The branches and foreign exchange administrative departments of the State Administration of Foreign Exchange (SAFE) in all provinces, autonomous regions, and municipalities directly under the Central Government; the branches of the SAFE in Shenzhen, Dalian, Qingdao, Xiamen, and Ningbo:

For the purpose of regulating the administration of the bankssynthetic positions in foreign exchange settlement and sales, the SAFE has formulated this Circular in accordance with the Regulations of the Peoples Republic of China on Foreign Exchange Administration. This Circular has collated and integrated the existing regulations on the administration of the bankssynthetic positions in foreign exchange settlement and sales. We hereby notify you as follows:

I. The term bankssynthetic positions in foreign exchange settlement and sales (hereinafter referred to as positions) refer to the foreign exchange positions held by the designated foreign exchange banks (hereinafter referred to as the banks) arising from transactions between RMB and foreign currencies, which are formed from the bankssettlement and sales of foreign exchange for their clients in conformity with the administrative provisions on foreign exchange, from the settlement and sales of foreign exchange on their own, and from participation in transactions on the inter-bank foreign exchange market.

II. The SAFE and its branches and foreign exchange administrative departments (hereinafter referred to as the foreign exchange authorities) shall be responsible for ratification of the limits for the bankspositions and the daily management thereof.

(1) The SAFE shall be responsible for the ratification and daily management of the positions of the policy or national banks.

(2) The local branches and foreign exchange administrative departments of the SAFE (hereinafter referred to as the SAFE branches) shall be responsible for the ratification and management of the positions of urban commercial banks, rural commercial banks, rural cooperative financial institutions, foreign-funded banks, and the finance companies of enterprise groups (hereinafter referred to as local financial institutions). The SAFE branches may authorize the central sub-branches within their respective jurisdictions to carry out the daily management of the positions of the banks.

(3) Where a SAFE branch intends to ratify the positions of a local financial institution, the upper limit of which is USD1 billion or more, or to ratify the positions of a local financial institution which exercises the function of market-maker on the inter-bank foreign exchange market, it shall carry out a preliminary examination and then report it to the SAFE for unified ratification.

III. Principles for the administration of positions

(1) Unified ratification of legal persons. The foreign exchange authorities shall uniformly ratify the positions of the banks under the principle of regulation of legal persons and shall not separately ratify the positions of the branches of a bank (except the branches of a foreign bank).

(2) Management of limits. The foreign exchange authorities shall adopt the administrative model of ratification of limits for the positions in accordance with the balance of payments, the foreign exchange business operations of banks, and other factors.

(3) Management on an accrual basis. A bank shall include the foreign exchange settlement and sales for its clients, the foreign exchange settlement and sales of its own, and transactions on the inter-bank foreign exchange market in the positions on the day when the transaction is concluded (rather than the day when the capital is actually received and paid).

(4) Examination and regulation on a daily basis. A bank shall manage the positions of the entire bank on a daily basis, and shall maintain the positions at the end of each trading day within the limits ratified by the foreign exchange authority. If the positions exceed the limits at the time, the bank shall adjust the positions within the limits before the end of the next trading day.

(5) Reconciling the balance of positions against the accounting subjects on a regular basis. For differences, the bank may apply to the foreign exchange authority on an annual basis for an adjustment, and for differences caused by a variance in the currency conversion or any other reasonable reason, the foreign exchange authority may directly approve the adjustment; for differences resulting from false reporting or missed statistical data, the foreign exchange authority may approve the adjustment, but shall issue a sanction for violation of the relevant regulations.

IV. Specific management requirements for positions

(1) A bank shall, within 30 work days after obtaining the qualification to operate the business of foreign exchange settlement and sales, apply to the foreign exchange authority for ratification of its position limits.

(2) Where the volume of foreign exchange settlement and sales of a bank undergoes any significant change and its position limits need to be adjusted, the bank shall file a written application with the foreign exchange authority. The bank shall not adjust the position limits without approval.

(3) When applying for ratification or adjustment of the position limits, a bank shall submit the following materials to the foreign exchange authority:

a. a request for instructions on ratification or adjustment of the position limits;

b. the measurement and calculation basis for the ratification or adjustment of the position limits;

c. the domestic consolidated balance sheet in both RMB and foreign currency and the domestic balance sheet in foreign currency at the end of the year prior to application; and

d. other documents and information as required by the foreign exchange authority.

(4) The foreign exchange authority shall, in light of the actual business operational needs, the volume of settlement and sales, as well as the receipt and payment of foreign exchange on behalf of clients, capital (or working capital) in RMB and foreign currencies, asset status, and other factors, ratify the position limits of the bank. In principle, the foreign exchange authority shall adjust the position limits of the bank not more than once during a calendar year.

(5) A bank whose position limits have not been ratified by the foreign exchange authority will be subject to zero-position management, the net balance between the settlement and sales of foreign exchange on the current business day shall be balanced through the inter-bank foreign exchange market on the next business day.

(6) The transactions for balancing the positions among banks shall be carried out through the inter-bank foreign exchange market. No bank may square off the positions over the counter without approval by the foreign exchange authority.

(7) Where a bank takes the initiative to apply for closure of the business of foreign exchange settlement and sales or has its qualifications for operating the business of foreign exchange settlement and sales cancelled by the foreign exchange authority for illicit business operations, it shall, within 30 work days after the closing down of the business of foreign exchange settlement and sales, file an application with the foreign exchange authority and clear the positions until the date of closure of the said business upon approval of the foreign exchange authority.

V. The administrative provisions on positions in this Circular shall not apply to  foreign-funded banks that are qualified for foreign exchange settlement and sales, but are not approved to operate RMB businesses.  Such banks shall be governed by the following provisions:

(1) The bank shall use the special RMB account for foreign exchange settlement and sales opened with the local branch or sub-branch of the Peoples Bank of China (PBC) in accordance with the Detailed Rules for Implementation of the Foreign Exchange Settlement, Sales, and Payments of Foreign-funded Banks (Yinfa No. 202 [1996]).

(2) The balance in the special RMB account for foreign exchange settlement and sales shall be subject to control. The account balance shall not exceed the equivalent of 20% of the registered foreign exchange capital or working capital of the bank, and the bank may conduct the RMB and foreign exchange conversion on its own to the extent that it does not exceed the balance.

(3) The bank may open and use a special RMB cash account for foreign exchange settlement and sales in accordance with the Circular of the Peoples Bank of China on Relevant Issues concerning the Opening of Special RMB Cash Accounts for Foreign Exchange Settlement and Sales by Foreign-funded Banks (Yinfa No.180 [2003]). The balance in the special RMB cash account for foreign exchange settlement and sales shall be incorporated into the balance in the special RMB account for foreign exchange settlement and sales for the purposes of balance control.

(4) The bank shall, within 30 work days after obtaining the approval of the CBRC to handle the RMB business, apply to the foreign exchange authority for ratification of the position limits in accordance with Part IV of this Circular, and shall, during the process of application, submit the document issued by the CBRC granting it approval to handle the RMB business. The bank shall, within 10 work days after obtaining the ratified limits, apply to the local branch or sub-branch of the PBC to close the special RMB account for foreign exchange settlement and sales in accordance with the Circular of the Peoples Bank of China on Relevant Issues concerning the Special RMB Accounts for Foreign Exchange Settlement and Sales (Yinfa No. 292 [2005]), and adjust the synthetic positions in foreign exchange settlement and sales within the range of the ratified position limits.

VI. Centralized management of the positions of the branches of a foreign bank

(1) For a foreign bank that has two or more branches in China, the head office or regional headquarters thereof may authorize a branch within China (hereinafter referred to as branch responsible for centralized management) to carry out centralized management of the positions of its branches within China.

(2) Where the branches of a foreign bank adopt centralized management of the positions, the branch responsible for the centralized management shall file an application with the local SAFE branch. The application materials shall include the following:

a. the letter of authorization granted by the head office approving implementation of the centralized management of the positions;

b. the approval document issued by the CBRC for the resident office of the foreign-funded financial institution within China ; and

c. the explanation by the foreign bank of its internal management system, accounting methods, and technical support for implementation of the centralized management of the positions.

(3) The SAFE branch shall, upon receipt of the application, visit the business office of the branch responsible for centralized management, and inspect and check on-the-spot the supporting technical system for the centralized management of the positions of the bank. If the relevant requirements are met, the SAFE branch shall, within 20 work days upon acceptance of the application, give its opinions on the approval of the centralized management of the positions by the branch responsible for the centralized management, send a copy to the SAFE, and simultaneously send a copy to the local SAFE branches or sub-branches in the places where the branches of the foreign bank are located.

(4) After the branches of a foreign bank are placed under centralized management of the positions, the original positions of all the branches or sub-branches of the foreign bank within China shall be incorporated into the positions of the branch responsible for the centralized management for the purposes of management, and shall be uniformly squared and managed by the branch responsible for the centralized management. If any new branch or sub-branch of the foreign bank is added under the centralized management of the positions, the branch responsible for the centralized management and the new branch or sub-branch shall file with their local SAFE branches respectively 10 work days in advance.

(5) After the branches of a foreign bank are placed under the centralized management of the positions, the local SAFE branch in the place where the branch responsible for the centralized management is located shall be responsible for the ratification and daily management of the position limits; if the branch responsible for the centralized management exercises the function of a market-maker on the inter-bank foreign exchange market, Part II (3) of this Circular shall apply. When the branch responsible for the centralized management applies for or adjusts the position limits, the measurement and calculation basis shall be the aggregate data of all the foreign banks branches and sub-branches within China .

(6) After the branches of a foreign bank are placed under the centralized management of the positions, if neither the branch responsible for the centralized management nor any other branch or sub-branch under the centralized management has opened an RMB business, the relevant provisions of Part V of this Circular shall apply. If the branch responsible for the centralized management has opened an RMB business, and other branches or sub-branches within China have not opened an RMB business, the branches or sub-branches which have not opened an RMB business shall still be governed by the relevant provisions of Part V of this Circular, but the balance in their special RMB accounts for foreign exchange settlement and sales shall be converted into US dollars and be recorded with a negative value into the positions of the branch responsible for the centralized management.

VII. Data submission

(1) Each SAFE branch shall, within 20 work days after the beginning of each year, fill out the Form of the XX Branch (Foreign Exchange Administrative Department) of the State Administration of Foreign Exchange on the Ratification of Limits for the Synthetic Positions in Foreign Exchange Settlement and Sales of Financial Institutions within the Jurisdiction (See Annex 1), and send an e-mail to the Intranet e-mail box of the SAFE (manage@bop.safe).

(2) All banks shall, in accordance with the requirements of the Daily Statements on the Synthetic Positions in Foreign Exchange Settlement and Sales and the Directions for Submission (see Annex 2), submit all relevant data on the synthetic positions to the foreign exchange authorities in a timely and accurate manner.

(3) Each bank shall fill in under the Remarkscolumn in the Daily Statements on the Synthetic Positions in Foreign Exchange Settlement and Sales the transaction information on the foreign exchange settlement and sales for clients, its own transactions of foreign exchange settlement and sales, and contract transactions of forward foreign exchange settlement and sales for clients, the single sum of which exceeds the equivalent of USD50 million on the current day, and shall submit the transaction information, including the clients name, item, amount, currency, and term (limited to forward foreign exchange settlement and sales contracts) for each transaction.

VIII. Where a bank violates the administrative provisions on the positions, the foreign exchange authority shall punish it in accordance with the Regulations of the Peoples Republic of China on Foreign Exchange Administration and other laws and regulations.

IX. This Circular shall come into force as of the date of promulgation. If there is any discrepancy between any previous provisions and this Circular, this Circular shall prevail. The documents on foreign exchange administration as listed in Annex 3 shall be abolished on the date of implementation of this Circular.

All SAFE branches shall, upon receipt of this Circular, promptly forward it to the central sub-branches and branches of the SAFE, urban commercial banks, rural commercial banks, rural cooperative financial institutions, and foreign-funded banks within their respective jurisdictions. If any problems are encountered during implementation, please contact the Balance of Payments Department of the SAFE. Tel: 010-68402374, 68402464.