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January 21, 2007-The National Foreign Exchange Administration Conference was held in Beijing . Ms. Hu Xiaolian, deputy governor of the People's Bank of China and administrator of the State Administration of Foreign Exchange, delivered a report on foreign exchange administration. Acting in the spirit of the Central Economic Work Conference and the National Financial Work Conference, Ms. Hu summarized the administration of foreign exchange in 2006, analyzed the current macro-economic and balance of payments situation, and arranged the work for 2007. The State Administration of Foreign Exchange (hereafter referred to as the SAFE) continued to follow the concept of scientific development as a guide to the overall economic situation, earnestly carried out the overall plan made by the Party Central Committee and the State Council, further deepened restructuring, improved administration, changed its way of thinking, and introduced new mechanisms. As a result, all work made progress in 2006. First, external financial investment and individual foreign exchange administration witnessed new breakthroughs. Vigorous support was provided to banks and securities and insurance institutions to invest in overseas financial markets. By the end of 2006, the SAFE had approved 15 commercial banks for quotas of foreign exchange purchases of as much as USD 13.4 billion for overseas wealth management on behalf of clients, 15 insurance companies for quotas of overseas investments of as much as USD 5.174 billion, and one fund management company for a quota in overseas investment of as much as USD 0.5 billion. The management of an annual quota for individual foreign exchange purchases was implemented in May 2006. The amount and number of transactions of exchange purchases by individuals increased by 2.2 and 2.6 times respectively year on year during May and December 2006. Policies on individual foreign exchange administration were modified at the end of the year to increase foreign exchange purchase limits and implement management of an annual quota. For the first time, permissible transactions under the capital accounts by individuals were specified and individual revenue and expenditures in foreign exchange were further facilitated and regulated. Second, trade and investment was made more convenient. The approval procedures for foreign exchange accounts opened for current account purposes were rescinded and the upper limit on these accounts were raised. Consequently, more and more enterprises opened accounts and the account balances increased by 32% year on year, satisfying demands for holding foreign exchange under the current accounts. Simplified vouchers and formalities facilitated the enterprises utilization of foreign exchange in the services trade. By lifting the limitations on foreign exchange purchases for overseas investment, enterprises were allowed to remit related early-phase expenses in advance and were encouraged to go global. The qualified foreign institutional investors (QFII) system was steadily improved. Forty-four institutions with a quota of USD 9.045 billion had been approved by the end of 2006. Third, the administration of foreign exchange inflows and sales was enhanced and improved trade-related foreign exchange collection and sales were subjected to enhanced management. Over 95% of the 170,000 enterprises registered with the national export verification and reporting system enjoyed greatly facilitated trade-related receipts and payments. The gap between trade and trade-related foreign exchange payments narrowed. The preliminary effects have already become apparent. The external debt and foreign exchange sales of foreign-funded real estate enterprises claimed enhanced administration and the principle of actual demands and self-use was applied to the purchase of domestic housing property with foreign capital. Fourth, vigorous efforts were made to cultivate and develop the foreign exchange market. The inquiry trading and market-maker system were introduced in the inter-bank foreign exchange market to enrich the trading types on the foreign exchange market and to improve general management over the sale and purchase of foreign exchange. At the end of 2006, there were 21 market makers in the inter-bank foreign exchange market, 77 financial institutions qualified for inter-bank forward transactions, and another 62 for swap transactions. The inter-bank business was obviously brisk, and transactions increased several-fold. Meanwhile, the electronic construction of foreign exchange administration was accelerated, and the operation and administration of foreign exchange reserves were continuously improved. Ms. Hu pointed out that we should objectively view the current disequilibrium in the balance of payments and accurately grasp its effects and trends. The balance of payments surplus indicates that our comprehensive national strength and global competitiveness are improving, promoting economic growth and employment, supporting the implementation of development strategies and reform in key fields, and maintaining financial stability. However, the continuous existence of a large surplus also complicates macro-control, imposes pressures for an appreciation of the RMB and increases trade frictions, thus impeding the transformation of economic growth patterns and the economic restructuring process. Therefore, an equilibrium in the balance of payments is critical to the reform and opening up as well as to rapid and sound economic development. Placing great emphasis on this issue, the Central Committee of the Party and the State Council proposed that we must treat the promotion of an equilibrium in the balance of payments as an important task for maintaining steady macro-economic development and have made important arrangements for achieving this goal. All levels of the SAFE must align their thinking with the spirit of the Central Government, fully recognize the significance of an equilibrium in the balance of payments to stabilize macro-economic development, and deeply understand the policies put forward by the Central Government regarding promoting an equilibrium in the balance of payments and thoroughly implement related policies and measures. Ms. Hu emphasized that 2007 is an important year for carrying out and implementing the concept of scientific development in an in-depth manner and for actively promoting the construction of a socialist harmonious society. This year, foreign exchange administration will follow Deng Xiaoping Theory and the important thought of the Three Represents as a guide, and will implement the overall concept of scientific development, earnestly carry out the strategic plans made by the Party Central Committee and the State Council since the 16th National Party Congress, closely follow the guidelines set out at the Central Economic Work Conference and the National Financial Work Conference, deepen the restructuring of the foreign exchange system, broaden capital outflow channels, vigorously develop the foreign exchange market, guard against the risk of foreign exchange reserves, tighten capital inflows and monitoring of sales, and promote an equilibrium in the balance of payments, thus promoting rapid and sound economic development and paving the way for the success of the 17th National Party Congress. The conference also made arrangements for foreign exchange administration in 2007. Ms. Hu emphasized that efforts should be concentrated on the following four tasks. First, the reform of foreign exchange administration will be deepened. It is planned that market-based development will be furthered and the reform of the foreign exchange management system will be pursued, loosening controls over foreign exchange holdings and use by enterprises and individuals will be continued in an orderly way, the development of the foreign exchange market will be accelerated, more favorable policies for the innovation of financial products will be introduced, products in the foreign exchange market will be enriched, the Renminbi exchange rate formation mechanism will be further improved, and the operation and administration of foreign exchange reserves will be strengthened, effectively guarding against risks and actively exploring and developing utilization channels and methods for the foreign exchange reserves. Second, foreign exchange outflows will be promoted. It is planned that the external investment channel will be further expanded, gradually loosening the limitations on the size and type of external financial investments by institutions and individuals and trying to make new progress in the increase of external financial investment. Meanwhile, it is planned that foreign exchange administration of direct investment abroad will be further improved, offering continual and vigorous support for competitive and powerful enterprises that sincerely wish to go global.Third, supervisory work will be reinforced. It is planned that effective monitoring of cross-border short-term capital flows, especially venture capital, will be strengthened. This year, efforts should be concentrated on improving the management methods over external debts, strictly controlling the overheated growth of foreign debts, continuing to implement and consolidate the three supervisory policies for trade-related foreign exchange collection and sales, individual foreign exchange and foreign capital access to the real estate market, and tightening the capital trade credit inflows and strictly monitoring abnormal capital inflows. Fourth, the methods of foreign exchange administration will be improved by adopting advanced technologies. Without effective measures, the administration will be just like a strawman and will have no effect. This year, efforts should be concentrated on keeping a close eye on abnormal cross-border fund flows and illegal foreign exchange transactions, further elevating the level of computerization, raising the efficiency of on-site and off-site inspections, and guaranteeing the actual effects of various policies. Ms. Hu stipulated that all cadres should strengthen the construction of their work style, improve their ability for administration of foreign exchange, carry out their work actively and innovatively according to the requirements of the new situations and tasks, and promote an equilibrium in the balance of payments with a down-to-earth approach. 2007-01-21/en/2007/0121/824.html
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May 18, 2007 - The SAFE recently held a symposium on the inspection of foreign exchange inflows and sales in Chongqing . During the symposium, the progress of the inspection work, which had been carried out in ten provinces and cities of China since early April of this year, was announced and summarized, and the relevant inspection work for next stage was arranged. Ms. Hu Xiaolian, deputy governor of the PBOC and administrator of the SAFE, was present and delivered a speech. The meeting was chaired by Mr. Deng Xianhong, deputy administrator of the SAFE. This activity constitutes a special inspection developed by the SAFE according to the situation of sustained foreign exchange inflows in recent years. Ten important coastal provinces and cities such as Guangdong were chosen to undergo this inspection, which covers foreign exchange collection and sales, as well as the use of RMB capital from foreign exchange sales of all FX-related entities from January 2006 to March 2007. The inspection focused on such behaviors as foreign exchange collection and sales under trade items of goods and services, capital inflows and foreign exchange sales of foreign-funded enterprises, inflows and foreign exchange sales of external debt and trade financing, capital inflows and foreign exchange sales under individual accounts, capital inflows and foreign exchange sales of round-tripping investments, and illegal capital inflows and foreign exchange sales through underground money shops. According to Ms. Hu, the ten provinces and cities undergoing the inspection are quite representative, as the amount of their foreign exchange collection and sales accounts for more than 60% of Chinas total amount. Therefore, the inspection in these key regions can provide a comprehensive picture of the capital inflows to China . So far, the SAFE branches that joined the inspection have attached great importance to this activity and have reached phased achievements through overall planning and thorough arrangements, as well as through concerted efforts. During the next stage, the branches will concentrate efforts on the following three tasks. First, the branches will consolidate the inspection achievements of the previous phase, carry out extended inspections of the revealed clues and issues, and seriously deal with the verified illegal foreign exchange activities while exposing the typical cases. Second, the branches will strengthen case analyses and in-depth investigations and research, and further adjust relevant policies and improve administrative approaches. Third, the branches will reinforce macro analysis, closely connect local conditions with the national situation, judge the overall situation of the balance of payments in a scientific manner, and further unify thoughts and improve the awareness and initiative to resolutely implement the macro-decision making of the Central Government. Ms. Hu emphasized that the Party Central Committee and the State Council have attached great importance to the situation of a sustained balance of payments surplus and clearly pointed out that the promotion of an equilibrium in the balance of payments must be treated as an important task for maintaining steady macro-economic development. Since this year, the trend in foreign exchange capital inflows has remained strong, and national foreign exchange reserves have been increasing continuously. Thus, the task of realizing an equilibrium in the balance of payments is still arduous. However, this task is the focus of foreign exchange administration and must be implemented in a down-to-earth manner. As one of the important approaches, foreign exchange inspections should be fully utilized. In addition, some other practices should be adopted. First, the SAFE shall further deepen the systemic reform of foreign exchange administration, facilitate trade and investment, steadily boost the convertibility of items under the capital account, and make a great effort to develop and improve the functions of the foreign exchange market. Second, the SAFE shall further adjust the foreign exchange management policy of easy in and difficult out and apply balanced management to capital inflows and outflows. The current focus is to reinforce management of capital inflows and foreign exchange sales. Third, the SAFE shall speed up the revision and promulgation of the Regulations on the Foreign Exchange System and improve the regulatory system for foreign exchange administration. Fourth, the SAFE shall establish a coordination mechanism for supervision and bring cooperative efforts into full play, realizing resource sharing and joint supervision. Fifth, the SAFE shall fully utilize modern science and technology as well as the available electronic system and data, thus strengthening the supervision and monitoring of foreign exchange receipts and payments. Sixth, the SAFE shall faithfully execute the laws, reinforce punishment, expose the various illegal cases, and enhance the dissemination of information on policies and regulations. 2007-05-18/en/2007/0518/840.html
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February 8, 2007 - The Ningbo branch of the State Administration of Foreign Exchange (SAFE), together with the local public security sectors, cracked several cases of illegal sales of export verification documents and destroyed three hideouts in December 2006. Eight suspects were captured on the spot, 279 seals (including company and financial seals) and 2,780 export verification forms were confiscated. The SAFE Ningbo Branch had noticed that since 2006 certain enterprises had frequently drawn a large amount of export verification documents. After four months of tracking and inspection, on December 1 the Branch, accompanied by the local public security sectors, ferreted out the gang, captured the chief suspect, and confiscated 238 company and financial seals and over 2,700 verification and declaration forms. On December 26, they raided another two enterprises, captured seven suspects, and seized 81 verification forms and 41 seals. Analysis shows that there are two reasons for the frequent occurrence of such crimes. On the one hand, enterprises or individuals who are not entitled to export and import need the forms for verification materials. On the other hand, some lawless persons, who disguisedly register as circulating foreign trade companies, draw more verification forms than necessary and sell them at higher prices. Meanwhile, many logistics companies even tout their business of selling verification forms. The SAFE will continue to cooperate with public security agencies to step up the campaign against reselling verification forms and further rectify economic order in the foreign exchange market. 2007-02-08/en/2007/0208/826.html
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Bank of China ( Hong Kong ) Limited's purchasing quota of foreign exchange for overseas investment services on behalf of its clients approved 2007-01-11/en/2007/0111/823.html
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Credit Suisse Shanghai Branch's purchasing quota of foreign exchange for overseas investment services on behalf of its clients approved. 2007-02-02/en/2007/0202/825.html
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QFII investment quota of UBS Global Asset Management ( Singapore ) Ltd approved 2007-01-11/en/2007/0111/822.html
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QFII investment quota of GE Asset Management Incorporated approved 2007-01-11/en/2007/0111/820.html
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QFII investment quota of Fortis Bank SA/NV increased 2007-01-11/en/2007/0111/821.html
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I. Q: What is domestic and foreign currency exchange franchise business to individuals? A: The domestic and foreign currency exchange franchise business to individuals in the expanded pilot implementation refers to two-way currency exchange services (foreign currencies to RMB and vice versa) for domestic/overseas individuals in the localities of the pilot implementation, which are provided by domestic non-financial enterprises after approval of the SAFE. Internationally, a multi-level service system has been put in place for the provision of domestic and foreign currency exchange franchise business to individuals to meet the needs of diversified groups and the set up special client services composed of many levels. The providers of the domestic and foreign currency franchise exchange business to individuals generally include: bank outlets, foreign currency exchange franchise entities, and foreign currency exchange agencies. By nature, the Chinese institutions engaging in the pilot implementation of domestic and foreign currency exchange franchise business to individuals fall into the category of foreign currency exchange franchise entities, which are similar to the exchange shops in foreign countries. II. Q: What is the reason for the expanded pilot implementation? A: The provision of authority to general enterprises (other than banks) to deal in domestic and foreign currency exchange businesses to individuals is an important measure to improve currency exchange services for individuals, to diversify foreign exchange service providers, as well as to fulfill the requirements of the Regulations of the People's Republic of China on Foreign Exchange Administration. On August 20, 2008, the SAFE granted approval to Beijing and Shanghai for pilot implementation of domestic and foreign currency exchange business to individuals, with each city being allowed to select one franchise institution for implementation. The implementation has achieved the expected results and has received a positive response from the public. A number of regions and institutions have applied for pilot implementation of domestic and foreign currency exchange business to individuals. The SAFE recently decided to incorporate 13 provinces, municipalities, and autonomous regions (including Beijing and Shanghai) and 4 cities specifically designated in the state plan into the pilot implementation of foreign exchange business to individuals, to increase the number of pilot institutions, to permit cross-regional chain operations, to streamline relevant procedures, and to carry out uniform supervision over the pilot implementation. Among the aforesaid regions, there are regions with a robust foreign-related economy and a vast amount of frequent commercial contacts, cities at the borders/ports or tourist hubs, and regions entitled to preferential policies, all of which have a certain amount of currency exchange needs. The expansion of the pilot implementation of domestic and foreign currency exchange business to individuals will supplement the inadequacy of the existing services. With the establishment of a service network integrating the strength of various institutions banks, franchise operations institutions, and foreign currency exchange agencies the SAFE will be able to increase its capacity to provide diversified services to clients, thus better fulfilling market demands. III. Q: What are the qualifications for applying for domestic and foreign currency exchange business to individuals? What are the procedures for approval? A: First, individuals are not allowed to apply for such business. Qualified applicants must be general commercial enterprises with independent legal-person authority (Chinese-funded or foreign-funded) located within the territory of China. The applicants should have registered capital of not less than RMB 1 million (for foreign-funded enterprises, the amount should be the foreign exchange equivalent of RMB 1 million), and should have engaged in foreign currency exchange for more than 6 months. Second, the applicants should have a certain number of in-house practitioners with good knowledge of the foreign currency exchange business and foreign exchange administration policies. Third, the applicants should have adequate venues, systems, facilities, and security for carrying out the business, particularly the hardware/software compatible with the uniform national information system for the administration of individual exchange settlement and sales. Enterprises with the above qualifications can submit applications to the branches of the SAFE (foreign exchange administration departments, hereinafter referred to as SAFE branches) located at their registered domicile. The SAFE branches shall, after receipt of the application materials, examine the qualifications of the applicants with respect to their handling of domestic and foreign currency exchange business to individuals. The application materials of the qualifying applicants shall be submitted to the SAFE for approval. The SAFE shall assess the level of local demand for domestic and foreign currency exchange to individuals, the risk-control ability of the applicant, and other objective conditions, in order to determine the timetable for granting approval and making appropriate adjustments in the number of franchise institutions. IV. Q: What are the specific requirements for the expansion of the pilot implementation? A: By drawing on the experience from the earlier pilot implementation and specifying the requirements for supervision of the institutions operating the franchises, the SAFE has worked out a set of nationally uniform and normative measures for an expanded pilot implementation in compliance with the regulations and in consideration of operational convenience. The requirements for the expanded pilot implementation mainly include: a) The operations institutions shall handle the currency exchange business via the information system for the administration of individual settlement and sales of foreign exchange and shall incorporate the amount of each clients currency exchange into the annual aggregate quota control for the individual settlement and sales of foreign exchange; b) To underscore the distinct feature (transactions in small amounts) of the currency exchange business to individuals, the cumulative amount of currency exchanged by the franchise operations institutions shall not exceed USD 5,000 on one day for a single client; c) All the operations activities of the franchise institutions shall be conducted via their accounts under the foreign exchange excess reserves and limitations shall be imposed on the foreign exchange excess reserves; d) The operations institutions shall, on a monthly basis, issue to the SAFE branches statements related to their currency exchange and shall fulfill their statistical and reporting responsibilities regarding the balance of payments, anti-money-laundering, etc; e) The SAFE shall comply with the principle of achieving an efficient geographic distribution of franchise institutions to meet market demands and encourage the development of chain operations by specifying the timetable for the granting of approval and by flexibly adjusting the number of franchise institutions for the orderly promotion of the pilot implementation. V. Q: What are the distinctive characteristics of the franchise operations institutions in comparison with bank outlets and foreign currency exchange agencies? A: In 2008 Chinas domestic and foreign currency exchange business (also known as exchange settlement and sales) to individuals amounted to approximately USD 170 billion, of which currencies exchanged by overseas individuals reached USD 24 billion. The market has revealed the great potential as well as the diversified needs of customers. The franchise operations institutions, bank outlets, and foreign currency exchange agencies are natural competitors and also complement one another in terms of their business. As compared to bank outlets and foreign currency exchange agencies, franchise operations institutions have their own distinctive characteristics: a) Presently about 90% of foreign currency exchange agencies serve as auxiliary facilities at foreign-related hotels catering to the exchange needs of hotel guests. As far as bank outlets are concerned, the majority of bank outlets are positioned to provide B2B services to customers, and most bank outlets are generally in areas of concentrated residents and public work. Only a few bank outlets are located in areas where there are few residents, such as airports, hotels, scenic spots, etc. In contrast, franchise operations institutions can install a distribution of outlets to meet changing market demands; b) Bank outlets are normally restricted to fixed working hours; some are even closed during holidays. Foreign currency exchange agencies are usually limited in terms of the geographic scope of their services. In contrast, franchise operations institutions are allowed to extend their business hours at any time based on market demands and at some airports can operate 24/7. c) Franchise operations institutions, as compared to foreign currency exchange agencies, are capable of handling two-way exchange and discretionary setting of prices. The strong expertise of the franchise institutions enables service staffers to identify bank notes of all major countries in a timely manner, to keep pace with the latest anti-counterfeiting techniques, and to interact with customers with sound language skills. VI. Q: Some border provinces such as Guangxi, Yunnan, and Xinjiang have been incorporated into the expanded pilot implementation. Can the settlement of border trade enjoy the services provided by the pilot implementation? A: The main purpose of the expansion is to facilitate operation of currency exchange to individuals, especially to satisfy the currency exchange needs of individuals in areas with frequent entries and exits. That also underscores a feature of the business, i.e., small transactions and operational convenience. The SAFE has incorporated some border provinces into the expanded pilot implementation and encourages franchise operations institutions located in border/port cities to provide currency exchange services for the currencies of the surrounding countries and regions. In the case that a currency cannot be exchanged via a deposit bank, the franchise operations institutions are allowed to carry out the exchange through other channels. This will facilitate legal operations of the local currency exchange business to individuals, and hence will help check illegal exchange transactions at their source. Nonetheless, such practices may not completely satisfy the needs for border trade settlement, which should mainly be conducted via banks. 2009-12-23/en/2009/1223/911.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