On 23 May 2007, the PRC Ministry of Commerce (MOC) and the State Administration of Foreign Exchange (SAFE) jointly issued the Circular on Further Strengthening and Standardizing the Examination, Approval and Supervision of Foreign Direct Investment in the Real Estate Sector (Circular 50). The only significant change made by Circular 50 was to provide that all new real estate FIEs would need to be approved for filing by the MOC at the national level.

At the time of the issue of Circular 50, it was rumoured that further restrictions were to be imposed on real estate FIEs with respect to foreign debt. It appears these rumours were true. While no official document has been released by SAFE, a document known as ‘Circular 130′, entitled Circular of the General Affairs Department of SAFE on the Distribution of the List of the First Group of Foreign Invested Real Estate Projects which the MOC has Approved and Filed and dated 10 July 2007, has been circulating in the PRC real estate market.

The key points from Circular 130 are as follows:

• SAFE’s branches are not permitted to carry out foreign debt registration, or convert foreign debt into RMB, for any real estate FIE that has only obtained its approval certificate from the MOC, and then been approved for filing by the MOC, after 1 June 2007. The rule also applies to increases in capital (in other words, where a real estate FIE is registered prior to 1 June 2007 but increases its capital after this date, the FIE will not be allowed to increase its foreign debt to reflect the increase in its registered capital);
• for a real estate FIE that has obtained its approval certificate after 1 June 2007 but has not been approved for filing with the MOC, SAFE’s branches may not carry out foreign exchange registration (or amendment of registration) for the FIE, or conduct foreign exchange settlement for the FIE in relation to capital account items;
• the Circular confirms that the date a real estate FIE is taken to have ‘obtained’ its approval certificate is the date indicated on that certificate (and not, for example, the date the certificate is actually received by the FIE); and
• the Circular states that SAFE will regularly publish and maintain an online database of real estate FIEs that have filed with the MOC, to be used as a reference by SAFE’s branches, as well as banks designated to handle foreign exchange.