Chinese exchange controls are disrupting operations for European businesses

Out-Law News | 08 Dec 2016 | 12:58 pm | 1 min. read

European companies in China have faced difficulties in sending dividends out of the country since new exchange controls were introduced, the EU Chamber of Commerce in China has said.

Restrictions on outbound foreign investment were brought in last month. Under these 'window guidance' rules, capital outflow of more than $5 million must be approved by the State Administration of Foreign Exchange (SAFE), the Chamber said. This includes previously approved dividend payments that are now on hold, and is independent of the currency involved. Approval for early repayment of offshore loans is also required from SAFE, even if the amount in question is less than $5 million, it said.

This is having an impact on the business operations of non-Chinese companies, the Chamber said, particularly as different banks and SAFE locations have different interpretations and internal guidance on how to follow the new rules.

"For example, the SAFE Chongqing’s threshold is $1m instead of $5m. Some banks have advised clients to submit comprehensive 10-page applications in support of requests to remit funds abroad. SAFE Shanghai has committed to providing a response to applications within five working days, but has not given any comfort on how likely it is that an application will be approved. At the moment the chance of a positive outcome appears to be very low. However, Shanghai SAFE’s approval of a shareholder’s loan repayment on maturity on 30 November shows that the situation remains fluid," it said.

"As these measures do not appear to have been established in order to interfere with the operations of international corporates and financial institutions in China, their impact on them is to a certain extent unfortunate ‘collateral damage’," the Chamber said.

The guidance will have "an adverse impact on foreign direct investment in, and offshore lending to, China", the Chamber said.

Jörg Wuttke, head of the Chamber said: "The unpublished window guidance on the control of capital outflow is disruptive to EU companies’ regular business operations."

“It also unnecessarily exacerbates uncertainties regarding the predictability of China’s investment environment," he said.

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