained offshore for use in their offshore direct investment.

SAFE will implement a forex registration and filing system on the assets and related gains obtained from the offshore direct investment by domestic institutions. Domestic institutions may provide commercial loans and financing guarantees to the offshore enterprises in which they have direct investment.

In addition, SAFE will replace its approval system for the outward remittance of capital by domestic institutions for offshore investment with a registration system. However, domestic institutions should submit the approval documents issued by the offshore direct investment supervisory department.

Under the draft, upon approval granted by SAFE, domestic institutions are allowed to remit a certain percentage of their early-stage payment in the preparatory stage before their offshore projects are officially launched, but generally the percentage may not exceed 15% of the total amount of their offshore direct investment.