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 SAFE branches in Shenzhen,
For the purpose of regulating the banksown foreign exchange settlement and sales business, facilitating banking operations, and guarding against balance of payments risks, the relevant issues are hereby notified as follows in accordance with the Regulations of the People's Republic of
1. The banksown foreign exchange settlement and sales business referred to in this Circular refers to the exchange business between RMB and foreign currencies arising from the banksown operating activities, excluding the banksforeign exchange settlement and sales business for their clients and transactions of the synthetic positions in foreign exchange settlement and sales conducted in the inter-bank foreign exchange market.
2. The State Administration of Foreign Exchange and its branches (hereinafter referred to as the foreign exchange authorities) shall be responsible for the supervision and administration of the banksown foreign exchange settlement and sales business. The relevant responsibilities are divided as follows:
(1) The SAFE shall be responsible for the supervision and management of the policy banks, state-owned commercial banks, national joint-stock banks, and the postal savings banks;
(2) The local branches and administrative departments of the SAFE (hereinafter referred to as the SAFE branches) shall be responsible for the supervision and management of the local banks, including urban commercial banks, rural commercial banks, rural cooperative banks, urban credit cooperatives, rural credit cooperatives, and village and town banks, as well as foreign-funded banks, or may authorize the central sub-branches or sub-branches to supervise and manage the said banks within their respective jurisdictions according to the actual business situation of the banks.
3. Foreign exchange income earned from the banks business, after deducting for payments of foreign exchange expenses and payments of expenses for foreign exchange settled to RMB required for the daily operations of domestic foreign exchange business, shall be incorporated into the foreign exchange profits under unified management, and the foreign exchange settlements shall not be conducted separately.
4. Where domestic banks make advance payments for expenditures on domestic trade in services on behalf of the associated overseas banks, they may subsequently conduct a self-examination of the foreign exchange funds received from the associated overseas banks and retain the relevant instruments proving authenticity before the foreign exchange settlement is conducted. Where the associated overseas banks make advance payments for expenditures on overseas trade in services on behalf of domestic banks, the domestic banks may conduct a self-examination and retain the instruments proving authenticity before purchasing the foreign exchange to pay the associated overseas banks. The banks shall clear up the external debts or claims incurred by the advance payments in a timely manner. The terms for repaying the advance payments (the time interval between the date when the advance payment actually occurs and the date of repayment) shall not exceed six months.
5. Where foreign-funded banks settle foreign exchange to pay for RMB expenses required for the daily operations of their domestic foreign exchange business, the said banks shall conduct a self-examination and retain the relevant instruments proving authenticity before engaging in this business according to the law. Foreign exchange settlement may be conducted in advance on a monthly basis or in accordance with the actual expenditure. If the foreign exchange is settled in advance on a monthly basis, the amount shall not exceed 105% of the actual expenditures in RMB of the last month, and if the amount is insufficient it shall be further settled in accordance with the actual expenditures; any unused portion of the foreign exchange funds settled in advance in the current month shall be carried forward to the next month.
6. Where banks withdraw the business tax, interest tax, or other taxes in foreign currency but need to pay the tax authorities with RMB settled from foreign exchange funds, the banks shall conduct a self-examination and retain the instruments proving authenticity before payment. The taxes that the banks themselves should pay shall be incorporated into their own foreign exchange settlement and sales; the taxes withheld and paid according to the law shall be incorporated into the foreign exchange settlement and sales on behalf of clients.
7. The banks may settle on their own the years foreign exchange profits (including foreign exchange profits from domestic institutions, profits contributed by overseas branches, and profits earned through the holding of shares in foreign institutions) in accordance with the results of the financial accounting after each quarter of the same year, which shall be automatically adjusted according to the annual results of the final audit. Foreign exchange losses shall be charged to the account and supplemented by using the annual foreign exchange profits of subsequent years. Settlement of foreign exchange profits retained from previous years may be handled by the banks themselves in subsequent years. The foreign exchange authorities may revise the policy on the settlement of foreign exchange profits of the aforesaid banks in line with the balance of payments situation.
8. Payments of foreign shareholders' dividends, bonuses, or remittances of profits of foreign-funded banks shall be made by the banks themselves with the foreign exchange in their possession or with foreign exchange purchased with RMB, and the banks shall retain the following documents for future reference:
(1) The balance sheets, profit and loss statements, and consolidated auditor's reports prepared in domestic and foreign currencies;
(2) The tax clearance certificates;
(3) The relevant resolutions of the board of directors or of the general meeting of the shareholders, or the notices of funds transfers issued by the head office of the foreign-funded bank.
9. The banks shall, prior to the end of June of each year, submit (for the record) to the foreign authorities reports on the treatment of foreign exchange profits, which shall include the following information:
(1) Basic information on foreign exchange profits or losses of the last year (see the form in Annex 1);
(2) The balance sheets in foreign currency and the profit and loss statements in foreign currency of the last year;
(3) The consolidated auditor's reports prepared in domestic and foreign currencies.
10. The domestic and foreign currency conversion of the (working) capital of the banks shall be carried out in accordance with the following requirements after approval by the foreign exchange authorities:
(1) The amount applied by the banks for domestic and foreign currency conversion shall satisfy the following requirements:
i. The value of "(the owners equity in foreign exchange + the working capital in foreign exchange)/assets in foreign exchange" after completion of the domestic and foreign currency conversion shall be basically equivalent to that of "the owners equity in RMB + the working capital in RMB)/assets in RMB";
ii. The aforesaid data shall be calculated on the basis of the balance sheets of domestic banking institutions, excluding the associated overseas banks; working capital and owner's equity shall not be repeatedly calculated; undistributed foreign exchange profits shall be deducted in the calculation of the owners equity in foreign exchange; part of the assets in foreign exchange due to policy-related factors may be deducted in the calculation of the assets in foreign exchange; the average of the values of the inter-bank deposits/lending at the end of each of the preceding four quarters before applying for the foreign exchange settlement shall be included in the calculation of the assets in RMB.
iii. Chinese-funded banks that are new participants in the foreign exchange business or foreign-funded banks that are new participants in the RMB business in their first application may apply for domestic and foreign currency conversion for no more than 10% of the capital;
iv. Where there are specific requirements with respect to the currency by the banking regulatory departments or due to other special situations, they will not be not subject to the provisions set forth in item i above.
(2) The banks shall submit the following documents at the time of application:
i. Application report;
ii. Balance sheets in RMB and foreign currency;
iii. The basis for the calculation of the amount of domestic and foreign currency conversion;
iv. Where the relevant transactions require the approval of the banking regulatory departments, copies of the relevant approval documents shall be provided;
v. Other documents as required by the foreign exchange authorities.
(3) In principle, a bank shall not submit an application more than once each year, and it shall submit its plan to the relevant foreign exchange authority in January or July of each year as required in Annex 2.
(4) Any application in which the single amount accepted by the SAFE branch exceeds the equivalent of USD300 million (inclusive) shall, after a preliminary examination, be submitted to the SAFE for approval.
(5) The foreign exchange authorities may impose restrictions on the amount and timing of the domestic and foreign currency conversion of the (working) capital of the banks in line with the balance of payments situation.
(6) Where the banks purchase foreign exchange for overseas direct investments, the Circular of the SAFE on Relevant Issues Concerning Foreign Exchange Administration of Overseas Direct Investments by Domestic Banks (Huifa No. 31 [2010]) shall apply, and the above provisions in this Article are not applicable.
11. Where foreign banks prepare to establish branches or subsidiary banks, they may open foreign exchange accounts with domestic commercial banks upon the strength of the approval documents prepared for the relevant authorities, after approval by the local foreign exchange authorities, for the expenses incurred during the period of preparation, during which the total funds transferred into the account shall not exceed 5% of the registered capital (or the working capital) of the proposed institutions; instruments proving the authenticity of the foreign exchange settlement of the accounts may be submitted directly to the account-opening banks which shall, in turn, conduct an examination thereof before engaging in this business; when the preparations to establish branches or subsidiary banks come to an end, the residual funds in the accounts shall be returned or shall be used as part of the capital (or the working capital), and the accounts shall be closed accordingly. The above accounts shall not be managed as domestic foreign exchange accounts for foreign institutions (NRA accounts), and the fund balances shall not be incorporated into the short-term external debt quotas of the account-opening banks.
12. Where the shutdown or liquidation of the branches and/or subsidiary banks of the foreign banks occur, the relevant formalities for foreign exchange purchases or payments may be handled upon the strength of the approval documents of the relevant authorities, the accounting statements, and the auditor's reports after approval by the local foreign exchange authorities.
13. Where there is a currency mismatch between the funds (including the interest) collected and the originally granted funds, and a necessity to handle foreign exchange settlement or sales on behalf of debtors, the business operations of the banks shall be handled as follows:
(1) For handling foreign exchange settlement or sales on behalf of debtors, the following two conditions shall be satisfied:
i. The debtors are unable to handle the foreign exchange settlement and sales transactions by themselves due to bankruptcy, closures, suspension of business for rectification, poor operations, or legal disputes with the banks;
ii. The sources, including but not limited to judgments by the courts, awards by arbitration institutions, realization of non-monetary assets under mortgages or pledges (the value of which shall be assessed by the relevant assessment department if for self-use) and withholding security deposits, and so forth, of funds obtained by the banks from the debtors or their guarantors are legal.
(2) Where the banks apply to the foreign exchange authorities for foreign exchange settlement or sales on behalf of debtors, the following documents shall be submitted:
i. Written materials that prove the creditor's rights against the debtors, such as contracts, vouchers, and judgments by the courts, etc.;
ii. Written materials that prove the sources of the funds for foreign exchange settlement and sales, such as certificates of the funds arrival, etc.;
iii. Where there are requirements for registration and filing according to the provisions on foreign exchange administration, documents that prove that the relevant formalities have been conducted.
iv. Other documents as required by the foreign exchange authorities.
(3) Where the banks intend to operate foreign exchange settlement or sales business on behalf of debtors, they shall submit applications thereof to the local SAFE branches for approval. The SAFE branches may, in light of the actual business situation, authorize the central sub-branches or sub-branches within their respective jurisdictions to directly approve the applications.
(4) Where there is a currency mismatch between the currency of the assets and the currency recovered, such as the recovery of loans in China by overseas banks, the banks may entrust the associated domestic banks to apply to handle the foreign exchange settlement or sales on behalf of the debtors in accordance with the above provisions of this Article.
(5) Where there is a currency mismatch in the transfer of the domestic equity by the banks in accordance with the laws, documents proving authenticity and compliance shall be submitted with reference to the provisions in item (2) of this Article, and the business shall be handled in accordance with the procedures provided in item (3) of this Article.
14. Where the banks suffer any losses in their operation of the business, such as with foreign exchange loans, due to the fact that the creditor's rights fail to be recovered or are transferred, the banks shall offset the losses according to the foreign exchange provisions for bad debts or by purchasing the foreign exchange themselves with the equivalent RMB provided for bad debts in accordance with the relevant accounting system.
15. Unless otherwise provided for by the state, foreign exchange purchases under the trade in goods of the banks themselves shall be handled in accordance with the relevant provisions for import agents.
16. For foreign exchange purchases under trade in services, the income and current transfers of the banks themselves shall be handled after a self-examination and retention of the relevant instruments proving authenticity by the banks.
17. The foreign exchange settlement and sales business of banks that are not qualified for foreign exchange settlement and sales shall be handled through other banks which are qualified thereof; the foreign exchange settlement and sales business of banks that are qualified for such business shall not be handled through any other banks.
18. The banks' own foreign exchange settlement and sales business shall be subject to the foreign exchange settlement and sales statistics in accordance with the relevant provisions on foreign exchange administration, and the block transactions shall be recorded in the Daily Statement on the Synthetic Positions in the Foreign Exchange Settlement and Sales.
19. Penalties shall be imposed by the foreign exchange authorities, in accordance with the Regulations of the Peoples Republic of China on Foreign Exchange Administration and other relevant regulations, on banks that violate the in this Circular.
20. The relevant terms used in this Circular refer to the following:
(1) "Working capital in RMB" refers to the working capital in RMB allocated by foreign banks to domestic branches (including working capital in RMB after the settlement of foreign exchange); "working capital in foreign exchange" refers to working capital in foreign exchange allocated by foreign banks to domestic branches and capital purchased by domestic corporate banks with their own RMB and accounted for under the working capital in foreign exchange.
(2) Associated banks include the banks with a head office/branch relationship or a parent/subsidiary bank relationship, branches or subsidiary banks under the control of the same institution, and banks with a cooperative relationship under the same syndicated loan.
21. This Circular shall come into force as of July 1, 2011. Simultaneously, the Circular of the State Administration of Foreign Exchange on the Approval Principles and Procedures for Banks' Foreign Exchange Settlement and Sales under their Own Capital and Financial Account (Huifa No. 61 [2004]) and the Circular of the State Administration of Foreign Exchange on the Principles for Handling Foreign Exchange Advances under a Letter of Credit from a Designated Chinese-funded Foreign Exchange Banks (Huifa No. 56 [2002]) shall be repealed. Also simultaneously, the provision "3.2: Approval for foreign exchange settlement of foreign exchange profits of banks" and provision "4.1: Approval for outward remittances of net profits in foreign exchange or outward remittances of foreign exchange purchased with net profits in RMB of foreign-funded banks and/or Chinese-funded banks with equity in foreign capital" on the List of Administrative Licensing Items of the State Administration of Foreign Exchange (Huifa No. 43 [2010]) shall be declared invalid. If there are any discrepancies between any previous provisions and this Circular, this Circular shall prevail.
