In order to support foreign trade and to boost growth, the SAFE, the General Administration of Customs, and the State Administration of Taxation since August 1, 2012 have implemented a reform of the foreign exchange administration system for trade in goods throughout the country. Preliminary results were achieved within one month of implementation.

In the early 1990s, China implemented an administration system whereby the flows of imported and exported goods and the flows of capital matched each other on a case-by-case basis and an on-site verification and writing-off system was applied. For a long period, this system was consistent with China ’s macro-economic and foreign trade situations, and it played an active role in supervising and encouraging enterprises to collect the full amount of foreign exchange in a timely manner, to guard against cheating on tax rebates from exports, and to crack down on foreign exchange evasion. However, as the scale of China’s foreign trade rapidly increased, it was difficult to adapt this administrative method of verification and writing-off on a case-by-case basis for the receipts and payments of foreign exchange from imports and exports to the current trade mode requirements and to the participant diversification. Therefore, in order to introduce a reform of the verification and writing-off system of foreign exchange payments for imports, as of August 1, 2012 the SAFE implemented a reform of the foreign exchange administration system for trade in goods throughout the country.

The main content of the reform includes: First, simplifying the business handling formalities and procedures for foreign exchange receipts and payments for trade in imports and exports. The foreign exchange authorities cancelled the verification and writing-off system for receipts and payments of foreign exchange from imports and exports, with enterprises no longer required to handle the verification and writing-off procedures on a case-by-case basis with the foreign exchange authorities; cancelled the Online Inspection of Foreign Exchange Collections and Settlements from Exports, with the foreign exchange collections and settlements from exports of the complying enterprises no longer subject to limits; cancelled the ex-ante management of the ratio of trade credits, such as the advance receipts by and the deferred payments of foreign exchange by enterprises, and instead implemented ex-post dynamic monitoring; simplified the documents required for foreign exchange purchases and payments for imports, with the complying enterprises able to purchase foreign exchange in advance from the banks on the basis of their true and lawful needs for foreign exchange payments for imports, and able to handle the foreign exchange payment procedures with the banks upon the strength of the import customs declaration, contract, invoice, or any other document that proves the authenticity of the transactions. Second, adjusting the export custom declaration procedures, and simplifying the export rebate vouchers. Enterprises are no longer required to provide a verification form for the handling of the export custom declarations and for declaring export rebates. Third, improving regulatory means through aggregate verifications, dynamic monitoring, and classified management. The foreign exchange authorities carry out off-site aggregate comparisons between the flows of imported and exported goods and the enterprises’ flows of capital, conduct classified management and dynamic monitoring of the enterprises, and effectively guard against the risks of foreign exchange receipts and payments. Fourth, strengthening joint supervision by the authorities. The foreign exchange, customs, and tax authorities further strengthened cooperation, improving the coordination mechanism, realizing data sharing, creating synergy, and rigorously cracking down on irregular cross-border capital flows and activities in violation of the relevant laws, such as smuggling and tax fraud.

In promoting the reform, the foreign exchange authorities actively transformed government functions, significantly reduced the administrative examination and approval items, with the number of administrative licensing items related to foreign exchange administration for trade in goods reduced from 19 to 4, and repealed 116 normative documents related to foreign exchange administration for trade. Furthermore, the foreign exchange authorities established and improved the operational rules and other standards and regulations, improved the internal control system, and enhanced administrative efficiency.

Since the reform of the foreign exchange administration system for trade in goods was implemented one month ago, the positive effects of the reform in terms of facilitating trade activities and serving the real economy have already become apparent. This is embodied specifically in the significant improvement in the banks’ efficiency with respect to foreign exchange receipts and payments for trade, with the bank counters’ average processing time for foreign exchange collection and settlements reduced from 26 minutes per transaction to 9 minutes per transaction, and that for foreign exchange sales and payments reduced from 23 to 6 minutes. This is also embodied in the significant shortening of the time required for the enterprises’ receipts and payments of foreign exchange for foreign trade, and in the notable decrease in the “travel time cost” for the round-trip between the foreign exchange authorities and the banks, with the amount of human resources invested in trade receipts and payments reduced by one-third, the average cost of wages saved by each enterprise reaching RMB70,000, and that saved by each large-scale enterprise in the eastern developed regions even reaching RMB200,000, thereby reducing the enterprises’ operating costs for imports and exports and improving foreign trade competitiveness.

While the reform promotes trade facilitation, it also strengthens the prevention and control of the risks of unusual cross-border capital flows. Since the reform, the complying enterprises, accounting for more than 95 percent of all enterprises, fully enjoy the benefits brought about by the policy on foreign exchange receipts and payments for trade in goods; the foreign exchange authorities can take advantage of information technology to screen those enterprises with unusual circumstances, and through dynamic monitoring, on-site verifications, and classified management, can strictly supervise the few enterprises with suspicious or irregular activities and can implement precise crackdowns. According to the statistics, the average daily traffic on the Foreign Exchange Monitoring System for Trade in Goods exceeds 200,000 person-times. As of the end of August 2012, more than 1,500 “empty-shell enterprises” were de-registered from the list, with banks no longer handling foreign exchange receipts and payments in trade for these enterprises; and the foreign exchange receipts and payments in trade of nearly 700 enterprises with unusual circumstances or suspected of being involved in activities in violation of the laws and regulations, such as evasion or illegal purchases of foreign exchange, to a certain degree have been restricted.