Foreign Exchange Series | How to Repatriate Funds After H-Share Reduction
Introduction
Recent H-share market activities have shown significant characteristics of phased share reductions, coupled with the ongoing deepening of the H-share "full circulation" reform. As a result, the foreign exchange registration process during share reduction operations by domestic shareholders has become a key compliance focus. Many shareholders of listed companies often encounter difficulties with the "foreign exchange registration" step, worrying about potential violations due to non-compliance while remaining unclear about specific requirements. This article systematically outlines the core regulations and common misconceptions regarding foreign exchange registration for H-share reductions, providing compliance guidance for market participants.
Policy Background
Current Effective Regulations
Regulations on Foreign Exchange Administration of the People's Republic of China (State Council Order No. 532): Establishes the basic principle that domestic institutions and individuals engaging in overseas securities transactions must complete foreign exchange registration.
*Guidelines for Domestic Unlisted Shares of H-Share Companies Applying for "Full Circulation" Business (2023 Revision)*: Core regulatory rules for enabling the circulation of domestic unlisted shares of H-share companies on the Hong Kong Stock Exchange.
Guidelines for Foreign Exchange Business Under Capital Account (2024 Edition) (Huifa [2024] No. 12): Effective from May 6, 2024, it primarily adjusts the foreign exchange registration rules for H-share "full circulation" reductions, establishing a "post-transaction registration" model.
Notice on Issues Concerning the Management of Funds Raised by Domestic Enterprises from Overseas Listings (Yinfa [2025] No. 252) (hereinafter referred to as the "New Rules"): Regulates the registration process, account management, and domestic-foreign currency transfers for H-share reductions, marking a new, more facilitative stage in the management system for funds raised from overseas listings.
Core Definitions
The full name of foreign exchange registration for H-share reductions is "Registration of Domestic Shareholdings in Overseas Listed Companies," which falls under the capital account foreign exchange business administered by the State Administration of Foreign Exchange (SAFE). It is a core institutional arrangement for regulating cross-border capital flows. This system is not static but continuously optimized alongside the development of the H-share market and foreign exchange management reforms. Before the implementation of the Guidelines for Foreign Exchange Business Under Capital Account (2024 Edition) on May 6, 2024, domestic shareholders reducing H-share "full circulation" shares were required to fulfill "pre-transaction registration" obligations, meaning they had to register with SAFE and obtain quotas before the reduction, with transaction amounts being controlled. After implementation, the registration model shifted to "post-transaction reporting," significantly improving transaction efficiency while ensuring controllable capital flows through enhanced subsequent supervision.
Scope of Application
The registration obligation is legally mandatory, aiming to regulate cross-border capital flows. It requires domestic shareholders to report transaction details and fund flows to regulatory authorities when reducing their holdings of H-share "full circulation" shares in overseas listed companies. This applies universally to all domestic corporate legal persons reducing shares in overseas listed companies through the H-share market.
For regulatory authorities, registration provides precise data on cross-border fund flows, supporting macro-level foreign exchange market regulation and maintaining balance of payments. For shareholders, completing registration serves as a "pass" for the legal circulation of funds. Only after obtaining the business registration certificate can they proceed with subsequent operations such as fund repatriation, account opening, and currency conversion. Failure to register within the specified period may hinder fund repatriation and even lead to compliance risks.
Introduction of the New Rules
On December 26, 2025, the People's Bank of China and the State Administration of Foreign Exchange jointly issued the Notice on Issues Concerning the Management of Funds Raised by Domestic Enterprises from Overseas Listings (Yinfa [2025] No. 252). Focusing on the management of funds raised by domestic enterprises from overseas listings, it will take effect on April 1, 2026. Simultaneously, the Notice of the State Administration of Foreign Exchange on Issues Concerning Foreign Exchange Management for Overseas Listings (Huifa [2014] No. 54) and the Reply of the State Administration of Foreign Exchange on Foreign Exchange Management Related to the Comprehensive Implementation of H-Share "Full Circulation" Reform (Huifu [2020] No. 1) will be repealed. Key adjustments in the New Rules include: simplifying foreign exchange management procedures for H-share reductions, supporting banks as the primary entities to handle registration for domestic enterprises' overseas listings, appropriately relaxing time limits for reduction registration, and clarifying that proceeds from share reductions should, in principle, be repatriated to China.
Core Regulations
Registration Entities
Corporate Legal Persons: Must provide basic materials such as business licenses and details of the share reduction.
State-Controlled Enterprises: In addition to the above materials, must submit approval documents from state-owned asset management authorities to ensure compliance with requirements for maintaining and increasing the value of state-owned assets.
Processing Time Limits
According to the Guidelines for Foreign Exchange Business Under Capital Account (2024 Edition), foreign exchange registration for "full circulation" H-share reductions has shifted from "pre-transaction" to "post-transaction," requiring registration "within 20 working days after the reduction." After the New Rules take effect, the time limit is relaxed to "within 30 working days before or after the reduction," further enhancing operational flexibility. After completing shareholding registration at a bank, corporate legal persons receive a business registration certificate and proceed with subsequent steps, including opening relevant accounts, reporting fund and foreign exchange information to securities companies, securities companies submitting this information to China Securities Depository and Clearing Corporation Limited (hereinafter referred to as "China Clearing"), and depositing or withdrawing proceeds.
Regarding fund repatriation, the New Rules explicitly require that fund transfers related to H-share "full circulation" business be conducted through China Clearing's relevant accounts. Proceeds from share reductions should, in principle, be repatriated to China promptly. If repatriated in foreign currency, funds should be remitted to a resident's overseas securities and derivatives account for holding and use. If repatriated in RMB, funds may be remitted to a resident's overseas securities and derivatives account or a domestic RMB bank settlement account for holding and use.
Review Requirements
In practice, submitted materials must meet requirements such as "authenticity and completeness." For example, written applications must specify core information such as the source, quantity, amount, and intended use of the reduced shares. State-owned shareholders must additionally provide approval documents from state-owned asset authorities. If regulatory authorities have questions about the materials, shareholders must provide supplementary explanations within the specified time limit; otherwise, registration delays may occur.
Common Misconceptions
Misconception 1: Small-scale reductions are exempt from registration.
Foreign exchange registration is not threshold-based on transaction amount or shareholding比例. As long as the reduction falls under the scope of H-share reductions by domestic shareholders, registration must be completed according to regulations.
Misconception 2: Currency conversion can be done before supplementary registration.
Before completing registration, proceeds from share reductions cannot be arbitrarily converted. Banks strictly review foreign exchange registration certificates when handling currency conversion; funds without certificates cannot be converted through compliant channels. After the implementation of the New Rules, the logic of "register first, convert later" is clearer. Shareholders should plan their fund usage timeline in advance to avoid affecting cash flow due to registration delays.
Conclusion
It is worth emphasizing that compliance requirements for H-share reductions related to foreign exchange management involve not only the registration process but also multiple dimensions such as share attribute determination, fund flow control, and the authenticity of information reporting. Therefore, it is recommended that domestic shareholders, before initiating H-share reductions, clarify their entity type and share sources in advance, align with current effective policies and the latest regulatory interpretations, define registration timelines, required materials, and operational procedures, and anticipate potential risks. This will help avoid obstacles in fund repatriation and potential regulatory penalties due to misunderstandings of policies or non-standard operational procedures.
The content of this article is for reference only regarding general compliance knowledge. If you require specific compliance solutions, policy transition guidance, or end-to-end operational support, please contact Sinobravo for further consultation. Let professional services safeguard your cross-border fund arrangements.
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