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Recently, the SAFE promulgated the Circular Concerning Further Improving Administration of Foreign Exchange Settlement and Sale Business for Individuals (hereinafter referred to as the Circular) in order to exercise focused management to prevent foreign exchange settlement and sales by individuals through fund splitting. The Circular further standardized and clarified the procedures for handling the foreign exchange settlement and sale business for individuals. Implementation of the Circular will help promote facilitation of foreign exchange collection and payment for individuals, and is expected to effectively prevent the inflow and outflow of abnormal funds through individual channels. Since the SAFE put into practice in February 2007 the management policy regarding the annual aggregate amount of foreign exchange settlement and sales for individuals equivalent to USD50,000, the policy has satisfied demands by individuals for foreign exchange settlement and sales for studying abroad, tourism, provision of labor services, family maintenance remittances, consultations, and so forth. However, some individuals have attempted to evade the relevant management policies by splitting large sums of the exchanged funds into small amounts, which in reality disturbs the normal order for the administration of the exchange business for individuals. In this regard, the Circular provides specific countermeasures to guard against such behavior. The main contents of the Circular include: first, the facilitation requirements of the current policies shall remain effective for authentic and reasonable demands for purchases and settlement of foreign exchange for individuals; whereas purchases and settlement of foreign exchange by individuals that are identified as being conducted via fund splitting shall be subject to (1) rejection by the banks, according to the specific circumstances; (2) an authenticity examination; or (3) reports to the SAFE branches according to the relevant requirements; second, large sums of exchange settlement for individuals with foreign currency notes shall be subject to examination of the documents testifying to the source of the foreign currency notes; third, for any foreign exchange purchase under the current account excluding trade, the individual shall use cash RMB or funds in the RMB accounts/bankcard of the individual or his/her direct relatives; fourth, penalties with regard to settlement and sales of foreign exchange by individuals through fund splitting are specified, and the pilot institutions engaging in franchise business of domestic and foreign currency exchange for individuals are placed under jurisdiction of the Circular. The promulgation of the Circular will serve as a complement to the current policy for the administration of individual foreign exchange. While sustaining adequate demand by individuals for the authentic and reasonable purchase and settlement of foreign exchange, the Circular provides clear specific administrative requirements, which will help restrain the inflow and outflow of abnormal exchange funds through individual channels, will crack down on illegal activities by underground exchange markets and money shops, and will maintain a sound environment in the foreign exchange market. 2009-12-23/en/2009/1223/913.html
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Press Release of the SAFE October 10, 2009 For the purpose of further improving foreign exchange administration of cross-border securities investment, steadily promoting implementation of the qualified institutional investor (QII) system, facilitating the regulated opening-up of Chinas capital market, and guiding funds in an orderly two-way flow, the State Administration of Foreign Exchanges (SAFE) currently is promulgating the Regulations for Foreign Exchange Administration of Domestic Securities Investments by Qualified Foreign Institutional Investors (QFII) (hereinafter referred to as the Regulations) and the Circular of the State Administration of Foreign Exchange (SAFE) on Relevant Issues Concerning Foreign Exchange Administration of Overseas Securities Investments by Fund Management Companies and Securities Companies (hereinafter referred to as the Circular). Based on a summary of previous supervisory experience, the Regulations and the Circular revise and regulate the system of foreign exchange administration of QIIs, and specify the relevant regulatory requirements. First, they further simplify the relevant operations in light of investment facilitation, including simplifying the investment quota application procedures and required materials, facilitating the opening of the relevant accounts, and managing the remittance/exchange of funds, and so forth. Second, they encourage foreign institutional investors to make medium- and long-term securities investments in China. The Regulations adjust the limit on the investment quota for a single qualified foreign institutional investor (QFII) from USD 800 million to USD 1 billion, and reduce to 3 months the principal lock-up period for pension funds, insurance funds, Chinas open-ended funds, and so forth for medium- and long-term investments. Third, in order to guarantee consistency between institutions that are awarded an investment quota and the actual user of the quota, they specifically stipulate that QIIs shall not in any form transfer or resell their investment quotas. Fourth, for the purpose of avoiding the risks of cross-border securities investments and promoting the regulated opening-up of the capital market, they further enhance the relevant requirements for statistical monitoring and post-event supervision, as well as the reporting and filing responsibilities of the respective QIIs and their custodians. Meanwhile, in order to further improve the transparency of administrative licensing, the SAFE also issued a statement on the approvals of QII investment quotas up to the end of September, 2009, and in the future it will issue such quarterly statements on the SAFE government Web site. (End.) 2009-11-13/en/2009/1113/904.html
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For the purpose of improving the internal operations and administration of foreign exchange funds of domestic enterprises, facilitating and supporting the utilization and operations of foreign exchange funds by domestic enterprises, and enhancing the efficiency of the utilization of foreign exchange funds, the SAFE released the Provisions on the Centralized Operations and Administration of Foreign Exchange Funds of Internal Members of Domestic Enterprises (hereinafter referred to as the Provisions). The Provisions will enter into effect as of November 1, 2009. Based on the experience of the centralized operations and administration of foreign exchange funds of multinational companies since October 2004, the Provisions provide further reforms on the centralized operations and administration of foreign exchange funds of domestic enterprises, mainly in the following respects: 1) They further lower the admittance threshold for centralized operations of foreign exchange funds. In principle, foreign currency fund pool business can be carried out so long as the internal members of the domestic enterprises participating in the business and the banks (finance companies) providing the funds for the pooled services reach agreement and comply with the legal framework for entrusted loans. 2) They clarify the administrative policy for the foreign currency fund pool business in China, and further regulate relevant issues concerning the foreign currency fund pool business of domestic enterprises, such as operational methods, fundamental principles, approval procedures, and so forth. 3) They delegate power of examining and approving to the AFE branches. The foreign currency fund pool business by domestic enterprises, the business of spot purchases and sales of foreign exchange by finance companies, and related examinations and verifications of exchange transfers all fall under the jurisdiction of the AFE branches. 4) They specify and improve the laws and regulations concerning the centralized operations and administration of foreign exchange funds. The Circular of the SAFE Concerning the Relevant Issues Regarding the Business of Spot Purchases and Sales of Foreign Exchange Conducted by Finance Companies of Enterprise Groups (Huifa [2008], No. 68) is improved upon and incorporated into the framework of the Provisions, thus further promoting the putting in order and amending of the laws and regulations on foreign exchange administration. Implementation of the Provisions will further improve and normalize the centralized operations and administration of foreign exchange funds, thus conforming to the trend of institutional reform of financial administration of foreign exchange and the current state of economic development. Especially in the context of the current international financial crisis, it will facilitate improvements in the efficiency of utilization of funds by domestic enterprises, reducing costs and enhancing competitiveness. Meanwhile, it is conducive to promoting cooperation between banks and enterprises as well as to business innovation, thus accelerating linkages between Chinas financial services industry and international operations. 2009-11-30/en/2009/1130/907.html
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With a view to further streamlining the procedures for administrative examination and approval and promoting the facilitation of trade and investment, the State Administration of Foreign Exchange (SAFE) recently issued the Circular of the State Administration of Foreign Exchange on Adjusting the Approval Authority for Certain Foreign Exchange Businesses under the Capital Account (Huifa [2010], hereinafter referred to as the Circular), which shall come into force as of July 1, 2010. Ten concrete measures aiming to streamline the procedures for administrative examination and approval are proposed in the Circular, among which the approval authority for three types of business are delegated by the SAFE to its branches; four types of business by branches are delegated to central sub-branches (or sub-branches); and two other types of business will be dealt with directly by the banks with clarification of the relevant operating rules instead of by the foreign exchange administration. In addition, the Circular simplifies the materials required of some businesses for review purposes. According to the Circular, the SAFE branches at all levels and the banks shall improve their internal control management systems, intensify staff training, strictly abide by the documents and operating instructions for the administration of foreign exchange businesses under the capital account, and fulfill the reporting procedures in line with the relevant regulations. The delegation of administrative approval authority and simplification of the documentation to be reviewed will help reduce the business costs for enterprises and increase their efficiency, which will also be conducive to clarifying the duties and responsibilities of the SAFE branches at all levels so as to achieve more efficient management. In parallel with streamlining the ex-ante examination and approval procedures, the SAFE branches will also intensify the post-facto oversight and inspections in the relevant areas, improve statistics and monitoring, and facilitate the carrying out of relevant businesses. 2010-06-08/en/2010/0608/933.html
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During recent years with China's rapid integration into the global world economy, there have been dramatic increases in cross-border foreign exchange receipts and payments, causing great changes in the contents, methods, and forms of foreign exchange administration. In response to these changes, the SAFE has taken steps to adjust some of the laws and regulations on foreign exchange administration in compliance with the relevant requirements for law-based administration. Since 2009, constant efforts have been made to put in order the existing laws and regulations on foreign exchange administration. It has been announced that 250 standard documents have been annulled or declared invalid in four batches, among which some were substituted by new laws and regulations, some had exceeded the trial period of implementation, and some were annulled because the objects of administration no longer exist. The putting in order has led to a sharply decreased number of laws and regulations on foreign exchange administration, which will increase the transparency of framework for laws and regulations and facilitate the comprehension of banks, enterprises, and individuals about the laws and regulations on foreign exchange administration, thus better catering to the needs of economic development. After the putting in order, the SAFE will take measures to further deepen the reform, promote the facilitation of trade and investment, increase the transparency of policies, and improve foreign exchange administration on QFII and QDII. Furthermore, the SAFE will make efforts to promote the development of the domestic capital market, further broaden the channels for external investment, improve the status of the balance of payments, and promote an equilibrium in the balance of payments. 2010-01-15/en/2010/0115/917.html
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The National Work Conference on Foreign Exchange Administration was recently held in Beijing . At the conference, the gist of the Third Plenary Session of the 17th Central Committee of the CPC and the Central Economic Work Conference were studied and conveyed, foreign exchange administration work in 2008 was summed up, there was an analysis of the current situation, challenges, and opportunities facing foreign exchange administration, and arrangements were made for foreign exchange administration work in 2009. At the conference, Ms. Hu Xiaolian, deputy governor of the PBOC and administrator of the SAFE, delivered a report on foreign exchange administration. Present were deputy administrators of the State Administration of Foreign Exchange Deng Xianhong, Fang Shangpu, Wang Xiaoyi and Li Chao. The year 2008 witnessed a complex and ever-changing economic situation both at home and abroad. The foreign exchange administration departments, in accordance with the unified arrangements of the Party Central Committee and State Council, adjusted the direction and focus of foreign exchange administration in a timely manner, actively promoted facilitation of trade and investment, improved management of balanced foreign exchange capital flows, strengthened monitoring and early warning of cross-border capital flows, made effective preparations for emergency plans for risk prevention, and strived to improve the balance of payments situation. All the work made new achievements. The status of the balance of payments was improved. The ratio of the current account surplus to GDP declined. Foreign capital inflows enjoyed steady growth. The growth rate of external debts slowed down and the surplus in the balance of payments steadily smoothed the slowdown in the rapid growth; the foreign exchange administration departments made new progress in the promotion of facilitation of trade and investment, carried out a pilot licensed foreign currency exchange business, enlarged the main transaction parties in the inter-bank foreign exchange market, made great efforts to provide foreign exchange services for the Olympic Games, and actively assisted earthquake relief work. They increased the proportion of foreign exchange settlement for advance receipts in goods according to the changing situation to provide support for general enterprises to cope with the international financial crisis; they further strengthened regulation of cross-border capital flows, revised and implemented the Regulations on Foreign Exchange Administration, intensified review of the authenticity and consistency of foreign exchange capital flows in trade and goods, strengthened monitoring and management of foreign exchange flows in direct investment, and carried out assessments measures of the banks performance in implementing the provisions of foreign exchange administration, thereby further giving play to the mechanisms for regulation and coordination of abnormal foreign exchange capital flows and cracking down on the illegal activities of underground banks. The operation and management of foreign exchange reserves have withstood a significant test. Meanwhile, the foreign exchange administration departments adopted a prudent approach toward the international financial crisis sweeping across the globe and instituted timely emergency response mechanisms, reinforced research and decision-making, intensified risk management and internal control and supervision, and reasonably arranged the currency asset structure to realize the preservation and appreciation of national foreign exchange reserves. The basic work of foreign exchange administration was further solidified and the monitoring and early-warning system for the balance of payments was further improved. Great efforts have been made in investigation and research while the supervision and restrictions over the power of administrative examination and approval have been intensified. Hu Xiaolian proposed that, while affirming our achievements, we should also clearly understand the complicated and serious domestic and international situation in 2009 and fully estimate the difficulties and challenges lying ahead in foreign exchange administration. Affected by the world economic recession and financial turbulence, the abnormal cross-border capital flows will bring about potential risks. Due to the uncertainties in capital flows, the deteriorating external environment for international trade and investment, and increased business risks, it is still an arduous task to improve the status of the balance of payments and to guard against international economic risks. Although the challenges facing us are severe, the pressures and drives are mutually dependent and the opportunities and challenges coexist. At present, national macro-policies such as expanding domestic demand provide a foundation for promoting the balance of payments equilibrium, while the market-oriented reforms of the prices of resources, energy, and other key items provide a powerful safeguard for improving the adjustment mechanism for the balance of payments market. The fall in the prices of international energy and resources has provided favorable conditions for enterprises to carry out foreign investment in a safe and orderly way on the basis of strengthened risk prevention and management. The larger scope for demand of RMB for trade valuation and settlement has increased, which is beneficial for the areas along the coast and borders to create a more efficient and convenient environment for trade development. To this end, we should consolidate our conviction, draw on the advantages and avoid the disadvantages, and more conscientiously implement the scientific outlook on development, properly handle the relationship between the balanced management of foreign exchange and the focus of supervision under the complex circumstances, the relationship between continuity and flexibility of foreign exchange administration policies, and the relationship between strengthening foreign exchange administration and promoting market-oriented reforms, and we should keep abreast of the times to create a favorable environment for stable and rapid economic development. At the conference, arrangements were also made for the major foreign exchange administration work for 2009. Hu Xiaolian stressed the need to fully implement the gist of the Third Plenary Session of the 17th Central Committee of the CPC and the Central Economic Work Conference, to put the scientific outlook on development into practice, and to actively implement the strategic plans of the Central Government to maintain stable and rapid development of the national economy under the guidance of Deng Xiaoping Theory and the Three Represents. She also stressed the need to enhance the innovation and mechanisms of the foreign exchange administration system, actively promote facilitation of trade and investment, improve the system for balanced management of cross-border capital flows, further improve the status of the balance of payments, and strengthen monitoring and early warning of the balance of payments as well as risk management of foreign reserves to safeguard national economic and financial security; to further improve foreign exchange administration work in accordance with the general ideas of Maintaining Growth, Preventing Risks, and Promoting Balance. Maintaining Growth means actively implementing the general requirements of the Central Government to maintain stable and rapid economic development as the primary task of economic work in 2009; to promote the reform of the verification system for imports and exports, improve foreign exchange administration of trade in services, support the opening up and healthy development of the services sector, do a good job in the pilot RMB settlement of international trade, and to allow foreign exchange administration to play a greater role in economic growth with the promotion of facilitation of trade and investment as the starting point and ultimate goal. Preventing Risksmeans intensified efforts in monitoring, early warning, and crisis response to the balance of payments, establishing a two-way monitoring and early-warning framework for balance of payment risks, and further improving the emergency safeguard system for the balance of payments; improving the management of external claims and liabilities and direct investment, further guiding the standard development of Chinas foreign exchange market, devoting more efforts to inspections on the compliance of foreign exchange businesses and cracking down on various illegal activities of foreign exchange; and further strengthening the risk management of reserves operations and guaranteeing the role of foreign exchange reserves as a final protection in risk management. Promoting Balancemeans further improving the status of the balance of payments and coordinating with the relevant departments to effectively expand domestic demand and make structural adjustments; continuing to improve the balanced management of cross-border capital flows, steadily promoting the foreign exchange system reform in an orderly manner, and gradually establishing systems and mechanisms that contribute to an adjustment in the balance of payments. Finally, Hu Xiaolian pointed out emphatically that foreign exchange administration departments should regard the studies and practices of the scientific outlook on development as a powerful driving force to improve work, bring their thoughts in line with the analysis of the current situation and decision-making arrangements of the Central Government, and make greater efforts to study the situation. At the same time, foreign exchange administration departments should strengthen the anti-corruption campaign and construction of the cadre ranks, carry out administrative affairs in strict accordance with the law, improve the internal management system, make more efforts in internal control and supervisory inspections, reinforce the mechanisms for supervisory restricting powers, and further enhance the level of Party conduct and clean governance. 2009-01-06/en/2009/0106/883.html
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The SAFE issued recently the Circular on Relevant Issues Regarding Foreign Exchange Administration of Overseas Lending Granted by Domestic Enterprises (hereinafter referred to as the Circular). The person-in-charge of the SAFE was interviewed on the relevant issues. Q: What is the main purpose of promulgation of the Circular? A: Chinese overseas investment has seen steady development with positive results. Meanwhile, Chinese-funded enterprises in overseas countries are baffled and impeded from further development and expansion due to difficulties in overseas financing and to insufficient liquid funds. The ongoing international financial crisis has added to the liquidity pressures of overseas financial institutions and the deterioration in the financing environment for Chinese-funded enterprises. Current cross-border financial services provided by domestic financial institutions have proven to be inadequate to meet the needs of overseas Chinese-funded enterprises for further development, which still require improvement. The measures recently issued by the State Council, which aim to further stabilize external demand, call for considerable efforts to be made to address the financing difficulties of foreign trade enterprises, as well as to support the go-global move of Chinese enterprises of diverse ownerships to stimulate exports. In such a context, for the purpose of bolstering the go-global efforts of financially strong enterprises, further promoting the facilitation of investment and trade as a way to stabilize external demand and for better coping with the global financial crisis, the SAFE issued the Circular in a timely manner and with earnest efforts of drawing on the experiences from the pilot reform of lending overseas. Q: What is the main content of the Circular? A: The Circular mainly includes the following content: First, the scope of lenders for overseas lending is expanded from the qualified Chinese and foreign-funded transnational companies currently in force to qualified enterprises of diverse ownerships. Second, the sources of funds for overseas lending have been expanded. Domestic enterprises are allowed to provide overseas lending through the use of diverse forms of sources of fund within certain limitations, such as self-owned foreign exchange and foreign exchange purchased with the home currency. Third, the ratification and exchange procedures for overseas lending have been streamlined. Matters concerning the opening of special foreign exchange accounts for overseas lending, fund transfers within China, and the purchase of foreign exchange etc. will all be handled directly by designated foreign exchange banks. Fourth, the statistical monitoring and risk prevention mechanism for overseas lending has been improved. Q: How does the SAFE guard against possible risks to the equilibrium in the balance of payments brought about by overseas loans? A: The economic stimulus package which aims to expand domestic demand and foster the stable and rapid development of the national economy has yielded initial positive results. The operation of the economy has witnessed positive changes and the general position of the balance of payments remains stable and free from major fluctuations. These have laid a solid foundation for overseas lending. Meanwhile, the relatively limited amount of overseas lending, as compared to the total scale of the balance of payments and the foreign exchange reserves, will not have a major impact on the national equilibrium of the balance of payments, and consequently the overall risks will be controllable. In terms of the design of the detailed policy plans for overseas lending, we have perfected the statistical monitoring and risk prevention mechanism for overseas lending, which are mainly embodied in the following aspects: management of the qualifications of the lenders and borrowers for overseas lending has been perfected, and two quantitative thresholds have been installed for an overseas lending quota: the quota for overseas lending shall not exceed 30 percent of the owners equity of the lender and shall not exceed the total agreed investment amount that has been concluded through the registration procedures by the borrower, and the lower of the two figures shall be adopted; the term of validity for overseas lending is clarified; the quota ratification, special foreign exchange account, foreign exchange fund transfers within China as well as the outward and inward remittances of overseas lending will be integrated into the foreign exchange management information system under direct investment, and a sound statistical monitoring mechanism is established for the inflow and outflow of foreign exchange funds for overseas lending; in the Circular, safeguard provisions are established stipulating that the SAFE can make timely adjustments to the qualifications, fund sources, amounts, terms, etc. of domestic enterprises for overseas lending. Q: What new measures are incorporated in the Circular to streamline administration, decentralize power, and to provide facilitation for the enterprises? A: On the premise of effectively preventing risks, the Circular has further streamlined administration, decentralized power, and provided facilitation for the enterprises, which are mainly embodied in the following aspects: the ratification, registration, and other procedures related to overseas lending will be handled by the branches of the SAFE and the SAFE will be responsible for instructing and organizing implementation of the relevant policies; in terms of administration of the exchange, the ratification procedures for domestic transfers involved in overseas lending are streamlined, except that outward remittances of loans through the special account for overseas lending as well as inward remittances of funds for repayment of the principal and interest or the performance of a guarantee for the special account for overseas lending are subject to ratification by the foreign exchange administrations, the transfer between related domestic foreign exchange accounts and special foreign exchange accounts for overseas lending and settlement of foreign exchange can be completed at banks by domestic lenders by presenting the ratification documents for overseas lending, without having to obtain ratification by the foreign exchange administrations. As for the administration of overseas lending quotas, balanced management shall apply, i.e., domestic enterprises engaged in overseas lending can repeatedly use the recovered quota for overseas lending within the ratified quota and term, thus changing the previous principle based on the amount incurred. This will be conducive for domestic enterprises to determine independently the frequency and amount of overseas lending so as to satisfy the financing needs of their overseas invested enterprises as well as to increase the efficiency of fund use. Q: What are the qualifications of the lenders? A: The Circular has reduced the restrictions on the qualifications for overseas lending to a large extent. In the case that both the lenders and the borrowers are registered and established in accordance with the law and their registered capital has been fully paid, and the lenders and borrowers have sound track records and are free from violations of foreign exchange administration regulations within the recent three years after ratification by the foreign exchange administrations, the borrowers and lenders can apply to the said Administration for granting loans to their overseas directly-invested enterprises. Q: What are the sources of the funds for overseas lending? A: The Circular allows domestic enterprises to offer lending to their overseas directly-invested enterprises by using self-owned foreign exchange funds in the foreign exchange capital account and foreign exchange account under the current account, foreign exchange funds purchased with RMB, and funds participating in the foreign currency pool. Q: What is the relationship between overseas lending and overseas direct investment? A: In a broad sense, overseas investment can be classified as overseas claim investment and overseas equity investment. Overseas lending granted by domestic enterprises can be considered a part of overseas claims and jointly constitutes the overseas investment. According to the prevailing overseas direct investment administration framework, overseas direct investment shall be ratified or put on the record by Chinas relevant departments for overseas investment. Therefore, the Circular stipulates that the prerequisite condition for overseas lenders are: all overseas direct investment projects by the lender during the past years have been ratified by the relevant domestic departments for direct overseas investment and the foreign exchange registration procedures have been fulfilled at the foreign exchange administrations, and the lender was graded at or above Grade Two in the last joint annual inspection of overseas investment. Q: What approaches are applicable in the Circular for providing overseas loans? Q: Overseas lending can be provided in the forms of: (p) direct lending, i.e., the lending is granted directly by domestic enterprises to their wholly-owned subsidiaries or share-holding enterprises legally established abroad; (q) granting lending by entrusting designated foreign exchange banks. In addition, if the group company that the domestic enterprise is affiliated with has a financing company with qualifications to conduct foreign exchange business, the enterprise can provide lending by means of entrusted lending through the financing company. Q: What is the relationship between the Circular and the Circular of the SAFE on Issues Regarding the Management of Internal Operations of Foreign Exchange Funds of Transnational Companies (Huifa No. 104 [2004])? A: The lending granted by domestic enterprises (including foreign-invested enterprises) to their wholly-owned subsidiaries and share-holding enterprises legally established abroad is subject to the provisions of this Circular. The lending granted by foreign-invested enterprises to other overseas related-party companies shall be subject to the relevant provisions in the Huifa No. 104 [2004] document. 2009-06-09/en/2009/0609/892.html
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The State Administration of Foreign Exchange (SAFE) recently issued the Regulations on Foreign Exchange Administration of the Overseas Direct Investment of Domestic Institutions (hereinafter referred to as the Regulations). The responsible person of the SAFE was interviewed on the relevant content of the Regulations. Q: What are the context and significance of issuing the Regulations? A: In the context that the world economy and finance are progressively becoming globalized and integrated, there has been a growing demand of domestic enterprises, including private enterprises, to make overseas direct investments, in parallel with a louder voice for streamlining the existing examination and approval procedures for overseas direct investment as well as for providing financing support for enterprises under overseas direct investment. In order to promote the development and expansion of the overseas direct investment of domestic institutions, on the premise of fulfilling the needs for the balanced management of the balance of payments, the SAFE issued successively over the past several years a series of policies and measures with respect to the reform and standardization of foreign exchange administration approaches to overseas direct investment. To systematically straighten out the separate regulatory documents regarding overseas direct investment issued during recent years and to work out a new set of foreign exchange administration regulations that fits with the needs of the current foreign exchange receipt and payment situation as well as with overseas direct investment administration practices, the SAFE has drawn up the Regulations on Foreign Exchange Administration of the Overseas Direct Investment of Domestic Institutions, and has extensively solicited opinions from overseas investment authorities, relevant industry authorities, and all circles of society. The Regulations were formally promulgated on July 13, 2009, and will be implemented as of August 1, 2009. China is currently at the critical stage of coping with the global financial crisis. The overall economic situation is favorable and promising. Further streamlining the foreign exchange administration of overseas direct investment and the launching of foreign exchange administration policy aimed at encouraging the go-global move of enterprises will be conducive for enterprises to better grasp the opportunities of overseas direct investment, to reduce the costs of overseas investment, to promote the facilitation of trade and investment, to promote the opening-up process of cross-border capital transactions in a steady and orderly manner, and to promote a basic equilibrium in the balance of payments of our country. Q: What reform measures are specified in the Regulations? A: First, the sources of foreign exchange funds for overseas direct investment have been expanded. Domestic institutions can make overseas direct investments by use of various fund sources, such as self-owned foreign exchange funds, domestic foreign exchange loans in line with the regulations, foreign exchange purchased with RMB or tangible assets, intangible assets, or profits retained overseas. Second, the examination and verification of foreign exchange fund sources for overseas direct investment have been altered from ex ante examination to ex post registration. Third, domestic institutions are allowed to provide support for follow-up financing of enterprises under overseas direct investment by means of commercial loans and financing guarantees. Fourth, the SAFEs administration of outward remittances of overseas investment funds by domestic institutions has been adjusted from the previous examination and approval system to a registration system. Foreign exchange designated banks can handle the outward remittances of investment funds for domestic institutions after conducting authenticity examinations and verifications of the relevant documents presented by the domestic institutions. Fifth, domestic institutions are allowed to remit outward preceding expenses of a certain proportion of the total amount of investment at the preparatory stage prior to the formal establishment of their overseas projects after obtaining approval from the SAFE. Sixth, the disposal and administration principle for overseas retention or inward remittances of profits of enterprises under overseas investment and earnings from capital variations such as capital reductions, equity transfers, liquidations, and so forth have been clarified. Seventh, a full aperture exchange administration system for overseas direct investment has been established. Besides the traditional domestic non-financial institutions, the foreign exchange administration and applicability of regulations of overseas direct investment of domestic financial institutions have been clarified and standardized. Eighth, by making full use of the foreign exchange management information system for direct investment, a statistical and monitoring mechanism for cross-border fund inflows and outflows under overseas direct investment has been established. Q: What possible risks might occur in terms of foreign exchange administration of overseas direct investment after implementation of the said Regulations? How can we guard against such risks? A: As specified by the Regulations, the previous examination of foreign exchange fund sources for overseas direct investment has been altered to ex post recording for file and registration. In order to guard against possible risks when there are marked changes in the situation of the national balance of payments, the Regulations have made it clear that the SAFE can make adjustments to the relevant policies concerning the scope of the sources and the management modes of the foreign exchange funds for the overseas direct investment of domestic institutions and the overseas retention of profits generated from overseas direct investments of domestic institutions. In practice, the foreign exchange designated banks are required to first examine the situation of the foreign exchange fund sources for overseas direct investments of domestic institutions which are registered with the SAFE, and to handle the outward remittances of overseas investments for the domestic institutions. All in all, risks arising from the change in the examination of the foreign exchange fund sources for overseas investment are limited, and can be prevented through collaboration with other departments as well as through the registration procedures of the SAFE. Q: Which kinds of investment do the overseas direct investments made by banks and non-bank financial institutions belong to? A: The overseas direct investment stated herein refers to acts by banks and non-bank financial institutions through which the said banks and non-bank financial institutions establish subordinate or affiliated institutions outside the territory of China, or make equity acquisitions of overseas banks or non-bank financial institutions so as to acquire the rights and interests of such overseas institutions, including ownership, rights of control, or business management rights. For example, as banks and non-bank financial institutions set up subsidiaries or branches outside the territory of China, they may purchase the equity of former shareholders of overseas banks or non-bank financial institutions and the like. Such kinds of investment are different from the indirect investment made by banks and non-bank financial institutions outside the territory of China, i.e., purchases made by banks and non-bank financial institutions of overseas assets such as products on the overseas capital market or currency market tools after obtaining approval from the relevant authorities of China. Q: What are the foreign exchange administration principles for overseas direct investment by banks and non-bank financial institutions? A: The regulations clarify the legal basis for foreign exchange administration of overseas direct investment of domestic financial institutions, which implement full aperture administration of overseas direct investment of domestic institutions, i.e., both financial institutions and non-financial institutions, if ready to make overseas direct investment, shall complete the foreign exchange registration and exchange procedures in accordance with the Regulations. Currently, the procedures for overseas direct investment of domestic institutions are completed via the foreign exchange management information system for direct investment of the SAFE. Thus, to facilitate the smooth operation of overseas direct investment, financial institutions shall make sure the following tasks are completed after the promulgation of the Regulations: 1. Given that the foreign exchange management information system for direct investment has already been put online, for the purpose of ensuring the completeness and accuracy of the statistical data on cross-border fund inflows and outflows under overseas direct investment as well as guaranteeing the smooth operation of the foreign exchange registration and foreign exchange business for overseas direct investment, financial institutions that have already made overseas direct investments shall, prior to the formal implementation of the Regulations, complete the procedures for additional input of relevant information about their overseas investments at the Foreign Exchange Administrations in their localities, which shall be completed before December 31, 2009. 2. The examination of the foreign exchange fund sources for overseas direct investments of financial institutions has been altered to ex post registration, which requires these financial institutions to complete the procedures for foreign exchange registration for overseas investment at the Foreign Exchange Administrations in their localities and to demonstrate the sources of their foreign exchange funds after obtaining approval from the relevant departments. Q: What are the differences in the administration of outward remittances between preceding expenses and overseas investment funds? A: If domestic institutions need to remit outward a certain amount of preceding expenses prior to the establishment of projects or enterprises under overseas direct investment, the said institutions shall file an application with the Foreign Exchange Administrations in their localities, and shall go through the procedures for outward remittances at the banks by presenting the examination and approval documents issued by the Foreign Exchange Administrations. If the domestic institutions need to remit outward overseas investment funds other than the preceding expenses, the banks shall only ask that the domestic institutions present the approval documents issued by the overseas direct investment authorities and the foreign exchange registration certificate for overseas direct investment, and shall handle the relevant procedures after querying the relevant information in the foreign exchange management information system for direct investment. Q: Do domestic institutions still need to receive a paper-copy foreign exchange registration certificate after the foreign exchange management information system for direct investment is put online? A: The online operation of the foreign exchange management information system for direct investment means that all businesses under direct investment will be processed via the system, thus realizing electronic informational management over overseas direct investment of domestic institutions. As a result, the previous paper copy foreign exchange registration certificate issued by the Foreign Exchange Administrations will be replaced with the IC card for foreign exchange registration, which will facilitate electronic operations and management of the relevant business. 2009-07-15/en/2009/0715/897.html
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In order to promote administration in accordance with the law and to guarantee the uniformity and solemnity of the foreign exchange administration regulations, the State Administration of Foreign Exchange (SAFE) recently issued the Circular on Announcing the List of Repealed and Expired Regulatory Documents on Foreign Exchange Administration (hereinafter referred to as the Circular). During the past years, the foreign exchange administration authorities, in compliance with the overall planning of the Party Central Committee and the State Council, have been dedicated to deepening the reform of the foreign exchange administration system and strengthening the institutional building of foreign exchange administration, which have played a significant role in fostering the countrys reform and opening-up, maintaining an equilibrium in the balance of payments, and preventing foreign-related economic and financial risks. In recent years there has been a rapid development of the national economy and profound changes in international economic circumstances. The foreign exchange administration system has undergone remarkable changes in terms of context, content, and form. Some regulations are becoming increasingly inapplicable to the needs of economic development, some of which have been replaced by new regulations, some have expired, and some have ceased to function as the revised object no longer exists. In response to the circumstances in foreign exchange administration, the Circular cancels 91 regulations on foreign exchange administration, of which 57 are repealed and 34 are declared to have expired. These regulations fall into four categories: 1. Some foreign exchange administration regulations dealing with statistics declaring identification and trading codes for the balance of payments, foreign exchange accounts, management of highlighted enterprises, sale and payment of foreign exchange under the current account, deferred foreign exchange payments for imports, international postal remittances, settlement of import L/C issuances, joint annual inspections of foreign investment, acquisitions by foreign investment as well as real estate market management are repealed or declared invalid since they are inapplicable to the needs of economic and financial development. 2. The Regulations on Foreign Exchange Administration revised in 2008 are put into effect. Some rules and regulations regarding application of the articles of the Regulations on Foreign Exchange Administration issued in 1996 and administrative punishment are repealed or declared invalid. 3. Some foreign exchange administration regulations applicable during special or trial periods have expired and are repealed or declared invalid, including regulations applicable during the start-up and transition period of the euro in 1999, the SARS prevention and treatment period in 2003, the implementation period for the Administrative Licensing Law in 2004, the Olympics Games and their preparation in 2008, the period for combating the Wenchuan earthquake in 2008, as well as those applicable to offshore financial business trials, and pilot operations of foreign exchange purchases under the non-trade account in bonded logistics zones. 4. Eleven foreign exchange administration regulations which were suspended and have been proven to be unnecessary are repealed. The promulgation and enforcement of the Circular will be conducive for enterprises and banks to better exercise foreign exchange administration policies. The perfection of foreign exchange administration laws and regulations and reinforcement of non-the-spot supervision will enable the administration to achieve a smooth policy transition and to realize balanced management of inflows and outflows of cross-border funds. The Circular shall come into effect as of the date of promulgation. (End) 2009-05-20/en/2009/0520/888.html
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The Overseas Direct Investment Module of the Information System for Foreign Exchange Business of Direct Investment Will Be Popularized Nationwide Following the successful operation of the foreign direct investment module of the information system for foreign exchange business of direct investment (hereinafter referred to as the "FDI Module") across the country, another informatization measure, which will help raise the level of foreign exchange services, facilitate investments for enterprises, and strengthen risk monitoring and early-warning the overseas direct investment module of the information system for foreign exchange business of direct investment (hereinafter referred to as the "ODI Module") will be generalized and rolled out nationwide on January 1, 2009. Several days ago, the State Administration of Foreign Exchange held a meeting in Chongqing to study and arrange the work to promote the ODI Module; Li Dongrong, deputy administrator of this administration, attended the meeting and delivered a mobilization speech. As an integral part of the information system for foreign exchange business of direct investment, the ODI Module maintains the manner and characteristics of the FDI Module, enables on-line operations and management and data exchange among the administration, banks, enterprises, and accounting firms, and substitutes IC-card foreign exchange registration certificates for paper-based certificates. After operation of the ODI system, enterprises can directly apply to the administration via the network for overseas equity investment, overseas lending, corporate investment for special purposes, and other business and will be informed in a timely manner of the progress of their business through the network. Banks, accounting firms, and other institutions may receive management information from the administration through the network and may transfer the business filing conditions to the administration, while the administration can deal with the related electronic information of banks, accounting firms, and enterprises through the network in a timely manner, and comprehend all overseas investment data and situations in a real-time way, so as to achieve an overall change in the ways of handling foreign exchange business of overseas investments from a manual and paper-based manner to an electronic and IT-based manner. The operation and use of the ODI Module is adapted to the trend of a gradual rise in the amount, regional expansion, and field extension of Chinas overseas investments, having great significance in further upgrading the level of foreign exchange services for overseas investment, facilitating investments for enterprises, and making full use of the Chinese and foreign markets. The electronic processing of the foreign exchange business for overseas investments will considerably enhance the business processing efficiency, avoid the work of enterprise personnel having to travel, and reduce corporate investment costs, so that the enterprises will able to strive for favorable overseas investment opportunities and will be able to grow much larger and stronger abroad. The operation and use of the ODI Module will also effectively improve the statistical approaches for overseas investments, realize real-time capital-flow monitoring of overseas investments, and increase the accuracy of monitoring over cross-border capital flows, which will help the foreign exchange management departments master the objective conditions in a timely manner and rapidly conduct situational analyses and make judgments regarding decision-making scientifically against the backdrop of the current complex and volatile economic situation (End). 2008-12-31/en/2008/1231/882.html