China’s Regulations on the Foreign Exchange System

Source: Ministry of Commerce Website, PRC

REGULATIONS ON THE FOREIGN EXCHANGE SYSTEM OF THE PEOPLE’S REPUBLIC OF CHINA

Thursday, November 26, 1998 Posted: 16:13 BJT(0813 GMT)

Chapter I General provisions

Article 1
These regulations are formulated with a view to improving the management of the exchange system, maintaining an equilibrium in the balance of payments and promoting sound economic growth.

Article 2
The government agencies of the State Council in charge of the administration of the exchange system and their local offices (hereafter the exchange administration agencies for both) shall exercise exchange management in accordance with the law and assume the responsibility for the implementation of the regulations.

Article 3
Foreign exchange as referred to in the regulations includes means of payments and assets denominated in foreign currency for international settlement as the following:1. foreign currencies, including bank notes and coins;2. payment instruments denominated in foreign currency, including bills, bank certificate of deposit and certificate of postal deposit etc.3. securities denominated in foreign currency, including government bonds, corporate debentures and stocks etc.;4. Special Drawing Rights and European Currency Units; and5. other assets denominated in foreign currency.

Article 4
The payment in and transfer of foreign exchange for current international transactions shall not be subject to the government control restriction.

Article 5
The regulations shall govern all activities related to the receipts and payments of foreign exchange as well as foreign exchange operations of domestic entities, individuals, foreign establishments, and foreign nationals in China.

Article 6
The government adopts a reporting system for balance of payments statistics. All entities and individuals involved in balance of payments transactions shall fulfill their obligations for reporting balance of payments statistics.

Article 7
Foreign currency is prohibited for circulation and shall not be quoted for pricing or settlement in the territory of the People’s Republic of China.

Article 8
All entities and individuals shall have the right to reveal or expose any activities in violation of the regulations on exchange management. All entities and individuals who reveal, expose or assist in stopping various activities in violation of exchange regulations on exchange management shall be rewarded and the confidentiality of their identity shall be ensured.

Chapter II Foreign exchange for current account transactions

Article 9
All foreign exchange receipts of domestic entities for current account transactions shall be repatriated and shall not be deposited abroad in violation of the relevant government regulations without authorization.

Article 10
All foreign exchange receipts for current account transactions shall be sold to the designated foreign exchange banks in accordance with the regulations issued by the State Council on the sale and purchase of foreign exchange and making payments in foreign exchange, and such receipts may also be upon approval, deposited in the foreign exchange account at the designated banks for foreign exchange operations.

Article 11
Purchase of foreign exchange for current account transactions shall be conducted with the designated foreign exchange banks, in accordance with the regulations issued by the State Council on the sale and purchase of foreign exchange and making payments in foreign exchange, upon the presentation of valid documents and commercial bills.

Article 12
The collection of export proceeds and the payments for imports in foreign exchange by domestic entities shall be processed in accordance with the relevant government regulations governing the verification procedures for export proceeds and import payments.

Article 13
Foreign exchange owned by individuals can be held at their own discretion, deposited in banks or sold to the designated foreign exchange banks. Individuals’ foreign exchange savings deposit shall be placed with banks on a voluntary basis, withdrawn freely and bear interest with confidentiality for depositors’ identity ensured.

Article 14
The purchase of foreign exchange for personal travel abroad and other miscellaneous expenses shall be granted within the specified limit. Individuals may apply for the purchase of foreign exchange over and above the limit at the government agencies in charge of foreign exchange. And the request for such purchase shall be approved if it proves to be for bona fide transactions. Individuals carrying foreign exchange into or out of China shall declare their foreign exchange in the customs office. Individuals shall present to the customs office valid documents for carrying a large sum of foreign exchange exceeding the specified limit.

Article 15
The remittance and/or carrying of foreign exchange abroad for such income derived from the possession of assets in China shall be granted upon the presentation of the specific certifying documents at the designated foreign exchange banks.

Article 16
Foreign assets held by Chinese citizens residing in China in the form of payment instruments and securities denominated in foreign currency etc. shall not be taken or sent abroad without authorization of the exchange administration agencies.

Article 17
The purchase of and payment in foreign exchange abroad for the legitimate income in Renminbi for foreign establishments and foreign nationals in China shall be granted upon the presentation of the supporting documents and statement of charges at the designated foreign exchange banks.

Article 18
Foreign exchange sent or carried in by foreign establishments and foreign nationals in China can be held at their own discretion, deposited in designated banks or sold to the designated foreign exchange banks. Such foreign exchange can also be remitted or taken abroad upon the presentation of valid documents.

Chapter III Foreign exchange for capital account transactions

Article 19
Unless otherwise specified by the State Council, all foreign exchange receipts for capital account transactions shall be repatriated.

Article 20
All foreign exchange receipts for capital account transactions shall be placed in the foreign exchange account at the designated foreign exchange banks in accordance with the relevant government regulations;such receipts can be also sold to the designated foreign exchange banks upon the approval by the exchange administration agencies.

Article 21
The source of foreign exchange for overseas investment by domestic entities shall be reviewed by the exchange administration agencies before the application for such investments is filed for approval by the relevant government agencies. If approval is granted, remittance of funds shall then take place in accordance with the regulations on overseas investment issued by the State Council.

Article 22
External borrowing in loans shall be undertaken in accordance with the relevant regulations by the government agencies designated by the State Council, financial institutions and other enterprises duly authorized by government agencies of the State Council in charge of exchange administration. External borrowing in loans by foreign-funded enterprises shall be filed with the exchange administration agencies for records.

Article 23
The issue of bonds abroad denominated in foreign currency by financial institutions requires the approval by the government agencies of the State Council in charge of exchange administration before the issue proceeds in accordance with the relevant government regulations.

Article 24
External guarantee shall only be offered by qualified financial institutions and enterprises meeting the government requirements and subject to the approval by the exchange administration agencies.

Article 25
The government adopts a registration system for external debt. All domestic entities shall register external debt in accordance with the regulations formulated by the State Council on monitoring statistics of external debt. The government agencies of the State Council in charge of exchange administration shall take the responsibility for collecting and monitoring statistics of external debt and publish these statistics on a regular basis.

Article 26
The currency holding denominated in Renminbi belonging to the foreign counterparts of foreign-funded enterprises, having been terminated in accordance with the law, can be converted into foreign exchange at the designated foreign exchange banks and then sent or taken abroad after the liquidation and tax payments. All the foreign exchange belonging to the Chinese counterpart investors shall be sold to the designated foreign exchange banks.

Chapter IV Foreign exchange operations for financial institutions

Article 27
Financial institutions shall have the approval by the exchange administration agencies for conducting foreign exchange transactions, and a license for such operations is also required. No entities or individuals are allowed to undertake foreign exchange operations without the approval by the exchange administration agencies. Financial institutions duly authorized for foreign exchange operations shall never operate beyond the approved business scope.

Article 28
Financial institutions duly authorized for foreign exchange operations shall open foreign exchange accounts for their clients and conduct business operations in accordance with the relevant government regulations.

Article 29
Financial institutions undertaking foreign exchange operations shall be subject to the reserve requirement for foreign exchange in accordance with the relevant government regulations, comply with the regulations on asset and liability ratios concerning their foreign exchange operations and set aside provisioning reserves.

Article 30
Designated foreign exchange banks shall use their own-funds inRenminbi to purchase foreign exchange. The foreign exchange revolving funds used by designated foreign exchange banks for settlement shall be within a specified limit, the magnitude of which shall be decided upon by the People’s Bank of China inconsideration of the actual circumstances.

Article 31
The foreign exchange operations by financial institutions are subject to inspection and supervision by the exchange administration agencies. Financial institutions undertaking foreign exchange operations shall submit to the exchange administration agencies the balance sheet, income statement, other financial reports and information for foreign exchange operations.

Article 32
Financial institutions shall file with the exchange administration agencies for the termination of foreign exchange operations. Once the termination of foreign exchange operations is approved, these financial institutions shall settle their claims and liabilities in foreign currencies and have their license for foreign exchange operations revoked.

Chapter V Renminbi exchange rate and foreign exchange market

Article 33
The exchange rate for Renminbi is a single, managed floating exchange rate based on market demand and supply. The People’s Bank of China announces the exchange rate of Renminbi against major currencies on the basis of the prevailing exchange rates in the inter-bank foreign exchange market.

Article 34
The trading of foreign exchange in the market shall comply with the principle that advocates transparency, openness, fairness, and honesty.

Article 35
The number of currencies traded in the market and the trading methods are decided upon and reviewed by the government agencies of the State Council in charge of the administration of the exchange system.

Article 36
Designated foreign exchange banks and other financial institutions involved in foreign exchange operations are dealers in the inter-bank foreign exchange market. Based on the exchange rates announced by the Peoples Bank of China and the specified margins, designated foreign exchange banks and other financial institutions undertaking foreign exchange operations can quote the buying rate and selling rate for their clients and conduct the trading of foreign exchange accordingly.

Article 37
The government the agencies of the State Council in charge of the administration of exchange system shall supervise the foreign exchange market cross the country in accordance with the law.

Article 38
In light of the orientation of monetary policy and the developments in foreign exchange market, the People’s Bank of China shall regulate foreign exchange market in accordance with the law.

Chapter VI Legal responsibilities

Article 39
To penalize the evasion scheme listed as follows, the exchange administration agencies shall order the foreign exchange in question to be repatriated, impose its conversion and place a penalty fine in the range of more than 30 percent and less then 5 times the amount of foreign exchange under the evasion scheme. In case of criminal offense, a criminal suit shall proceed:1. to place foreign exchange deposit abroad without authorization an din violation of government regulations;2. to act in defiance of the government regulations on the sale of foreign exchange to the designated foreign exchange banks;3. to remit or take foreign exchange abroad in violation of the government regulations;4. to take or mail abroad through postal services certificates of foreign exchange deposit and securities denominated in foreign currencies without authorization of the exchange administration agencies; and5. other types of exchange evasion scheme.

Article 40
to penalize the illegal exchange arbitrage listed as follows, the exchange administration agencies shall serve a warning, impose the conversion of foreign exchange and place a penalty fine in the range of more than 30 percent and less then 5 times the amount of foreign exchange under the arbitrage scheme. In case of criminal offense, a criminal suit shall proceed:1. to pay, in violation of the government regulations, in Renminbi or in kind for imports that require payment in foreign exchange or for other similar types of expenses;2. to pay in Renminbi for local expenses on behalf others and get paid back in turn in foreign exchange;3. to invest in China on the part of overseas investors in Renminbi or with goods purchased locally without authorization of the exchange administration agencies;4. to purchase foreign exchange from designated foreign exchange banks with invalid documents, contracts and bills; and5. other types of illegal arbitrage activities.

Article 41
The exchange administration agencies shall confiscate the illegal income generated from unauthorized foreign exchange operations undertaking without approval by the exchange administration agencies and order the stop of such operations. In case of criminal offense, a criminal suit shall proceed. The exchange administration agencies shall order the financial institutions that conduct any activities without authorization beyond the prescribed business scope for foreign exchange operations to redress the case, confiscate the illegal income, if any, and impose a penalty fine in the range of one to five times the amount of the illegal foreign exchange income; if no illegal income is involved, a penalty fine of 100, 000 to500, 000 Yuan shall be imposed. In case of serious offense or failure to redress the case in time, the exchange administration agencies shall order these institutions to rectify their business or revoke their license for foreign exchange operations. In case of criminal offense, a criminal suit shall proceed.

Article 42
In case that designated foreign exchange banks fail to comply with the government regulations on the sale and purchase of foreign exchange, the exchange administration agencies shall order the banks to redress the case, issue a public reprimand, confiscate the illegal income and impose a penalty fine in the range of 100, 000 to 500, 000 Yuan. In case of serious offense, operations for the sale and purchase of foreign exchange shall be suspended.

Article 43
In case that financial institutions act in violation of the regulations governing exchange rate, deposit and lending rates for foreign exchange and operations in foreign exchange market, the exchange administration agencies shall order the institutions to redress the case, issue a public reprimand, confiscate the illegal income and impose a penalty fine in range of one to five times the amount of the illegal income in question. If no illegal income is involved, a penalty fine in the range of 100, 000 to 500, 000 Yuan shall be imposed. In case of serious offense, the exchange administration agencies shall order the institutions to rectify their business or revoke their license for foreign exchange operations.

Article 44
To penalized any activity listed as follows undertaken by domestic entities in violation of the regulations governing external debt, the exchange administration agencies shall serve a warning, issue a public reprimand and impose a penalty fine in the range of 100, 000 to 500, 000Yuan. In case of criminal offense, a criminal suit shall proceed:1. to process external borrowing without authorization;2. to issue bonds denominated in foreign currency abroad without authorization and in violation of the relevant government regulations;3. to provide guarantee for external obligations without authorization and in violation of the relevant government regulations; and4. other activities in violation of the regulations on external debt.

Article 45
In case that the domestic entities undertake any activity involving illicit use of foreign exchange listed as follows, the exchange administration agencies shall order these entities to redress the case, impose the conversion of foreign exchange, confiscate the illegal income and impose a penalty fine no more than the equivalent amount of foreign exchange in question. In case of criminal offense, a criminal suit shall proceed:1. to use foreign exchange in China for pricing or settlement;2. to pledge foreign exchange in lien without authorization; and3. to change the designated use of foreign exchange without authorization; and4. other types of illicit use of foreign exchange.

Article 46
To penalize unauthorized trading, disguised trading and illicit merchanting of foreign exchange, the exchange administration agencies shall serve a warning, impose the conversion of foreign exchange, and place a penalty fine in the range of more than 30 percent of and less than3 times the amount of the foreign exchange in question. In case of criminal offense, a criminal suit shall proceed.

Article 47
In case that domestic entities open foreign exchange accounts in China or abroad without authorization, rent, transfer of arbitrage foreign exchange accounts in violation or the regulations governing foreign exchange account or use the foreign exchange beyond the designated purpose without authorization, the exchange administration agencies shall order these entities to redress the case, close the foreign exchange accounts, issue a public reprimand and impose a penalty fine in range of 50, 000 to3000, 000 Yuan.

Article 48
In case that domestic entities forge, alter, rent, transfer or make a multiple use of the verification certificate for import payment and export proceeds in violation of the regulations governing the verification procedures for foreign exchange, or fail to comply with verification procedures prescribed by the relevant regulations, the exchange administration agencies shall serve a warning, issue a public reprimand, confiscate the illegal income and impose a penalty fine in the range of50, 000 to 300, 000 Yuan. In case of criminal offense, a criminal suit shall proceed.

Article 49
In case that financial institutions, duly authorized to undertake foreign exchange operations, act in violation of the
Article 29 and 31,the exchange administration agencies shall order these institutions to redress the case, issue a public reprimand and impose a penalty fine in the range of 50, 000 to 300, 000 Yuan.

Article 50
If the party penalized for violation contests the verdict and the penalty imposed by the exchange administration agencies, the party may appeal to the exchange administration agencies at the immediate higher level to review the case within 15 days after receiving the penalty notice; the exchange administration agencies at the immediate higher levels hall decide on the review within two months after receiving the appeal for review. If the party contests the review decision, the party may appeal to the People’s Court in accordance with the law.

Article 51
Domestic entities acting in violation of the regulations on exchange management shall be penalized in accordance with these regulations; and the management and those directly responsible for the violation shall be displayed. In case of criminal offense, a criminal suit shall proceed.

Chapter VII Ancillary provisions

Article 52
The definitions of the terms in these regulations are as follows:1. “domestic entities” refer to enterprises and pubic institutions, government agencies, social organizations and armed forces etc., including foreign-funded enterprises.2. “designated foreign exchange banks” refer to banks duly authorized by the exchange administration agencies to undertake the sale and purchase of foreign exchange.3. “individuals” refer to Chinese citizens and foreign nationals staying in China for more than one year.4. “foreign establishments” in China refer to foreign diplomatic agencies in China, consulates, resident representative offices in China and offices of foreign non-government organizations in China etc..5. “foreign nationals” in China refer to resident staff members of foreign establishments in China, foreigners working for domestic entities in China and overseas foreign students etc. .6. “current account transactions” refer to those components in the current account of the balance of payments, such as goods, services and unilateral transference..7. “capital account transactions” refer to the increase and decrease of assets and liabilities in the balance of payments as a result of the inflow and outflow of capital, including direct investment, loans and portfolio investment’ etc..

Article 53
The exchange regulations governing bonded areas shall be formulated separately by the exchange administration agencies of the State Council.

Article 54
The exchange regulations governing border trade and counter-trade of border residents shall be formulated separately by the exchange administration agencies of the State Council on the basis of these regulations.

Article 55
These regulations shall take effect April 1, 1996. The Regulations on the Exchange System of the People’s Republic of China issued by the State Council on December 18, 1980 and the related detailed rules shall be replaced at the same time.