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To effectively control the cross-border flow of funds, to crack down on the inflow of hot moneyin violation of the relevant regulations, and to maintain the security of the foreign-related economy and finance, the State Administration of Foreign Exchange (SAFE) recently promulgated the Circular on Relevant Issues Concerning Strengthening the Administration of Foreign Exchange Operations (Hui Fa [2010] No. 59) (hereinafter referred to as the Circular). The Circular deals with seven issues: (i) strengthening administration of the banks comprehensive positions in the settlement and sales of foreign exchange, and implementing a minimum level of management of the banks balance of positions calculated on a cash basis; (ii) making adjustments to the policies on the administration of online inspections of foreign exchange collections and settlement for exports, reducing the proportion of foreign exchange collection from the processing of imported materials for the online inspections of foreign exchange collections and settlement for export, and strictly handling the procedures for the settlement or transfer of foreign exchange funds in accounts to be verified; (iii) strengthening administration of the quotas on the short-term external debts and the balance of external guarantees of financial institutions, and imposing tight restrictions on banks operations in excess of the quotas; (iv) strengthening administration of capital contributions by foreign-funded enterprises in overseas countries and regions, and further clarifying the requirements for the examination and verification of foreign exchange under circumstances when the actual payer is inconsistent with the overseas investor; (v) strengthening examination of the authenticity of the settlement of funds which are repatriated as capital raised from overseas listings in accordance with the requirements for tightening foreign exchange settlement for payments; (vi) regularizing administration of overseas incorporation of companies with special purposes by domestic institutions and individuals, and imposing penalties on enterprises and individuals operating in violation of the regulations in accordance with the law; (vii) increasing penalties on banks operating in violation of the regulations in the form of imposing fines, terminating relevant operations, circulating notices of criticism, and so forth, and investigating the responsibilities of the senior management staff who are directly liable for the violations. The promulgation of the Circular will further regularize cross-border flows of funds through such channels as trade, foreign direct investment, round-tripping investment, overseas listings, and so on, particularly administration of the bankscomprehensive positions for foreign exchange settlement and sales and short-term external debts. Promulgation of the Circular will strengthen the banks obligation to carry out examinations of authenticity in the handling of foreign exchange business, which will be conducive to further cracking down on the inflow and settlement of foreign exchange funds in violation of the laws and regulations, preventing financial risks caused by cross-border inflows of hot money,and thereby promoting the healthy and orderly development of Chinas economy and finance. 2010-11-09/en/2010/1109/965.html
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A symposium of branch directors of the State Administration of Foreign Exchange (SAFE) was recently held in Shenyang, Liaoning province. The symposium discussed foreign exchange administration work since the beginning of 2009, analyzed the current foreign exchange situation, and studied and planned the next stage of foreign exchange administration work. Yi Gang, administrator of the SAFE, and Deng Xianhong, deputy administrator of the SAFE, each delivered speeches at the symposium. The symposium pointed out that since the beginning of this year, under the firm leadership of the Central Committee of the CPC and the State Council and the direct guidance of the Party Committee of the Peoples Bank of China, the foreign exchange administration departments have been earnestly carrying out and putting into practice the scientific outlook on development, and have made new achievements with consolidated conviction and concerted effort, which have played an active role in coping with the global financial crisis and promoting the steady and rapid development of the national economy. First, normal foreign trade activities of enterprises have been further facilitated so as to mitigate the difficulties of export enterprises. The SAFE has earnestly put into practice the policy measures of the State Council on promoting economic development with financial levers and stabilizing external demand, improved on-line inspection and management for the collection and settlement of foreign exchange for exports, and has taken measures to encourage banks to carry out trade financing. These measures are conducive to accelerating foreign exchange collection and settlement for exports and capital turnovers as well as for stabilizing the foreign trade activities of enterprises. Second, energetic support has been given to the go-global strategy and trade facilitation has been promoted. The SAFE issued the Circular on Related Issues Regarding Foreign Exchange Administration of Overseas Loans Granted by Domestic Enterprises and the Regulations on Foreign Exchange Administration of Overseas Direct Investment of Domestic Institutions, which further expanded the scope of lenders and sources of funds for overseas loans, streamlined the ratification and exchange procedures for overseas loans, and improved the relevant statistical monitoring and risk prevention mechanism. The examination and verification measures of foreign exchange fund sources for overseas direct investment have been altered from ex ante examination to ex post registration. The administration system for outward remittances of funds has been adjusted from a ratification system to a registration system. Currently, the overseas direct investment of domestic institutions is basically free from exchange procedure restrictions, which, to a great extent, has further facilitated the relevant procedures. Third, the statistics and monitoring of the balance of payments have been improved, and balanced administration and risk prevention of cross-border fund flows have been strengthened. The SAFE improved the foreign exchange administration and monitoring system for direct investment, revised the measures for the statistics of foreign exchange assets and liabilities of Chinese-funded financial institutions, standardized the opening, use, and other activities of domestic foreign exchange accounts of overseas institutions, and improved the supervision of cross-border fund flows. The SAFE also improved the working mechanism of the Global Financial Crisis Response Team, completed the appraisal of commercial banksimplementation of the foreign exchange administration regulations, and revised and issued the Measures for Appraisal of Banks Implementation of Foreign Exchange Administration Regulations. Fourth, construction of the foreign exchange market has been promoted and efforts by enterprises to avoid exchange rate risks have been supported. Since the beginning of this year, the SAFE has approved three currency brokerage companies to enter the foreign exchange brokerage business, three financial companies to have access to the inter-bank foreign exchange market, and seven finance companies of enterprise groups to engage in spot settlement and sales of foreign exchange, in order to activate transactions on the foreign exchange market and facilitate the use of foreign exchange by transnational enterprise groups. The SAFE actively carried out the netting clearing business of inquiry trading on the inter-bank foreign exchange market in order to lower market operation risks and to increase market activity. Fifth, administrative procedures for the examination and approval of foreign exchange business have been improved, and efforts to adjust the foreign exchange regulations have been strengthened. The SAFE delegated the examination and approval authority for ten foreign exchange businesses under the capital account from the headquarters to its branches so as to facilitate the handling of the business by enterprises. Efforts were strengthened to straighten out the existing foreign exchange administration regulations; 91 regulatory documents on foreign exchange administration were declared null and void, thus facilitating the efforts of enterprises and banks to grasp the relevant foreign exchange administration regulations. Sixth, foreign exchange fund flows in breach of the regulations have been actively investigated and punished so as to maintain good order on the foreign exchange market. The SAFE successively organized and implemented special examinations and investigations of foreign exchange business, and made concerted supervisory efforts in various departments to further improve the supervision of abnormal foreign exchange fund flows. The SAFE continued to carry forward the spirit of revitalizing business with integrity and credibility, to do a good job for the disclosure of illegal information about foreign exchange transactions, and to make major efforts by harshly cracking down on illegal acts and acts in breach of the regulations. Seventh, the safety of foreign exchange reserve assets has been guaranteed, and the operation and management of foreign exchange reserves have been improved. The SAFE persisted in prioritizing risk prevention, conducted deep analysis of market changes and economic trends, earnestly summarized the experiences and lessons in coping with the international financial crisis, and actively explored operation and management systems and mechanisms that are suited for implementation in China. Eighth, education on building clean government and construction of an internal control system have been strengthened. The campaign of the Caution and Education Month for Building Clean Government was carried out in the headquarters of the SAFE in April, and the year of 2009 has been designated as the Year of Standardized Administrative Enforcement of the SAFE. Vigorous efforts have been made to improve the internal management system. For key departments, businesses, and procedures involving administrative approval, self-examination activities have been conducted in line with the requirements of the Administrative Licensing Law and other relevant provisions. The functions of various positions in the administrative enforcement departments have been examined in an all-round manner, the enforcement procedures have been standardized, and an appraisal and assessment mechanism and responsibility investigation mechanism for administrative enforcement have been established. It was agreed at the symposium that Chinas economy has entered a critical period of stabilizing and recovery. Generally, the nations foreign exchange collection and payments on the whole so far this year have been stable, with a certain amount of net inflows and no massive outflows of capital. In the upcoming period, the balance of payments and foreign exchange collection and payments will still confront relatively great uncertainty and complexity. In this regard, the foreign exchange administration will continue to adhere to the policy orientation of preventing massive outflows of funds and warding off the sudden inflow of funds. Meanwhile, under the guidance of the scientific outlook on development, the various plans of the CPC Central Committee and the State Council shall be resolutely implemented. Continued efforts will be made to emancipate the mind, actively upgrade the concepts of foreign exchange administration, further strengthen service-oriented awareness in foreign exchange administration, and incorporate cost control and market-oriented awareness into foreign exchange administration, in order to constantly improve social transparency, service quality, and the management level of foreign exchange administration, to maintain the security of the national economy and finance, and to promote the sound and rapid development of the national economy. Priority will be given to the following areas: First, so as to facilitate foreign exchange collection and payments of various market entities, efforts will be made to further enhance service-oriented awareness in foreign exchange administration. The SAFE will step up the reform of the writing-off and verification system for exchange collection and payments for imports and exports, improve foreign exchange administration for trade in services, streamline procedures for submitting tax certificates for external payments in foreign exchange for trade in services, conduct research on the formulation of measures for the administration of overseas deposits of foreign exchange collections from exports, steadily promote product innovation on the foreign exchange market, and provide enterprises with more risk prevention instruments. Second, priority will continue to be placed on broadening capital outflow channels, and the reform of capital account administration will be steadily pushed forward. Research will be carried out on expanding the scope of centralized domestic operations of foreign exchange funds of enterprise groups so as to further facilitate the efforts of enterprise groups to raise the efficiency of fund use. The regulations on foreign exchange administration of QFII and DFII will be improved in order to provide domestic residents with more channels for investment. The SAFE will also team up with relevant departments to promote the development of the domestic capital market. Third, intensified efforts will be made for system integration, and the statistical monitoring system for cross-border funds will be improved. The SAFE will make major efforts to develop the foreign exchange account system and will continue to study the integration of data and the system in order to provide better services for cross-border fund flows and statistical monitoring and analysis of the balance of payments. Efforts will be made to perfect the statistical and declaration system of the balance of payments, improve the statistics of overseas assets, liabilities, profits, and losses of financial institutions, enhance the timeliness and transparency of statistics of the balance of payments, study the establishment and perfection of the statistical monitoring system for external claims and liabilities, and improve the system functions such as trade credit registration, direct investment, etc. Fourth, balanced management of cross-border funds will be strengthened, and the contingency mechanism for the balance of payments will be further improved. Efforts will be made to investigate the building of an overall claims and liabilities management system, to persist in and perfect the assessment system for the implementation of foreign exchange administration policies by banks, to consolidate the effects of such assessment, to reinforce the construction of an early warning risk system for the balance of payments, and to improve the multi-level dual-direction early warning framework for risks in the balance of payments. Intensified efforts will be made to investigate major and significant cases and to struggle against illegal acts or acts in breach of the regulations, such as the operation of underground money shops and network speculation in foreign exchange. Special inspections and investigations will be carried out to facilitate the operations of enterprises involved in exchange transactions in compliance with the relevant regulations. Fifth, efforts will be made to further improve the operation and administration of foreign exchange reserves. The SAFE will continue to improve the operation and management mechanism for foreign exchange reserves to meet the specific requirements of the Chinese economy, further intensify studies on the operation and development patterns of economic cycles and the financial market, and improve the long-term profitability of reserve assets based on maintaining asset security and liquidity. Sixth, efforts will be made to further increase the transparency of foreign exchange administration and promote the construction of the foreign exchange administration regulation system. Intensified efforts will be made to straighten out the regulations for a better understanding of the foreign exchange administration policies and regulations by market entities. Efforts will also be made to strengthen communications between the SAFE, the general public, and the relevant departments in order to create a sound external environment for foreign exchange administration. Seventh, the construction of clean government and of an internal management system will be further strengthened. Efforts will be made to strengthen supervision of leading cadres and to incorporate the building of clean government into the comprehensive responsibility target management of Party organizations and the administrative leadership teams at various levels. Party members and leading cadres at various levels should earnestly carry out the principle of dual responsibilities for one post, strengthen construction of the internal management system, and intensify training for cadres and education on the building of clean government. At the symposium it was required that the foreign exchange administrations at various levels shall thoroughly implement the scientific outlook on development under the guidance of Deng Xiaoping Theory and the important thought of the Three Represents, shall consolidate conviction, work steadfastly, and make great endeavors to achieve all the annual targets, so as to make greater contributions to the steady and rapid development of the national economy and to greet the 60th anniversary of the founding of New China with practical work and outstanding achievements. Participants at the symposium included the leaders, chief economists, chief accountants, chief leaders of all departments, the Party Committee, and all institutions of the SAFE, as well as the general deputy directors (deputy directors) responsible for foreign exchange work in all branches of the foreign exchange administrative departments. 2009-09-23/en/2009/0923/900.html
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1. Basic Information about the Qualified Foreign Institutional Investors System The Qualified Foreign Institutional Investors (QFII) system refers to an opening-up mode of the capital market whereby approved qualified foreign institutional investors are permitted to remit inwards foreign exchange funds and exchange them into local currencies, to invest in the local securities market with the exchanged funds via special accounts, and, with approval, to process outward remittances of their principal, capital gains, dividends, and so forth with the purchased foreign exchange. In November 2002, when the QFII system was formally implemented in China the China Securities Regulatory Commission and the Peoples Bank of China jointly promulgated the Provisional Regulations on the Administration of Domestic Securities Investments by Qualified Foreign Institutional Investors (QFII). Since the first QFII was introduced in China in June 2003, QFII experiments have been steadily carried out. Implementation of the QFII system has played a positive role in introducing advanced investment theories, cultivating institutional investors, promoting market innovations, and so forth, and has facilitated the development of Chinas capital market. 2. Basic Information about the Qualified Domestic Institutional Investors System The Qualified Domestic Institutional Investors (QDII) system refers to an opening-up mode whereby qualified domestic institutional investors are permitted, within a certain quota approved by the regulatory authorities, to invest in overseas securities market via special accounts. In April 2006, the QDII system was approved and formally initiated. Currently, the QDII system includes three kinds of institutional businesses, i.e., overseas securities investment businesses such as overseas wealth management services on behalf of clients provided by commercial banks, overseas uses of insurance funds, and fund management companies. Implementation of the QDII system broadens the channels for overseas investment by domestic institutions and individuals and, in collaboration with the QFII system, jointly promotes regulation over the two-way flow of funds, thus facilitating an equilibrium in the balance of payments and improving the current setup in whereby official reserves dominate Chinas overseas financial assets. Up to the end of 2008, among Chinas overseas financial assets of USD 2 trillion, the share of foreign exchange reserves was about 75 percent, but during the corresponding period in Japan the ratio was only 20 percent. With implementation of the QDII system, the share of non-official overseas financial assets can be gradually increased. 3. What is the situation for investment quota approvals of QFIIs and QDIIs and for the inward/outward remittances of funds? By the end of August 2009, the SAFE had approved institutional investment quotas for 76 QFII, amounting to USD 15.32 billion, and they had remitted inwards a total of USD 13.846 billion. By the end of August 2009, the SAFE had approved overseas securities investment quotas for 56 QDII institutions, amounting to USD 55.951 billion, among which USD 33.565 billion was for 12 fund management companies and securities companies (hereinafter referred to as securities trading institutions), and the net outward remittance of QDII funds amounted to USD 28.711 billion, among which USD 14.495 billion was securities QDII funds. 4. How should the principles in the examination of the QFII investment quota be understood? The QFII system mainly aims at encouraging foreign medium- and long-term institutional investors to make securities investments in China, so during the quota examination, we give priority to prioritize applications from institutional investors such as pension funds, insurance funds, mutual funds, charity funds, donation funds, and government and currency administrative authorities. During the early stage of the QFII experiment, due to the relatively high requirements for approval, institutions that applied for QFII qualifications were usually large-sized institutions with a good reputation, so to some extent we favored their investment quota in order to guarantee the stability of the QFII funds. Later, examination of the QFII quota was conducted in a basically balanced manner, mainly in light of the QFII institutions asset size, asset allocations, investment management capability, past investment performance, and so forth. 5. What is the main content of the Regulations on Foreign Exchange Administration of Domestic Securities Investments by Qualified Foreign Institutional Investors (QFII)? What are the improvements when compared with the 2002 Provisional Regulations on Foreign Exchange Administration of Domestic Securities Investments by Qualified Foreign Institutional Investors (QFII)? The Regulations on Foreign Exchange Administration of Domestic Securities Investments by Qualified Foreign Institutional Investors (QFII) (hereinafter referred to as the Regulations) encompass 6 chapters and 27 articles, including mainly general provisions, investment quota administration, account administration, exchange management, statistics and administration, and supplementary provisions. Compared with the 2002 Provisional Regulations on Foreign Exchange Administration of Domestic Securities Investments by Qualified Foreign Institutional Investors (QFII), the Regulations exhibit the following improvements: first, the ceiling for the investment quota of a single QFII institution is raised from USD 800 million to USD 1 billion; second, QFII institutions are permitted to open fund accounts of different natures and types; third, the principal lock-up period for pension funds, donation funds, open-ended Chinese funds, and so forth for medium- and long-term investments is reduced to 3 months; fourth, the management principles for open-ended Chinese funds are specified, and many phases, such as the account opening, management of the lock-up period, exchange of funds, purchases and redemptions, are more convenient for the applicants. 6. What is the main content of 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? 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) encompasses 12 articles, including investment quota administration, foreign exchange account management, funds exchange management, statistics and monitoring, and so forth. On the one hand, the Circular simplifies the procedures and required materials necessary for securities trading institutions to apply for an overseas securities investment quota, thus shortening the procedure flow and improving efficiency. On the other hand, it specifies the principles for the balanced management of the overseas investment quota of securities trading institutions. Meanwhile, it also stipulates that securities trading institutions that are awarded an investment quota can invest in all kinds of overseas securities investment products approved by the regulatory authorities. Moreover, in order to avoid a situation whereby the securities trading institutions accept a quota but do not use it, the Circular stipulates that the SAFE has the right to reduce any investment quota that is not used effectively within 2 years. 7. How do the Regulations on Foreign Exchange Administration of Domestic Securities Investments by Qualified Foreign Institutional Investors (QFII) apply to institutions that have been awarded a quota? Those QFII institutions that have been awarded a quota can file an application with the SAFE to open separate accounts so as to satisfy the requirements for differentiating the distinct sources of funds. Those QFII institutions that have transferred or resold their quota prior to promulgation of Regulations should report the relevant situation to the SAFE and end all such activities as of the date of promulgation. 8. What requirements are proposed for follow-up administration of QIIs by the Regulations on Foreign Exchange Administration of Domestic Securities Investments by Qualified Foreign Institutional Investors (QFII) and the Circular of State Administration of Foreign Exchange (SAFE) on Relevant Issues Concerning Foreign Exchange Administration of Overseas Securities Investment by Fund Management Companies and Securities Companies? The Regulations and the Circular further enhance statistics, monitoring, and follow-up administration, including mainly the following improvements: first, the relevant reporting system is improved and the contents of the reports are enriched; second, the responsibilities regarding reporting and filing for QIIs and their custodians are specified; third, the obligation of reporting the balance of payments by the QII and its custodian is stipulated; fourth, the relevant principles and basis for punishment are specified; fifth, the daily administrative responsibilities by the local branches of the Administrations of Foreign Exchange are noted. 2009-11-13/en/2009/1113/905.html
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Recently the State Administration of Foreign Exchange (SAFE) promulgated the Provisions on the Centralized Operations and Administration of Foreign Exchange Funds of Internal Members of Domestic Enterprises (hereinafter referred to as the Provisions), and a relevant responsible person of the SAFE was interviewed concerning the Provisions. Q: What is the background and significance of the promulgation of the Provisions? A: In the current context of gradual globalization and integration of the world economy and finance, domestic enterprises have greater requirements to optimize the allocation of foreign exchange resources and to improve the efficiency of the utilization of foreign exchange funds. In order to support and facilitate the utilization and operations of foreign exchange funds by domestic enterprises, as well as to conform to the requirements of adapting to the balanced management of the balance of payments, in recent years the SAFE in succession promulgated a series of policies and measures to reform and normalize the centralized operations and administration of the foreign exchange funds of enterprises. For example, the Circular of the SAFE Concerning Relevant Issues on the Internal Operation and Administration of Foreign Exchange Funds of Multinational Companies (Huifa [2004], No. 104) and the Circular of the SAFE Concerning Relevant Issues on the Business of Spot Purchases and Sales of Foreign Exchange Carried Out by Finance Companies of Enterprise Groups (Huifa [2008], No. 68). In order to further lower the admittance threshold for centralized operations and administration of foreign exchange funds of domestic enterprises, to clarify the operation methods of foreign currency fund pool business in China, to normalize and improve the laws and regulations on the centralized operations and administration of foreign exchange funds, and to promote the putting in order and amending of laws and regulations on foreign exchange administration, the SAFE drafted the Provisions on the Centralized Operations and Administration of Foreign Exchange Funds of Internal Members of Domestic Enterprises, with comprehensive reference to the opinions of banks and enterprises. The Provisions were promulgated on October 13, 2009 and implemented on November 1, 2009. Implementation of the Provisions will further normalize and systematize the collective operations and administration of foreign exchange funds, thus conforming to the current state of economic development. And it will facilitate improvements in the efficiency of utilization of funds by domestic enterprises, reducing costs and enhancing competitiveness. Meanwhile, this implementation is also conducive to promoting cooperation between banks and enterprises as well as to business innovation, thus accelerating the linking of Chinas financial services industry and international operations. Q: What are the major reforms set forth in the Provisions? A: First, they relax the limits stipulated for the qualifications of business entities. Second, they clarify the operational methods for foreign currency fund pool business in China, normalize the relevant content concerning the foreign currency fund pool business in China, such as basic principles, business structure, examination procedures, and specify that entrusted banks (finance companies) that implement the plans shall be responsible for the application and relevant statistics and filing and reporting. Third, they further delegate relevant powers. Issues such as the examination of foreign exchange administration prescribed in the Provisions shall fall under the jurisdiction of the AFE branches (administrative departments), and the SAFE will no longer process the specific examinations and verifications of the applications. Fourth, they normalize and reinforce the laws and regulations on the centralized operations and administration of foreign exchange funds. The Circular Concerning Relevant Issues on the Business of Spot Purchases and Sales of Foreign Exchange Carried Out by Finance Companies of Enterprise Groups (Huifa [2008], No. 68) incorporates and improves the framework of the Provisions, thus further promoting the putting in order and amending of the laws and regulations on foreign exchange administration. Meanwhile, they further simplify the relevant procedures for examination and approval of foreign exchange business. Issues related to the business of centralized operations and administration of foreign exchange funds, such as the opening of relevant accounts and domestic foreign exchange transfers, can be processed by entrusted banks (finance companies) on behalf of the enterprises with the approval documents for the business qualifications, and no approval from the AFE branches is required. Q: What is the main content included in the centralized operations and administration of foreign exchange funds of internal members of domestic enterprises? A: According to the Provisions and other relevant regulations on foreign exchange administration, the centralized operations and administration of foreign exchange funds of internal members of domestic enterprises include inter-company lending/borrowing of foreign exchange among internal members of domestic enterprises, implementation of administration of foreign currency fund pool business, and the business of spot purchases and sales of foreign exchange via internal finance companies. Q: Upon implementation of the above-mentioned measures, what are the anticipated risks in terms of the centralized operations and administration of foreign exchange funds? How can those risks be prevented? A: First, as foreign exchange funds used for inter-company lending/borrowing and the foreign currency fund pool business by internal members of domestic enterprises are from the discretionary foreign exchange funds in their foreign exchange capital accounts and foreign exchange current accounts, it may be possible that the settlement of foreign exchange capital will be carried out by way of the centralized operations of the foreign exchange funds, thus avoiding the current exchange settlement policies for foreign exchange capital. In order to prevent such a risk, it is specifically prescribed in the Provisions that entrusted loan funds of domestic enterprises shall not be used after exchange settlement, nor shall they be used as pledges for RMB loans. Should it be necessary that they be used after exchange settlement, the domestic enterprises shall transfer the entrusted loan funds from their foreign exchange capital account or current foreign exchange account back to the original accounts thereof, and then carry out the foreign exchange settlement in compliance with relevant regulations. Second, in the event of centralized operations of foreign exchange funds in the form of foreign currency fund pools, in order to avoid conflicts with the fact examination methods of the exporter shall be the party to collect the foreign exchange and the importer shall be the party to pay the foreign exchangeas prescribed in the current regulations on foreign exchange administration, in the plans for foreign exchange fund pools it is prescribed that: ones own foreign exchange funds for collection shall follow the principle of going through the relevant formalities before centralized operations and administration; the income/expenditure range of the accounts, such as special accounts for foreign exchange entrusted loans, and foreign exchange capital accounts and current foreign exchange accounts, is strictly limited; the principle of full-receipt, full-paymentshall be adhered to; and no net settlement is allowed on its own. In general, the risks existing from the centralized operations and administration of foreign exchange funds of domestic enterprises are limited, and are also controllable with the implementation of above-mentioned design scheme. Q: Do the Provisions apply to internal members of domestic enterprises controlled by overseas parent companies? A: Yes. Article 28 of the Provisions specifies that The Provisions shall apply to internal members of domestic enterprises controlled by the same overseas parent company. Q: Is approval from the AFE required when domestic enterprises carry out operations of foreign exchange funds business via internal finance companies in the form of collecting the internal membersforeign exchange deposits and granting foreign exchange loans to internal members? A: If domestic enterprises only conduct the business of foreign exchange funds operations via finance companies in the form of collecting internal members foreign exchange deposits and granting foreign exchange loans to the internal members, no approvals by the AFEs are required. The same case applies in the plan for issues such as the opening of foreign exchange fund accounts and domestic foreign exchange transfers. However, if foreign currency funds pools are realized within the legal framework of the entrusted loans, they shall be approved by the AFEs and processed in compliance with the Provisions. Q: Compared with the Circular of the SAFE Concerning Relevant Issues on the Business of Spot Purchases and Sales of Foreign Exchange Conducted by Finance Companies of Enterprise Groups, are there any changes in the Provisions concerning administration of the business of spot purchases and sales of foreign exchange conducted by domestic enterprises via finance companies? A: There are no changes in the principles, but the contents are more scientific and improved. For example, the Provisions further specify the relevant procedures for the business of purchase and sale of foreign exchange by finance companies, i.e., only after becoming members of the inter-bank spot foreign exchange market can finance companies conduct the business of spot purchases and sales of foreign exchange in compliance with the relevant regulations on the purchase and sale of foreign exchange. Q: How should we understand the relationship among the Provisions, the Circular of the SAFE Concerning the Relevant Issues on the Internal Operations and Administration of Foreign Exchange Funds of Multinational Companies (Huifa [2004], No. 104) and the Circular of the SAFE Concerning the Relevant Issues on the Business of Spot Purchases and Sales of Foreign Exchange Carried Out by Finance Companies of Enterprise Groups (Huifa [2008], No. 68)? A: The Circular of the SAFE Concerning the Relevant Issues on the Internal Operations and Administration of Foreign Exchange Funds of Multinational Companies (Huifa [2004], No. 104) and the Circular of the SAFE Concerning the Relevant Issues on the Business of Spot Purchases and Sales of Foreign Exchange Carried Out by Finance Companies of Enterprise Groups (Huifa [2008], No. 68) shall be repealed simultaneously with the date that the Provisions enter into effect. 2009-11-30/en/2009/1130/908.html
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Recently, a meeting was held by the State Administration of Foreign Exchange (SAFE) to plan for foreign exchange inspection work in 2010. In 2009 the foreign exchange administration departments at all levels earnestly implemented the overall planning for sustaining growth, preventing risks, and promoting an equilibrium in the balance of paymentsestablished by the SAFE for foreign exchange administration, and adopted a proactive posture to cope with the new challenges and new requirements brought about by the changes in external circumstances. New progress was made in the following areas: implementing special inspections and investigations; investigating and punishing illegal and criminal foreign exchange activities; promoting the construction of a cooperative mechanism for foreign exchange supervision; enhancing the approach for off-site inspections of foreign exchange transactions; strengthening the construction of internal control systems; carrying out major research programs; disseminating policy on a wide scale, and so forth. Satisfactory results were obtained. The meeting pointed out that with the greater complexity and volatility of the circumstances in the balance of payments in 2010, along with the growing uncertainties regarding cross-border foreign exchange fund flows and greater pressures caused by the increasing net inflows of foreign exchange, the foreign exchange administration departments at all levels will be required to give full play to their law enforcement role at the forefront of foreign exchange inspections, take full advantage of their role in detecting illegal foreign exchange activities, give full scope to the functions of the cooperative mechanism for foreign exchange supervision, conscientiously fulfill their duties to investigate and punish illegal foreign exchange activities, preserve law-based order in the foreign exchange market, and safeguard the financial security of the nation. The general idea behind foreign exchange inspection work for 2010 is as follows: tracking closely changes in the economic and financial situations both at home and abroad, actively enhancing the approaches for foreign exchange inspection work, carrying out special campaigns in an orderly manner for the inspection and investigation of abnormal cross-border fund flows, intensifying efforts to combat illegal foreign exchange activities such as underground money shops, online foreign exchange speculation, and so forth, and constantly enhancing the predictability, relevance, flexibility, and effectiveness of foreign exchange inspection work. The meeting also made plans for foreign exchange inspection work in 2010. Emphasis will be placed on special inspections of illegal foreign exchange fund inflows, which will be implemented in the first half of the year in 13 provinces and cities that have more foreign exchange business. The target of the inspections will mainly include trade in goods, trade in services, individual direct investment, foreign direct investment, balance of payments transactions under the external debt, and cross-border fund inflows. The foreign exchange administration departments at all levels will be required to carry out inspections in compliance with the principle of giving prominence to the central task, emphasizing the vital aspects of work, addressing both the symptoms and root causes of the problems, and adhering to overall planning and coordination. Efforts should be made to take full advantage of the information technologies and off-site approaches for the inspections. As far as working procedures are concerned, it is advisable that the departments screen and determine the transactions and entities that are regarded as abnormal at the initial stage, and carry out inspections to ascertain any illegal facts. Inspection procedures should be designed to cover all the major channels, items, and entities through which hot moneyflows, with the aim of ensuring high precision in cracking down on the illegal activities. Meanwhile, the departments should take into consideration the prevention of negative impacts on the normal trade and investment activities of economic entities undergoing inspections. Multiple approaches (administrative measures, legal measures, and so forth) should be adopted to punish the illegal fund inflows by enterprises and individuals that have been determined by the inspection personnel. Failure of the designated foreign exchange banks to fulfill their duties and the acts of wrongdoing by these banks should also be seriously punished through administrative and legal measures as well as by other means. Meanwhile, the foreign exchange administration departments at all levels will be required to strengthen their communications and coordination with the local governments, to give full play to the supervisory and coordination mechanisms, and to further enhance cooperation in foreign exchange supervision. 2010-03-22/en/2010/0322/922.html
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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