ODI, FDI, and Circular 37 Registration: Applicable Scenarios and Key Differences

ODI, FDI, and Circular 37 registration are the three most common compliance pathways used by Chinese companies and individuals when conducting cross-border investments or capital repatriation.

They are often confused, but in reality they differ significantly in terms of investor identity, capital flow direction, regulatory authorities, and intended use. Below is a clear and practical comparison.

1. Core Differences Between ODI, FDI, and Circular 37

Item	ODI	FDI	Circular 37 Registration
Full Name	Outbound Direct Investment	Foreign Direct Investment	Registration of Overseas Special Purpose Vehicle by Domestic Residents
Capital Flow	China → Overseas	Overseas → China	Domestic individuals → Overseas company
Investor	Chinese company	Overseas company or individual	Chinese individual
Regulators	NDRC + MOFCOM + SAFE	MOFCOM + Market Regulation Bureau + SAFE	SAFE
Typical Purpose	Chinese companies investing abroad	Foreign investment entering China	Establishing red-chip structures
Source of Funds	Domestic corporate funds	Overseas capital	Equity owned by Chinese residents

Simple summary:

• ODI = Chinese companies investing overseas
• FDI = Foreign investors investing in China
• Circular 37 = Chinese individuals establishing overseas holding structures

2. ODI (Outbound Direct Investment)

ODI refers to Chinese companies investing overseas.

Common Scenarios

1️⃣ Chinese companies acquiring overseas businesses
2️⃣ Establishing overseas subsidiaries
3️⃣ Building overseas factories or offices
4️⃣ Cross-border mergers and acquisitions
5️⃣ E-commerce companies establishing offshore operating entities

Example:

A Chinese company invests in and establishes a Hong Kong or Singapore company. This requires ODI filing.

Basic ODI Process

1️⃣ Filing or approval with the National Development and Reform Commission (NDRC)
2️⃣ Filing with the Ministry of Commerce (MOFCOM)
3️⃣ Foreign exchange registration with the bank
4️⃣ Opening an overseas investment account
5️⃣ Transferring funds abroad

Core Function of ODI

ODI enables companies to legally:

• Transfer capital abroad
• Expand overseas
• Conduct international M&A
• Make overseas equity investments

3. FDI (Foreign Direct Investment)

FDI refers to foreign investors investing in companies in China.

This results in what are commonly called:

Foreign-Invested Enterprises (FIEs).

Common Scenarios

1️⃣ A foreign company establishing a company in China
2️⃣ Overseas capital investing in Chinese companies
3️⃣ Overseas parent companies increasing capital in Chinese subsidiaries
4️⃣ Foreign investors acquiring Chinese companies

Example:

A U.S. company establishes a foreign-invested company in Guangzhou. This is an FDI investment.

FDI Process

The typical process includes:

1️⃣ Establishment of the foreign-invested company
2️⃣ Filing with the commerce authority
3️⃣ Business registration with the market regulation authority
4️⃣ Foreign exchange registration
5️⃣ Opening a capital account
6️⃣ Inward remittance of foreign investment funds

Core Characteristics of FDI

• Capital flows from overseas into China
• A foreign-invested enterprise is established
• Certain foreign investment policies and incentives may apply

4. Circular 37 Registration (Offshore Red-Chip Structure for Individuals)

Circular 37 registration is often overlooked but is extremely important.

It applies when:

Chinese individuals control domestic companies through offshore entities.

Common Scenarios

1️⃣ Startup companies building a VIE structure
2️⃣ Founders establishing a Cayman holding company
3️⃣ Chinese individuals controlling offshore listed entities
4️⃣ Overseas financing structures

Typical Structure

Chinese Founder
↓
Cayman Holding Company
↓
Hong Kong Company
↓
Chinese Operating Company

In this case, the Chinese founder must complete:

Circular 37 Registration

Consequences of Not Completing Circular 37 Registration

Failure to register may lead to:

❌ Inability to raise overseas financing
❌ Inability to distribute dividends
❌ Inability to implement equity incentive plans
❌ Inability to repatriate funds

Many companies only complete this registration later when preparing for financing or IPO.

5. Relationship Among the Three (Very Important)

Many cross-border structures involve all three mechanisms simultaneously.

Typical structure:

Chinese Founder
↓ (Circular 37 Registration)
Cayman Holding Company
↓
Hong Kong Company
↓ (FDI)
Chinese Operating Company

If the Chinese operating company then invests overseas:

Chinese Company
↓ (ODI)
Overseas Subsidiary

Therefore, it is common to see:

Circular 37 + FDI + ODI existing together in one corporate structure.

6. The Simplest Way to Understand Them

Just remember three sentences:

• ODI: Money goes out of China
• FDI: Money comes into China
• Circular 37: Chinese individuals establish offshore holding structures

7. Three Most Common Real-World Structures

1. Chinese Companies Expanding Overseas (ODI)

Chinese Company
↓
Hong Kong / Singapore / Other Overseas Company

2. Foreign Investors Entering China (FDI)

U.S. Company
↓
Shanghai Foreign-Invested Company

3. Startup Red-Chip Structure (Circular 37)

Founder
↓
Cayman Company
↓
Chinese Operating Company

8. Common Mistakes Companies Make

Typical compliance issues include:

❌ Sending money abroad before completing ODI filing
❌ Individuals not completing Circular 37 registration
❌ Misuse of FDI funds
❌ Red-chip structures without foreign exchange registration

These problems can later cause:

• Inability to repatriate funds
• Inability to distribute dividends
• Obstacles to overseas IPO listings

This is a practical overview of the key differences between ODI, FDI, and Circular 37 registration for cross-border investment structures.