To implement the gist of the 18th CPC National Congress, and the Third, Fourth, Fifth and Sixth Plenums of the 18th CPC Central Committee, and the Central Economic Work Conference, further deepen the foreign exchange administration reform, streamline administration and delegate powers, support the development of the real economy, and guard against the risks arising from cross-border capital flows, the State Administration of Foreign Exchange (SAFE) has recently released the Circular of the State Administration of Foreign Exchange on Further Advancing Foreign Exchange Administration Reform to Enhance Authenticity and Compliance Reviews (Huifa No. 3 [2017], hereinafter referred to as "Circular").

The Circular is focused on coordinating facilitation and risk prevention. On the one hand, the reform will continue, with policy measures implemented in favor of the balance of foreign exchange receipts and payments to support the development of the real economy. On the other hand, efforts will be made to urge banks and enterprises to comply with the existing foreign exchange administration provisions to perform their responsibilities for authenticity and compliance reviews, to intensify statistical analysis of retained earnings overseas, refine the integrated management of cross-border funds denominated in domestic and foreign currencies and guard against risks. Authentic cross-border receipts and payments and exchanges that are in compliance with regulations will not be affected. Specifically, the Circular covers 9 measures in three aspects:

I. Deepening reform to enhance the level of trade and investment facilitation. First, expanding the scope of foreign exchange settlements for domestic foreign exchange loans; second, allowing funds for overseas loans under domestic guarantees to be transferred back for domestic use. Third, increasing the share of deposits absorbed by the international foreign exchange master account with domestic banks for domestic use. Fourth, allowing overseas institutions in pilot free trade zones to go through foreign exchange settlements through the non-resident account.

II. Refining management to strengthen authenticity and compliance reviews. First, further standardizing foreign exchange administration for trade in goods and requiring exporters to collect foreign exchange in time. Second, continuing to implement and refine the outward remittance management policy for foreign exchange profits from direct investment, and clarifying the requirements on documents and endorsement for the outward remittance of foreign exchange profits of the equivalent of USD 50,000 (exclusive), and that the losses of the previous years should be duly made up for before remitting profits outward. Third, making sure that any domestic institution explains to the bank the sources of investment funds and the purposes (use plan) of the funds, and present to the bank the resolutions of the board of directors (or the resolutions of the partners), contracts and other authenticity evidencing materials, when going through ODI registration and remittance procedures.

III. Stepping up efforts in statistics to coordinate management of domestic and foreign currencies. First, any domestic institution who has retained overseas its export revenues or revenues from trade in services due to various reasons, but fails to undergo registration and filing procedures or submit information for the administration of foreign exchange as planned shall report relevant information to the local foreign exchange authority within one month after the Circular is released. Second, the integrated macro-prudential management of domestic and foreign currencies will be adopted for the overseas lending business of domestic institutions. In the overseas lending business of a domestic institution, the sum of the balance of overseas loans denominated in domestic currency and the balance of overseas loans denominated in foreign currencies shall not exceed 30% of its owner's equity in the audited financial statements for the previous year.

The Circular will take effect as of the date of promulgation. The SAFE will regularly assess the outcomes of policy implementation and make adjustments at a proper time in line with the BOP situations.