Getting Money Out Of China: An Update

I always love it when “my” blog posts are written for me via an email from one of our China lawyers to a client on which I am cc’ed. The following is such an email, relating to the ability of a Chinese company to invest in a project outside of China. Broken down to its most simple element, the question relates to how difficult it is for a Chinese company to send more than $50,000 (that is the yearly cut-off number) outside China. Here is the email, modified slightly to strip it of any possible identifiers:

[Client]:

Briefly.

The Chinese government must approve in advance the transfer of funds outside China in excess of USD $50,000.  Chinese government regulations state that this approval is routine and will be completed in three days. This is not true. In fact, the PRC government restricts all foreign investment by all private Chinese investors.

However, your investors will state that this investment is supported by the local government and that approval is guaranteed. In that case, they simply need to obtain the approval. However, any transfer made without approval is a violation of Chinese law and is virtually impossible in any case.

To deal with this issue, most Chinese companies (private and government owned) make their overseas investments with funds already located outside of China, usually in Hong Kong, Cayman Islands or BVI. How these funds got to these locations is never clear. However, once the funds are located outside of China, China approval is no longer required.

To answer your specific question about how to secure investment in your project from China, you essentially have the following two options:

1. The PRC person or entity should request approval as soon as possible. We can help draft the documents they will need from you to secure this approval.

2. The PRC person or entity should make arrangements for payment from a source located outside of China.

With China’s recent stock market fluctuations, the PRC government is restricting even more the investment of funds from China into the U.S. Your PRC investors are well connected and you indicated that this is a project supported at the local level. In that case, approval should be easy to obtain. Accordingly, the application should be made as soon as possible. Note, however, that any payment into the U.S. that is not approved is a violation of PRC law.

For information on the related issue of getting paid by a Chinese company that owes you money for services your company provided to it, check out Service Companies In China. How To Get Paid.

The post Getting Money Out Of China: An Update appeared first on China Law Blog.

We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.