Rocky road for foreign-invested holding companies

Chinese holding companies (so-called Foreign-invested Companies with Investment Nature or “Holdcos”) are normally established by foreign investors to act as platforms for their investment in China. Holdcos often want to reinvest the dividends received from their Chinese subsidiaries to establish or acquire new companies or to increase the registered capital of existing subsidiaries. This article aims to help its readership to understand the challenges and changes brought along by a recent Circular issued by the PRC State Administration of Foreign Exchange (Safe) in this respect. As an internal notice which was only distributed by the Safe to its local branches, this new Circular has not attracted much public attention. However, its implementation has already caused real problems for Holdcos which wanted to reinvest dividends in China.