Let me read a court case in Mainland China...

鈺基國際貿易(上海)有限公司 (“the Company”) has acquired a rented property (“the Property”) located in Shanghai. The purchase funds came from its share capital.

Before the acquisition, the Property had already been rented out. After the acquisition, the Company signed a tenancy agreement with the existing tenant and generated rental income.

The court determined that the relevant foreign exchange settlements were illegal as the Property was not acquired for self-use and therefore the Company was liable on conviction to a fine of RMB980,000.[1]

POINTS TO NOTE
WFOEs in Mainland China are now free to convert their share capitals denominated in foreign currencies into Renminbi to support their operations in Mainland China. Companies are free to exchange the currencies first, but the PRC Authorities would then impose fines if they find out that the Renminbi is subsequently used for prohibited purposes. Examples of prohibited uses are as follows:-

acquisition/development of any real estate not for self-use
direct / indirect securities investment
Loans to unrelated parties
In view of the above, a WFOE should ensure that it has complied with the requirements when using its funds in order to avoid penalty.