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The branches and foreign exchange administrative departments of the State Administration of Foreign Exchange (SAFE) in all provinces, autonomous regions, and municipalities directly under the Central Government; the branches in Shenzhen, Dalian, Qingdao, Xiamen, and Ningbo; all designated Chinese-funded foreign exchange banks, and China UnionPay Co., Ltd.: To standardize and facilitate operation by banks and individuals in respect of foreign exchange business and improve classified regulation of individual players for foreign exchange trading, the State Administration of Foreign Exchange (SAFE) decides to further improve the administration of individual foreign exchange as the individual foreign exchange business monitoring system is launched. The relevant issues are hereby notified as follows: I. The individual foreign exchange business monitoring system will be launched nationwide on January 1, 2016, and at the same time, the management information system for foreign exchange settlement and sales for individuals will be no longer in use. Banks that have the qualifications for handling foreign exchange settlement and sales (bank) shall handle individual foreign exchange business such as settlement and purchases of foreign exchange through this monitoring system and report relevant business data accurately, completely and in time. II. In handling foreign exchange business, individuals shall observe relevant regulations in respect of the administration of individual foreign exchange and are not allowed to evade quota and authenticity management in a split way. If doing so, these individuals will be put on a watch list by the SAFE and its branches and sub-branches (foreign exchange authorities). (I) Foreign exchange authorities will issue the Risk Reminder Notification for Individual Foreign Exchange Business (see Appendix 1) as a risk reminder to individuals who lend their quota to another individual for the evasion of quota and authenticity management. If this happens again, these individuals will be put on a watch list by foreign exchange authorities. (II) Foreign exchange authorities will put individuals who borrow another individual's quota for the evasion of quota and authenticity management on a watch list and notify them through the Notification on Watch List for Individual Foreign Exchange Business (see Appendix 2) issued by banks. (III) The watch period of an individual on a watch list is the year the individual is put on the watch list and the two consecutive years that follow. During this period, the individual has to present his/her valid ID card and evidencing materials indicating the trading amount to go through procedures for settlement and sales of foreign exchange for individuals. Banks shall review relevant evidencing materials in strict accordance with the authenticity review principles. III. Banks shall cooperate with foreign exchange authorities in inspecting individuals and institutions involved in the evasion of quota and authenticity management, and report, within 20 days since the day the individual foreign exchange business monitoring system pushes relevant information, the purposes of individual settlement of foreign exchange, the sources of funds for purchases of foreign exchange and other information required by foreign exchange authorities. IV. Foreign exchange authorities and banks shall access the individual foreign exchange business monitoring system through the SAFE's application service platform. The details are as follows: Type of user Way of access Interface Foreign exchange authorities Intranet http://100.1.48.51:9101/asone/ Banks External net http://banksvc.safe (Main login interface) http://asone.safe:9101/asone/ (Backup login interface) Foreign exchange authorities and banks shall assign technicians and business operators for the daily maintenance of the individual foreign exchange business monitoring system to ensure smooth operation of the system. V. In case of a nationwide systemic error in the individual foreign exchange business monitoring system, foreign exchange authorities and banks shall take emergency measures in accordance with the Emergency Plan for the Individual Foreign Exchange Business Monitoring System (see Appendix 3) to ensure the smooth and timely handling of individual foreign exchange business. VI. The foreign exchange settlement and sales under the individual remittance business of China UnionPay Co., Ltd., and individual domestic and foreign currency exchange business handled by franchised institutions for domestic and foreign currency exchange for individuals (franchised institutions) shall be handled in accordance with this Circular. Where there are provisions as otherwise stated in respect of foreign exchange administration, those provisions shall prevail. VII. This Circular shall take effect as of January 1, 2016. At the same time, the Circular of the General Affairs Department of the State Administration of Foreign Exchange on Regulating Operations of Foreign Exchange Settlement and Sales for Individuals by Banks (Huizongfa No. 90 [2007]), the Circular of the General Affairs Department of the State Administration of Foreign Exchange on Promulgating the Emergency Plan for the Management Information System for Foreign Exchange Settlement and Sales for Individuals (Huizongfa No. 49 [2008]), the Circular of the State Administration of Foreign Exchange on Printing and Distributing the Interim Measures for Administration of Foreign Exchange Settlement and Sales for Individuals through E-banking (Huifa No. 10 [2011]), the Circular of the State Administration of Foreign Exchange on Trial Implementation of the "Watch List" Management of Individual Splitting Foreign Exchange Settlement and Sales by Banks Engaging in E-Channeled-based Foreign Exchange Settlement and Sales for Individuals (Huifa No. 41 [2011]), the Circular of the General Affairs Department of the State Administration of Foreign Exchange on Regulating the Review of Access to Foreign Exchange Settlement and Sales for Individuals through E-banking (Huizongfa No. 77 [2013]) will be nullified. In case of any discrepancies with prior regulations, this Circular shall prevail. Upon receipt of this Circular, all branches and foreign exchange administrative departments of the SAFE should immediately forward it to the central sub-branches, sub-branches, urban and rural commercial banks, foreign banks and franchised institutions. The designated Chinese-funded foreign exchange banks shall, upon receipt of this Circular, forward it immediately to their branches. Please report any problems encountered in implementation to the SAFE in a timely manner. Business Enquiry Hotline: 010-68402673 (Bank business) 010-68402295 (Franchised institution business) Technology Enquiry Hotline: 010-68402674 Appendix: 1. Risk Reminder Notification for Individual Foreign Exchange Business 2. Notification on Watch List for Individual Foreign Exchange Business 3. Emergency Plan for the Individual Foreign Exchange Business Monitoring System State Administration of Foreign Exchange December 25, 2015 FILE: Risk Reminder Notification for Individual Foreign Exchange Business FILE: Notification on Watch List for Individual Foreign Exchange Business FILE: Emergency Plan for the Individual Foreign Exchange Business Monitoring System 2016-01-13/en/2016/0113/775.html
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The branches and foreign exchange administrative departments of the State Administration of Foreign Exchange (SAFE) in all provinces, autonomous regions, and municipalities directly under the Central Government, and the branches of the SAFE in Shenzhen, Dalian, Qingdao, Xiamen, and Ningbo: To improve the domestic and foreign currency exchange services for domestic individuals, and facilitate and regulate the franchise domestic and foreign currency exchange business for individuals (“franchise business”), this Circular is hereby issued to clarify the issues regarding the provision of the exchange services by institutions that conduct the franchise business(“franchise institutions”) through the Internet. I. For the purpose of this Circular, the term “exchange through the Internet” refers to the process during which a domestic individual places an order with a franchise institution for foreign currency banknotes or electronic traveler’s checks and completes payment for the order through electronic channels such as the Internet and mobile terminals, and withdraws the banknotes or traveler’s checks through an outlet of the franchise institution or other eligible outlet. II. A franchise institution providing the exchanges through the Internet shall meet the following conditions: (I) having a good credit standing, and being free from significant noncompliance with the regulations on the franchise business over the last 2 years; (II) having a necessary administrative system in place for the business; (III) having software & hardware facilities and personnel required by the business; and (IV) other requirements imposed by the SAFE. III. Prior to the provision of the exchanges through the Internet, the head office of a franchise institution should ensure that the business is filed with a branch or an administrative department of the State Administration of Foreign Exchange in a relevant province, autonomous region or municipality directly under the Central Government (“SAFE branch”) in writing or via email. The documents required for the filing include: (I) the business process, roles and responsibilities of the personnel, description of the ordering system, management of the provision for payment, description of customer information validation, and the anti-money laundering system for the exchanges through the Internet; (II) description of the ability to record each transaction of the exchanges through the Internet; (III) copies of payment & settlement agreements with banks and third party payment institutions, cooperation agreements with partners, and exchange agreements with customers; and (IV) other materials required by a SAFE branch. IV. A SAFE branch shall verify the filings submitted by a franchise institution within its jurisdiction in an appropriate manner; if there is no dissent within 20 working days, the franchise institution can provide exchanges through the Internet at its sole discretion. V. A franchise institution shall comply with the following requirements for the exchanges through the Internet: (I) the ordering service may be provided to customers through channels such as proprietary website, a partner’s website or mobile terminal. For the ordering service provided through channels other than the proprietary website, the responsibilities of institutions and customers must be indicated on the ordering interface, and that the exchange service is provided by the franchise institution must be specified; (II) the franchise institution may, based on its circumstances, provide compliant online payment channels (such as debit card online banking and third party payment) to customers, and input the completed payment into the individual foreign exchange monitoring system; (III) the franchise business conducted by the franchise institution must not exceed the relevant requirements on the provision for payment and the exchange quota; (IV) the franchise institution shall verify a customer's identity, ensure the ordering customer is the withdrawer, and keep the photocopies or electronic copies of the customer's personal ID certificate for the withdrawal; (V) the head office of the franchise institution should include the separate statistics of the exchanges through the Internet in the current franchise business statements. VI. The outlets for the withdrawal of foreign currency banknotes (including traveler’s checks) shall be owned by the franchise institution. A franchise institution approved to conduct nationwide franchise business may establish withdrawal outlets across the country at its sole discretion; if approved of conducting franchise business within the jurisdiction of a particular SAFE branch, the franchise institution may, at its sole discretion, establish outlets within the business range, but must not establish any outlet for offline withdrawal outside the jurisdiction. For the addition of other types of outlets (limited to foreign currency exchange points under outlets of banks or other franchise institutions, or under the SAFE itself), a new outlet must be able to ensure the security of banknotes and travelers' checks and be equipped with video monitoring facilities, and the head office of the franchise institution is required to file with the local SAFE branch by presenting the following documents; if there is no dissent within 20 working days, the new outlet may commence doing business at its sole discretion: (I) description and relevant qualification certificates of the withdrawal outlet (such as license of a financial institution, letter of confirmation for foreign currency exchange outlet, and license of domestic and foreign currency exchange franchise businesses for individuals); (II) documents evidencing the existence of equipment and facilities for the withdrawal, including but not limited to monitor video and cash storage cabinet; (III) cooperation agreement between both parties and their relevant management mechanisms; and (IV) other materials required by a SAFE branch. VII. Every SAFE branch should intensify ex-post regulation of the franchise institutions within its jurisdiction, prevent and timely address the default and compliance risks of the franchise institutions, protect the rights and interests of consumers, and watch out for the implementation of administrative measures regarding the authenticity and financial security of customers for the purpose of effective risk control during its daily regulation. Any abnormality must be immediately dealt with and reported to the SAFE. VIII. This Circular shall enter into force as of the date of issuance. In case of any inconsistency between previous provisions and this Circular, this "Circular" shall prevail. The SAFE branches shall, upon receipt of this Circular, promptly forward it to the central sub-branches and sub-branches as well as the franchise institutions within their respective jurisdiction. State Administration of Foreign Exchange September 28, 2015 2015-12-09/en/2015/1209/771.html
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The branches and foreign exchange administrative departments of the State Administration of Foreign Exchange (SAFE) in all provinces, autonomous regions, and municipalities directly under the Central Government; the branches of the SAFE in Shenzhen, Dalian, Qingdao, Xiamen, and Ningbo： To further regulate the foreign currency banknotes business for domestic institutions and satisfy their demand, the State Administration of Foreign Exchange (SAFE) has developed the Measures for Managing the Receipts and Payments of Foreign Currency Banknotes by Domestic Institutions (see appendix), which are hereby issued for your compliance and implementation. Upon receipt of this Circular, the SAFE branches and foreign exchange administration departments should immediately forward it to the central sub-branches (sub-branches), local commercial banks, and foreign banks within their respective jurisdiction, and all designated Chinese-funded foreign exchange banks should promptly forward it to their branches. If you have any questions during the execution of these documents, please promptly contact the Current Account Management Department of the SAFE. Appendix: Measures for Managing the Receipts and Payments of Foreign Currency Banknotes by Domestic Institutions State Administration of Foreign Exchange December 18, 2015 FILE: Measures for Managing the Receipts and Payments of Foreign Currency Banknotes by Domestic Institutions 2016-01-08/en/2016/0108/774.html
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QFII custodian banks, To facilitate the domestic securities investments of Qualified Foreign Institutional Investors (QFIIs), the State Administration of Foreign Exchange (SAFE) has formulated the QFII Quota Administration Guideline (see the appendix), in accordance with the Measures for the Administration of the QFII’s Domestic Securities Investments (No. 36 Order of China Securities Regulatory Commission, the People’s Bank of China and the SAFE) and the Regulations on the Foreign Exchange Administration for the QFII’s Domestic Securities Investments (No. 1 SAFE Announcement [2009], modified as per the No. 2 Announcement [2012] issued by the SAFE). This Guideline is now issued to you for implementation. Appendix: QFII Quota Administration Guideline General Affairs Department of the State Administration of Foreign Exchange September 30, 2015 FILE: QFII Quota Administration Guideline 2015-12-15/en/2015/1215/772.html
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To accelerate the development and boost the opening up of the foreign exchange market, the issues on extending the foreign exchange trading time and introducing qualified foreign players are clarified as follows: First, extending the foreign exchange trading time. Beginning from January 4, 2016, the interbank foreign exchange trading system will be in operation until 23:30 every day, Beijing time, and accordingly, the time that market management systems apply, with regard to the central parity rate and the range of fluctuation of the RMB exchange rate, and the market maker quotation will be extended. China Foreign Exchange Trade System (CFETS) has announced that the strike price of spot inquiry about the exchange rate of the RMB against the USD at 16:30 Beijing time will be regarded as the closing price of the day. Second, introducing qualified foreign players. After applying to the CFETS for becoming a member of the interbank foreign exchange market, qualified overseas players approved to provide RMB purchases and sales services can access the interbank foreign exchange market, and participate through the trading system of the CFETS in the trading of all listed trading categories allowed in the RMB purchases and sales business, including spot, forward, swap and options transactions. Foreign players shall participate in the trading under RMB purchases and sales in the interbank foreign exchange market, in accordance with laws and regulations. Third, market intermediaries and service providers including the CFETS and Shanghai Clearing House shall do their part to ensure the level of services. People's Bank of China，State Administration of Foreign Exchange December 21, 2015 2015-12-29/en/2015/1229/773.html
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Temporary rules on administrating domestic banks' overseas foreign exchange investment services on behalf of their clients released, to standardize domestic banks' operation and expand investment channels for domestic residents steadily. 2006-04-18/en/2006/0418/781.html
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QFII investment quota of United Overseas Bank Limited approved 2006-11-15/en/2006/1115/813.html
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QFII investment quota of DBS Bank Ltd approved 2006-04-14/en/2006/0414/780.html
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QFII investment quota of Stanford University approved 2006-11-15/en/2006/1115/812.html
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Several days ago, Premier Wen Jiabao of the State Council signed a State Council decree, promulgating the revised Regulations of the People's Republic of China on Foreign Exchange Administration, which came into force as of the date of promulgation. Officials in charge of the Legislative Affairs Office of the State Council, the People's Bank of China, and the State Administration of Foreign Exchange (SAFE) held an interview with reporters on relevant issues concerning the Regulations. Q: What is the main background to the revision to the Regulations? Answer: It is common practice in the world to timely adjust financial regulations in line with changing situations. The original Regulations of Peoples Republic of China on Foreign Exchange Administration played an important role in promoting an equilibrium in the balance of payments and preventing financial risks since their promulgation on January 29, 1996 and their revision on January 14, 1997. In recent years, with the rapid economic development of China and the profound changes in the international economic situation, the foreign exchange administration in China has confronted some new situations and problems, which the system must resolve. First, with the deepening of the reform of foreign exchange administration, full convertibility of the current account has been realized, foreign exchange income under the current account can be discretionarily retained by enterprises, the demand for personal foreign exchange is basically satisfied, the convertibility of the capital account is improving constantly, and the RMB exchange rate formation mechanism has been further perfected, so the Regulations need to be revised to consolidate the reform achievements and to allow room for further reform. Second, the situation in the balance of payments in China has changed fundamentally, from a foreign exchange shortage to excessive growth of foreign exchange reserves, but the original Regulations only focus on administration of foreign exchange outflows, so the Regulations needed to be revised for the balanced and standard administration of both capital inflows and outflows of foreign exchange. Third, as Chinas economy has become increasingly globalized and international capital flows have accelerated, the monitoring system for cross-border capital flows needed to be further perfected and a sound balance of payments emergency response and guarantee system needed to be established to effectively prevent risks and to improve the open economy. The revised draft of the Regulations of Peoples Republic of China on Foreign Exchange Administration, jointly drafted by the Peoples Bank of China and the SAFE on the basis of in-depth studies and seeking broad views and opinions, was submitted to the State Council for review. After soliciting opinions of the relevant departments of the State Council, various banks, and enterprises, the Legislative Affairs Office of the State Council, together with the Peoples Bank of China , the SAFE, and other departments, conducted repeated studies and modifications of the revised draft, and then submitted the final draft to the executive meeting of the State Council for review. The final Regulations were announced in a decree of the Decree of the State Council with the approval of the executive meeting of the State Council. Q: What principles were followed in revising the Regulations? A: First, adhering to the policy of reform and opening up, we drew on the reform achievements with respect to the current account, capital account, foreign exchange market, and RMB exchange rate formation mechanism in recent years, and reserved policy space for further reform. Second, centering on macro control and focusing on promoting an equilibrium in the balance of payments, we carried out balanced and standard administration of the capital inflows and outflows of foreign exchange. Third, we focused on creating a fair competitive environment to abolish the differential treatment between domestic enterprises and foreign enterprises, state-owned enterprises and private enterprises, institutions and individuals, and to exercise supervision according to the nature of the transaction. Fourth, in line with the requirements of the administrative system reform and the legal administration, we further perfected the regulations regarding the content and modes of foreign exchange administration, promoted trade and investment facilitation, and strengthened supervision and limits over administrative power. Q: Compared with the original Regulations, what contents have been revised in the new Regulations? A: The new Regulations, composed of 54 articles, represent a comprehensive revision of the original Regulations. They further facilitate trade and investment activities, improve the RMB exchange rate formation mechanism and the foreign exchange control system of financial institutions, establish a balance of payments emergency response and guarantee system, strengthen the monitoring of cross-border capital flows, perfect foreign exchange supervisory means and measures, and correspondingly clarify relevant legal liabilities. First, they pursue balanced administration of capital inflows and outflows of foreign exchange. They require that foreign exchange income and expenditure under the current account be made on the basis of authentic and lawful trade; they abolish the requirement for compulsory repatriation of foreign exchange income; and they allow foreign exchange income to be transferred back to China or deposited overseas in line with the prescribed conditions and terms; they standardize administration of the settlement of foreign exchange income under the capital account, and require that the foreign exchange and funds from sales of foreign exchange under the capital account be used for purposes approved by the relevant authorities, and impose penalties on illegal activities, such as illegal inflows of foreign exchange, illegal sales of foreign exchange, violations of the administration of the flow of funds from sales of foreign exchange; and they clarify the authority of the foreign exchange administrative organs in supervising and inspecting capital inflows and outflows, and specify administrative powers and procedures. Second, they improve the RMB exchange rate formation mechanism and the foreign exchange administration of financial institutions. They stipulate that the RMB exchange rate be subject to a floating exchange rate regime based on market supply and demand, and require the financial institutions operating foreign exchange sale and purchase business and other institutions satisfying the requirements to conduct foreign exchange transactions in the inter-bank foreign exchange market be in line with the stipulations of the foreign exchange administrative departments of the State Council; they regulate the administrative modes of the foreign exchange position, and carry out comprehensive position management of the foreign exchange business of financial institutions. Third, they strengthen the monitoring of cross-border capital flows and establish a balance of payment emergency response and guarantee system. They perfect the balance of payment statistics and reporting system, improve the collection of foreign exchange income and expenditure data, and strengthen statistics, analysis, and monitoring of cross-border capital flows; in accordance with WTO rules, they stipulate that the state may take necessary protection and control measures over the balance of payments when the balance of payments becomes or may become seriously unbalanced, or when the national economy confronts or may confront a serious crisis. Fourth, they perfect the foreign exchange supervisory means and measures. In order to guarantee the legal and effective fulfillment of the duties of the foreign exchange administrative organs, they stipulate the supervisory means and measures of the foreign exchange administrative organs and prescribe the supervisory and inspection procedures for the foreign exchange administrative organs. Q: How is the administration of foreign exchange under the current account prescribed in the Regulations? A: Chapter 5 and Article 2 in the general provisions of the Regulations contain the main stipulations for the administration of foreign exchange under the current account. Compared with the original Regulations, the new Regulations greatly simplify the content and procedures for the administration of foreign exchange income and expenditure under the current account. The Regulations stipulate that international payments of foreign exchange or the transfer of foreign exchange under the current account are not subject to any state control or restrictions, thus further facilitating foreign exchange income and expenditure under the current account; they require that the compulsory settlement of foreign exchange income under the current account be abolished, and foreign exchange income under the current account may be reserved or sold to financial institutions in accordance with the regulations; they stipulate that the foreign exchange expenditure under the current account be paid by an institution with its own foreign exchange or with foreign exchange purchased from financial institutions based on valid documents in accordance with the administrative provisions for the payment and purchase of foreign exchange. In order to guarantee that the foreign exchange income and expenditure under the current account be made on the basis of authentic and lawful trade, the Regulations require that the financial institutions that operate foreign exchange businesses conduct reasonable examinations of the authenticity of the transaction documents and of the consistency between the transaction documents and the foreign exchange income and expenditure; at the same time, they stipulate that the foreign exchange administrative organs have the right to supervise and inspect these issues through verifications and cancellations, write-offs, off-site data checking, on-site checking, etc. Q: How is the administration of foreign exchange under the capital account standardized in the new Regulations? A: The stipulations on the administration of foreign exchange under the capital account are mainly described in Chapter 3 of the Regulations, which are among the key content of the revisions to the Regulations. First, they reserve policy space for widening capital outflow channels. They simplify the administrative examination and approval process for foreign exchange administration of direct investments overseas, establish the administrative principles for transactions, such as overseas institutions raising funds within the territory of China, domestic institutions engaging in overseas securities investment and derivative products transactions, and domestic institutions providing commercial loans to overseas parties. Second, they reform the modes of the administration of foreign exchange under the capital account. Reserves and settlement of foreign exchange income under the capital account, shall require the approval of the foreign exchange administrative organs; with respect to the foreign exchange expenditure under the capital account, if the state provisions do not require it to be subject to the approval of the foreign exchange administrative organs in advance, in principle it can be directly handled at the financial institutions based on valid documents; and if the state provisions require that it be subject to the approval of the foreign exchange administrative organs, the approval procedures shall be handled prior to the payment of foreign exchange, unless it is otherwise provided by state provision. Third, they strengthen administration of the usage of capital inflows. They require that the foreign exchange and RMB funds from sales of foreign exchange under the capital account be used for purposes approved only by the relevant departments and the foreign exchange administrative organs, and they authorize the foreign exchange administrative organs to supervise and inspect the use of foreign exchange and RMB funds from sales of foreign exchange under the capital account and the changes in foreign exchange accounts. Q: What stipulations are there in the Regulations to perfect cross-border capital flows? A: Perfecting the monitoring of cross-border capital flows has important significance to grasp the situation in the income and expenditure of foreign exchange and to prevent international financial risks. On the one hand the Regulations clearly require in the general provisions that the foreign exchange administration department of the State Council collect statistical data and monitor the balance of international payments, and publish the balance of payments on a regular basis; on the other hand, they require the financial institutions handle the foreign exchange business through foreign exchange accounts and send the foreign exchange income and expenditure and the changes in the accounts of their clients to the foreign exchange administration organs according to the law. Domestic institutions that engage in foreign exchange operations shall submit financial accounting reports, statistical reports, and other data to the foreign exchange administration department of the State Council according to the relevant previsions. Based on these provisions of the Regulations, the foreign exchange administration organs can comprehensively monitor cross-border capital flows. At the same time, a supervisory information reporting system of the foreign exchange administration departments, relevant departments of the State Council, and the institutions is established. Q: How are the foreign exchange inspection means and legal responsibilities perfected in the Regulations? A: In order to carry out administration according to the law, guarantee effective implementation of the foreign exchange administration policies, and realistically prevent international financial risks, the Regulations clearly detail the inspection means and measures of the foreign exchange administration organs. According to the Regulations, when foreign exchange administration organs legally perform their duties, they have authority to take the following measures: to conduct on-site inspections, to enter places where illegal acts of foreign exchange are suspected to have occurred for investigation and collection of evidence, to make inquiries of the parties related to cases under investigation, to consult and photocopy relevant transaction documents and financial accounting data, to seal any documents and data that may have been transferred, concealed, or damaged, to inspect the accounts of an institution or an individual related to a case under investigation for illegal foreign exchange activities (excluding individual savings deposit accounts), to file an application with the peoples court to freeze or seal any property or important evidence involved, etc. However, the foreign exchange administration organs must carry out the relevant inspections in line with the procedures prescribed in the Regulations so as to safeguard the legal rights of the parties concerned. Meanwhile, in order to adapt to the demand to crack down on illegal foreign exchange activities under the new situation, the Regulations newly establish penalty provisions for illegal activities, such as for the illegal inflow of capital, illegal foreign exchange sales, violation of the administration of the flow of settlement funds, the illegal carrying of foreign exchange in or out of China, and the illegal introduction, purchase, and sale of foreign exchange, etc. Several days ago, Premier Wen Jiabao of the State Council signed a State Council decree, promulgating the revised Regulations of the Peoples Republic of China on Foreign Exchange Administration, which came into force as of the date of promulgation. Officials in charge of the Legislative Affairs Office of the State Council, the Peoples Bank of China , and the State Administration of Foreign Exchange (SAFE) held an interview with reporters on relevant issues concerning the Regulations. Q: What is the main background to the revision to the Regulations? Answer: It is common practice in the world to timely adjust financial regulations in line with changing situations. The original Regulations of Peoples Republic of China on Foreign Exchange Administration played an important role in promoting an equilibrium in the balance of payments and preventing financial risks since their promulgation on January 29, 1996 and their revision on January 14, 1997. In recent years, with the rapid economic development of China and the profound changes in the international economic situation, the foreign exchange administration in China has confronted some new situations and problems, which the system must resolve. First, with the deepening of the reform of foreign exchange administration, full convertibility of the current account has been realized, foreign exchange income under the current account can be discretionarily retained by enterprises, the demand for personal foreign exchange is basically satisfied, the convertibility of the capital account is improving constantly, and the RMB exchange rate formation mechanism has been further perfected, so the Regulations need to be revised to consolidate the reform achievements and to allow room for further reform. Second, the situation in the balance of payments in China has changed fundamentally, from a foreign exchange shortage to excessive growth of foreign exchange reserves, but the original Regulations only focus on administration of foreign exchange outflows, so the Regulations needed to be revised for the balanced and standard administration of both capital inflows and outflows of foreign exchange. Third, as Chinas economy has become increasingly globalized and international capital flows have accelerated, the monitoring system for cross-border capital flows needed to be further perfected and a sound balance of payments emergency response and guarantee system needed to be established to effectively prevent risks and to improve the open economy. The revised draft of the Regulations of Peoples Republic of China on Foreign Exchange Administration, jointly drafted by the Peoples Bank of China and the SAFE on the basis of in-depth studies and seeking broad views and opinions, was submitted to the State Council for review. After soliciting opinions of the relevant departments of the State Council, various banks, and enterprises, the Legislative Affairs Office of the State Council, together with the Peoples Bank of China , the SAFE, and other departments, conducted repeated studies and modifications of the revised draft, and then submitted the final draft to the executive meeting of the State Council for review. The final Regulations were announced in a decree of the Decree of the State Council with the approval of the executive meeting of the State Council. Q: What principles were followed in revising the Regulations? A: First, adhering to the policy of reform and opening up, we drew on the reform achievements with respect to the current account, capital account, foreign exchange market, and RMB exchange rate formation mechanism in recent years, and reserved policy space for further reform. Second, centering on macro control and focusing on promoting an equilibrium in the balance of payments, we carried out balanced and standard administration of the capital inflows and outflows of foreign exchange. Third, we focused on creating a fair competitive environment to abolish the differential treatment between domestic enterprises and foreign enterprises, state-owned enterprises and private enterprises, institutions and individuals, and to exercise supervision according to the nature of the transaction. Fourth, in line with the requirements of the administrative system reform and the legal administration, we further perfected the regulations regarding the content and modes of foreign exchange administration, promoted trade and investment facilitation, and strengthened supervision and limits over administrative power. Q: Compared with the original Regulations, what contents have been revised in the new Regulations? A: The new Regulations, composed of 54 articles, represent a comprehensive revision of the original Regulations. They further facilitate trade and investment activities, improve the RMB exchange rate formation mechanism and the foreign exchange control system of financial institutions, establish a balance of payments emergency response and guarantee system, strengthen the monitoring of cross-border capital flows, perfect foreign exchange supervisory means and measures, and correspondingly clarify relevant legal liabilities. First, they pursue balanced administration of capital inflows and outflows of foreign exchange. They require that foreign exchange income and expenditure under the current account be made on the basis of authentic and lawful trade; they abolish the requirement for compulsory repatriation of foreign exchange income; and they allow foreign exchange income to be transferred back to China or deposited overseas in line with the prescribed conditions and terms; they standardize administration of the settlement of foreign exchange income under the capital account, and require that the foreign exchange and funds from sales of foreign exchange under the capital account be used for purposes approved by the relevant authorities, and impose penalties on illegal activities, such as illegal inflows of foreign exchange, illegal sales of foreign exchange, violations of the administration of the flow of funds from sales of foreign exchange; and they clarify the authority of the foreign exchange administrative organs in supervising and inspecting capital inflows and outflows, and specify administrative powers and procedures. Second, they improve the RMB exchange rate formation mechanism and the foreign exchange administration of financial institutions. They stipulate that the RMB exchange rate be subject to a floating exchange rate regime based on market supply and demand, and require the financial institutions operating foreign exchange sale and purchase business and other institutions satisfying the requirements to conduct foreign exchange transactions in the inter-bank foreign exchange market be in line with the stipulations of the foreign exchange administrative departments of the State Council; they regulate the administrative modes of the foreign exchange position, and carry out comprehensive position management of the foreign exchange business of financial institutions. Third, they strengthen the monitoring of cross-border capital flows and establish a balance of payment emergency response and guarantee system. They perfect the balance of payment statistics and reporting system, improve the collection of foreign exchange income and expenditure data, and strengthen statistics, analysis, and monitoring of cross-border capital flows; in accordance with WTO rules, they stipulate that the state may take necessary protection and control measures over the balance of payments when the balance of payments becomes or may become seriously unbalanced, or when the national economy confronts or may confront a serious crisis. Fourth, they perfect the foreign exchange supervisory means and measures. In order to guarantee the legal and effective fulfillment of the duties of the foreign exchange administrative organs, they stipulate the supervisory means and measures of the foreign exchange administrative organs and prescribe the supervisory and inspection procedures for the foreign exchange administrative organs. Q: How is the administration of foreign exchange under the current account prescribed in the Regulations? A: Chapter 5 and Article 2 in the general provisions of the Regulations contain the main stipulations for the administration of foreign exchange under the current account. Compared with the original Regulations, the new Regulations greatly simplify the content and procedures for the administration of foreign exchange income and expenditure under the current account. The Regulations stipulate that international payments of foreign exchange or the transfer of foreign exchange under the current account are not subject to any state control or restrictions, thus further facilitating foreign exchange income and expenditure under the current account; they require that the compulsory settlement of foreign exchange income under the current account be abolished, and foreign exchange income under the current account may be reserved or sold to financial institutions in accordance with the regulations; they stipulate that the foreign exchange expenditure under the current account be paid by an institution with its own foreign exchange or with foreign exchange purchased from financial institutions based on valid documents in accordance with the administrative provisions for the payment and purchase of foreign exchange. In order to guarantee that the foreign exchange income and expenditure under the current account be made on the basis of authentic and lawful trade, the Regulations require that the financial institutions that operate foreign exchange businesses conduct reasonable examinations of the authenticity of the transaction documents and of the consistency between the transaction documents and the foreign exchange income and expenditure; at the same time, they stipulate that the foreign exchange administrative organs have the right to supervise and inspect these issues through verifications and cancellations, write-offs, off-site data checking, on-site checking, etc. Q: How is the administration of foreign exchange under the capital account standardized in the new Regulations? A: The stipulations on the administration of foreign exchange under the capital account are mainly described in Chapter 3 of the Regulations, which are among the key content of the revisions to the Regulations. First, they reserve policy space for widening capital outflow channels. They simplify the administrative examination and approval process for foreign exchange administration of direct investments overseas, establish the administrative principles for transactions, such as overseas institutions raising funds within the territory of China, domestic institutions engaging in overseas securities investment and derivative products transactions, and domestic institutions providing commercial loans to overseas parties. Second, they reform the modes of the administration of foreign exchange under the capital account. Reserves and settlement of foreign exchange income under the capital account, shall require the approval of the foreign exchange administrative organs; with respect to the foreign exchange expenditure under the capital account, if the state provisions do not require it to be subject to the approval of the foreign exchange administrative organs in advance, in principle it can be directly handled at the financial institutions based on valid documents; and if the state provisions require that it be subject to the approval of the foreign exchange administrative organs, the approval procedures shall be handled prior to the payment of foreign exchange, unless it is otherwise provided by state provision. Third, they strengthen administration of the usage of capital inflows. They require that the foreign exchange and RMB funds from sales of foreign exchange under the capital account be used for purposes approved only by the relevant departments and the foreign exchange administrative organs, and they authorize the foreign exchange administrative organs to supervise and inspect the use of foreign exchange and RMB funds from sales of foreign exchange under the capital account and the changes in foreign exchange accounts. Q: What stipulations are there in the Regulations to perfect cross-border capital flows? A: Perfecting the monitoring of cross-border capital flows has important significance to grasp the situation in the income and expenditure of foreign exchange and to prevent international financial risks. On the one hand the Regulations clearly require in the general provisions that the foreign exchange administration department of the State Council collect statistical data and monitor the balance of international payments, and publish the balance of payments on a regular basis; on the other hand, they require the financial institutions handle the foreign exchange business through foreign exchange accounts and send the foreign exchange income and expenditure and the changes in the accounts of their clients to the foreign exchange administration organs according to the law. Domestic institutions that engage in foreign exchange operations shall submit financial accounting reports, statistical reports, and other data to the foreign exchange administration department of the State Council according to the relevant previsions. Based on these provisions of the Regulations, the foreign exchange administration organs can comprehensively monitor cross-border capital flows. At the same time, a supervisory information reporting system of the foreign exchange administration departments, relevant departments of the State Council, and the institutions is established. Q: How are the foreign exchange inspection means and legal responsibilities perfected in the Regulations? A: In order to carry out administration according to the law, guarantee effective implementation of the foreign exchange administration policies, and realistically prevent international financial risks, the Regulations clearly detail the inspection means and measures of the foreign exchange administration organs. According to the Regulations, when foreign exchange administration organs legally perform their duties, they have authority to take the following measures: to conduct on-site inspections, to enter places where illegal acts of foreign exchange are suspected to have occurred for investigation and collection of evidence, to make inquiries of the parties related to cases under investigation, to consult and photocopy relevant transaction documents and financial accounting data, to seal any documents and data that may have been transferred, concealed, or damaged, to inspect the accounts of an institution or an individual related to a case under investigation for illegal foreign exchange activities (excluding individual savings deposit accounts), to file an application with the peoples court to freeze or seal any property or important evidence involved, etc. However, the foreign exchange administration organs must carry out the relevant inspections in line with the procedures prescribed in the Regulations so as to safeguard the legal rights of the parties concerned. Meanwhile, in order to adapt to the demand to crack down on illegal foreign exchange activities under the new situation, the Regulations newly establish penalty provisions for illegal activities, such as for the illegal inflow of capital, illegal foreign exchange sales, violation of the administration of the flow of settlement funds, the illegal carrying of foreign exchange in or out of China, and the illegal introduction, purchase, and sale of foreign exchange, etc. 2008-08-05/en/2008/0805/874.html