On 26 January 2017, the State Administration of Foreign Exchange (the "SAFE") issued the Notice on Further Promotion of Foreign Exchange Administration Reform and Improvement of the Authenticity and Compliance Review (the "Notice"). The Notice is aimed at relaxing certain foreign exchange inflow controls and strengthening the authenticity and compliance reviews for capital outflows carried out by China's designated foreign exchange banks. The key measures in the Notice include but not limited to (1) permitting funds under Nei Bao Wai Dai (an arrangement under which a borrower can obtain loans outside China using the domestic assets of its Chinese affiliate(s) as security) to be transferred back to China and used domestically, (2) permitting foreign institutions in the free trade zones to use offshore funds domestically after settlement of exchange and (3) requiring domestic entities that plan to make direct investments overseas to submit various supporting documents to verify the authenticity of such investments.

On 27 February 2017, the SAFE issued the Circular on the Relevant Issues of Foreign Exchange Risk Management of Foreign Institutional Investors of China's Interbank Bond Market ("CIBM") (Hui Fa [2017] 5 Hao) (the "Circular") and the associated media Q&A, under which foreign institutional investors of CIBM are permitted to apply for the business of RMB-to-foreign-currency derivatives at qualified onshore financial institutions to hedge their foreign exchange risks. Such foreign institutional investors, as clients, may conclude a foreign exchange derivatives transaction with their settlement agents. The types of the foreign exchange derivative transactions include forwards, swaps, cross-currency swaps and options. Foreign institutional investors and their settlement agents may, at their discretion, choose the type of master agreement to be concluded.

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