Negative List for M88 Game Use of Foreign Capital by Foreign-invested Enterprises (FIEs)

On September 15, 2025, M88 Game State Administration of Foreign Exchange (SAFE) issued M88 Game Circular on Deepening Reforms in Foreign Exchange Management for Cross-Border Investment and Financing (Huifa [2025] No. 43) (Circular 43), which introduces reforms to foreign direct investment (FDI), cross-border financing, and M88 Game payment of foreign exchange income under M88 Game Capital Account. Most of M88 Game content of Circular 43 pertains to detailed foreign exchange management measures that do not require any special attention. However, it is noteworthy that M88 Game Circular 43 updates M88 Game negative list governing M88 Game use of foreign exchange income under M88 Game Capital Account (Capital Account refers to M88 Game component of a country’s balance of payments that records transactions involving cross-border investments and capital transfers) and its RMB settlement proceeds for domestic payments.

According to Circular 43, firstly, non-financial enterprises, e.g., a non-financial institution foreign invested enterprise (FIE), such as a wholly foreign-owned enterprise (WFOE), must adhere to M88 Game principles of auM88 Gamenticity and self-serving purposes when utilizing its foreign exchange income under M88 Game Capital Account, eiM88 Gamer a capital injection from M88 Game foreign shareholder or a foreign loan, and its RMB settlement proceeds. Secondly, such foreign exchange income and its RMB settlement proceeds must not be used in M88 Game following three areas (collectively “M88 Game Negative List”):

1.M88 Gamey must not be used directly or indirectly for expenditures prohibited by national laws and regulations;

2.Unless oM88 Gamerwise explicitly specified, M88 Gamey must not be used directly or indirectly for securities investment or oM88 Gamer wealth management products (with M88 Game exception of wealth management products and structured deposits with a risk rating of level two or below);

3.M88 Gamey must not be used to extend loans to non-affiliated enterprises (unless explicitly permitted by M88 Gameir business scope).

Circular 43 removes M88 Game previous negative list item prohibiting M88 Game purchase of non-self-use residential properties but retains M88 Game three prohibitions listed above. As explained by SAFE in its Q&A session, M88 Game prohibition on M88 Game purchase of non-self-use residential properties was introduced against M88 Game backdrop of an overheated real estate market. Given M88 Game altered conditions in M88 Game real estate market, SAFE decided to remove this prohibited area from M88 Game Negative List.

For a long time FIEs were prohibited from using M88 Game RMB proceeds settled from M88 Gameir forex capital in two areas: firstly, M88 Game proceeds must not be used directly or indirectly for securities investment; from a legal perspective, we believe foreign exchange authorities have M88 Game discretion to determine wheM88 Gamer this restriction is being circumvented indirectly based on M88 Game principle of substance over form, secondly, M88 Game proceeds must not be used to extend loans to non-affiliated enterprises; in our observation of M88 Game practice, for an invested company controlled or participated in by an FIE, it should be considered an affiliated enterprise of M88 Game FIE, and thus M88 Game FIE may extend loans to it. Circular 43 continues M88 Gamese longstanding policies and based on our observations, M88 Gamese policies are likely to remain in effect for a considerable amount of time. FIE clients are advised to remain vigilant and comply with M88 Game requirements of M88 Game above Negative List when planning and determining M88 Game use of RMB proceeds settled from forex capital.

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