Foreign Exchange Series | Facilitating the Cross-Border Allocation of Funds for Research Institutions, Ke Huitong is Here!
On October 31, the State Administration of Foreign Exchange (SAFE) announced the expansion of three pilot programs aimed at facilitating cross-border investment in regions including decentralized foreign debt registration to banks, exemption from registration for domestic reinvestment, and Ke Huitong.
For the pilots concerning decentralized foreign debt registration to banks and exemption from registration for domestic reinvestment, the market is likely familiar. In early 2022, Shanghai Lingang, Guangzhou Nansha, Ningbo Beilun, and Hainan Yangpu pioneered high-level foreign exchange openness pilots, receiving an exceptionally enthusiastic market response. On December 15, 2023, with the issuance of the "Notice on Expanding the Pilot of High-Level Openness in Cross-Border Trade and Investment" (Hui Fa [2023] No. 30), the pilot areas were further expanded, with twelve regions enjoying the pilot conveniences. On October 31, 2024, the expansion was further extended to Tianjin Municipality, Anhui Province, Shandong Province (including Qingdao City), Hubei Province, and Sichuan Province.
I. A Quick Understanding of the "Ke Huitong" Pilot
Compared to decentralized foreign debt registration to banks and exemption from registration for domestic reinvestment, many market entities may be hearing about Ke Huitong for the first time. Let's delve into it.
01. Pilot Background
On August 29, 2023, the State Council issued the "Hesha Deep-Hong Kong Science and Technology Innovation Cooperation Zone Shenzhen Park Development Plan." Establishing a pilot zone for deep cooperation in science and technology innovation between Shenzhen and Hong Kong was one of the positioning goals for the Hesha Cooperation Zone. How to support Shenzhen-Hong Kong scientific and technological cooperation in terms of financial elements was an urgent problem to be solved at the time.
On September 6, 2023, with the approval of the State Administration of Foreign Exchange, the Shenzhen Branch of the State Administration of Foreign Exchange officially issued the "Hesha Deep-Hong Kong Science and Technology Innovation Cooperation Zone 'Ke Huitong' Pilot Business Operation Guidelines," officially launching the Hesha "Ke Huitong" pilot to effectively support Hesha Shenzhen-Hong Kong scientific and technological innovation with financial means.
02. Pilot Effects
The Ke Huitong pilot has, first, solved the problem of non-enterprise research institutions not having a legal basis for receiving foreign research funds, opening up channels for research funds to enter the country and allowing direct remittance of foreign research establishment funds to foreign non-enterprise research institutions in the zone. Second, it has achieved optimization of the entire lifecycle and chain management of research institutions. Research institutions in the zone can conveniently handle foreign exchange registration, remittance, changes, cancellation, and other foreign exchange services at banks within Shenzhen's jurisdiction, with related account openings and use of establishment funds applying foreign exchange facilitation policies. The Hesha "Ke Huitong" provides a new path for research institutions in the zone to allocate research funds across borders, providing strong support for the cross-border flow of scientific and technological innovation elements and cooperation in the science and technology industry between Shenzhen and Hong Kong.
Since the pilot's inception, the policy has been well-implemented, effectively controlling risks while vigorously promoting economic development in the pilot areas. Data shows that the Hesha Cooperation Zone has promoted the implementation of more than 150 high-end scientific research projects to date. Industry insiders have indicated that scientific research requires substantial financial investment, including human resources and patent certification, and measures to promote cross-border capital flows and the establishment of venture capital funds will further increase enterprises' tolerance for risk, making scientific and technological innovators more confident and bold in promoting the transformation of scientific research results.
03. Latest Developments
To thoroughly implement the spirit of the Third Plenary Session of the 20th Central Committee of the Party and the deployment requirements of the Central Political Bureau meeting on September 26, the State Administration of Foreign Exchange, based on summarizing the experience of previous pilots, has decided to expand the "Ke Huitong" pilot areas to 16 regions, including Shanghai, Beijing, Tianjin, Hebei Xiong'an, Nanjing, Suzhou, Hangzhou, Hefei, Wuhan, Changsha, Guangzhou, Chongqing, Chengdu, Mianyang, Xi'an, and Shenzhen.
II. Conclusion
The State Administration of Foreign Exchange has indicated that it will strengthen policy evaluation and tracking effectiveness, timely improve policy measures and foreign exchange services, explore the introduction of more facilitation measures, and promote high-quality development with high-level openness. Sinobravo will continue to focus on the financial facilitation policies of the foreign exchange administration, assisting clients in quickly understanding new policies and handling cross-border investment and financing business in a more convenient manner.
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