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.