Special alert: China round-trip investments

Round-trip investments into China, by offshore companies holding assets or company equity injected into them by China residents, soon will be treated separately from such companies' offshore fund-raising, and will more easily be cured of non-compliance with China's currency controls. It will now be easier to establish, restructure and expand cross-border company ownership structures, to verify that they are compliant, and to offer their shares to the public in markets outside China.

These changes will effectively end a period of six years in which circulars of the China State Administration of Foreign Exchange (Safe) provided for round-trip investments to receive deep and broad scrutiny, which overlapped unpredictably with actions and inactions of other regulators. Safe, by narrowing its role in regulating round-trip investments and offshore fund-raising, will now be able to focus on its increasingly complex and difficult core mission of monitoring and regulating currency conversions and cross-border remittances.

These are the expected consequences of Safe's new circular [2011]19 (Circular 19), and its 13 annexes, which will take formal effect from July 1 2011. Circular 19 was published on the Safe's website on May 27 2011 (bearing a formal date of May 20 2011).