China%20Alert%20(02.08.07) - International Tax China Tax...

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International Tax China Tax Alert 02 August 2007 Contacts Nancy Marsh +86 (21) 6141 1007 Anthony Tam +86 (755) 8246 3255 ext. 8590 Vincent Lo +86 (10) 8520 7506 More Restrictions Imposed on Foreign Investors in Real Estate Market The Ministry of Commerce (MOFCOM) and the State Administration of Foreign Exchange (SAFE) recently issued two circulars (Circular 50 and Circular 130) that take relatively drastic actions to discourage further foreign investment in China’s real estate market. Taken together, the two circulars affect a number of critical areas, including project approval, the requirements necessary to form a project company, and project financing. As foreign investors and real estate operators have continued to expand their investments and activities in China, the Chinese government has become increasingly concerned with price levels and their effects on society. As a result, the government has taken a number of steps in recent years to temper the real estate market. One important action in this area was the issuance of Circular 171 in 2006, which attempted to regulate entry into the China real estate market and standardize its administration. Although this regulation did impede some investment or use of foreign capital in China's real estate sector, statistics show that foreign investment has continued to grow at a rapid pace during the first half of 2007. In view of the apparent ineffectiveness of Circular 171, Circular 50 was issued in May 2007, to require that all new foreign-invested real estate enterprises be approved by the national-level MOFCOM. Circular 130 issued on 10 July 2007 effectively provides that foreign-invested real estate enterprises will not be permitted to have any foreign debt. As a result, offshore funds can only be directly invested in the form of
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China%20Alert%20(02.08.07) - International Tax China Tax...

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