Chapter

PEOPLE’S REPUBLIC OF CHINA

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
September 2000
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Status Under IMF Articles of Agreement
Article VIIIDate of acceptance: December 1, 1996.
Exchange Arrangement
CurrencyThe currency of the People’s Republic of China is the Chinese renminbi. The currency unit is the yuan.
Exchange rate structureUnitary.
Classification
Conventional pegged arrangementThe exchange rate of the renminbi is determined in the interbank foreign exchange market. The People’s Bank of China (PBC) announces a reference rate for the renminbi against the U.S. dollar, the Hong Kong dollar, and the yen based on the weighted average price of foreign exchange transactions during the previous day’s trading. Daily movement of the exchange rate of the renminbi against the U.S. dollar is—in the interbank foreign exchange market—limited to 0.3% on either side of the reference rate as announced by the PBC. The buying and selling rates of the renminbi against the Hong Kong dollar and the yen may not deviate more than 1% from the reference rate. When the banks designated for foreign exchange business formulate the quoted spot exchange rate of the renminbi against the U.S. dollar, the buying and selling rates may not exceed 0.15% of the reference rate announced by the PBC. The deviation of their quoted buying and selling rates of renminbi against the Hong Kong dollar and the yen must not exceed 1% of the reference rate. The margin between the spot buying rate and the spot selling rate of other quoted currencies may not exceed 0.5%. The selling price for cash transactions is the same as the spot selling rate for all quoted currencies, and the buying price for cash should not exceed 2.5% of the median of its buying and selling spot rates.



The Shanghai-based China Foreign Exchange Trading System (CFETS) is a nationally integrated electronic system for interbank foreign exchange trading. At present, it is electronically linked with 36 foreign exchange trading subcenters located in major cities. All foreign exchange transactions are conducted through the system. Financial institutions involved in foreign exchange transactions must become members of the CFETS.
Exchange taxNo.
Exchange subsidyNo.
Forward exchange marketThe PBC operates forward purchase and sale of renminbi against verification of authenticity of transactions on a trial basis. Effective April 1, 1999, the longest maturity was extended to six months from four months.
Arrangements for Payments and Receipts
Prescription of currency requirementsThe currencies used in transactions are determined by the respective contracts.
Payment arrangementsNo.
Administration of controlThe State Administration of Foreign Exchange (SAFE) is responsible for foreign exchange administration, under the administration of the PBC.
International security restrictionsNo.
Payment arrearsNo.
Controls on trade in gold (coins and/or bullion)
Controls on domestic ownership and/or tradePrivate persons may hold gold but not trade it. Nonresidents may buy gold and gold products and silver and silver products but must present the invoice to take them abroad. Effective October 18, 1999, restrictions on domestic ownership and trade of silver and silver products were lifted.
Controls on external tradeTrading of gold and silver is restricted to pharmaceutical, industrial, and other approved users. Unlimited amounts may be imported but must be declared. Exportation requires a permit.
Controls on exports and imports of banknotes
On exports
Domestic currencyThe exportation of domestic currency is limited to Y 6,000.
Foreign currencyResidents and nonresidents are allowed to take their personal legitimate foreign currencies abroad as follows: (1) except in special cases, residents may take foreign currencies in cash up to $10,000 or its equivalent abroad; (2) amounts exceeding $10,000 may be taken abroad in the form of traveler’s checks or other payment certificates; (3) residents taking foreign currencies up to $2,000 abroad do not need to apply for a License for Carrying Foreign Currencies Abroad (LCFCA). For amounts of more than $2,000 but less than $4,000, an LCFCA from the bank is required; for amounts of more than $4,000, prior authorization from the SAFE is required. Nonresidents taking foreign currencies up to $5,000 abroad do not need an LCFCA; for amounts of more than $5,000 but less than $10,000, an LCFCA from the bank is required; for amounts of more than $10,000, prior authorization from the SAFE is required.
On imports
Foreign currencyResidents and nonresidents importing more than $2,000 and $5,000, respectively, need to declare the amounts to customs.
Resident Accounts
Foreign exchange accounts permittedDomestic-funded enterprises (DFEs) may maintain foreign exchange settlement accounts with approved balances for current account purposes based on certain criteria on export/import volume and amount of capital set by the SAFE. Domestic establishments involved with receipts and payments as an agent, temporary receipts and payments, and temporary receipts and pending payments in external contract projects, large machinery and electric product exports, donations, and aid may maintain foreign exchange accounts with approval of the SAFE and settle receipts and payments within the scope stipulated by the SAFE. Foreign-funded enterprises (FFEs) may open (1) foreign exchange settlement accounts for receipts and payments under the current account and for verified payments under the capital account with a maximum amount stipulated by the SAFE for each enterprise; and (2) for-eign exchange specified accounts for receipts under the capital account, payments under the current account, and approved payments under the capital account. Natural persons may open foreign currency savings accounts with authorized banks.
Held domesticallyThese accounts are permitted, but approval is required.
Held abroadThese accounts are permitted, but approval is required.
Accounts in domestic currency convertible into foreign currencyAgencies in need of foreign exchange may convert domestic currency into foreign currency at authorized banks by presenting valid proof and commercial documents when external payments are made.
Nonresident Accounts
Foreign exchange accounts permittedNonresidents staying in China for a short time may open foreign currency savings accounts.
Domestic currency accountsYes.
Convertible into foreign currencyYes.
Blocked accountsNo.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for importsThe SAFE requires foreign currency bank accounts of companies operating in bonded zones to use their own foreign exchange to buy imported goods, barring them from purchasing foreign exchange with renminbi to finance imports. Additionally, domestic sales of imported goods by bonded zone firms must be in foreign currency, and such proceeds must be deposited in the firms’ foreign currency bank accounts.
Advance payment requirementsImporters need prior registration with the SAFE of advance payments exceeding 15% of the contract amount and the equivalent of $100,000; importers need to present a registration form, valid proof, and commercial documents, and carry out reconciliation procedures according to regulations.
Advance import depositsThe same regulations apply as for advance payment requirements.
Documentation requirements for release of foreign exchange for importsImporters must provide valid proof and commercial bills—mainly import permits, automatic registration permits, proof of import, customs declarations, verification forms for foreign exchange payments, import contracts, and the like—to obtain foreign exchange or to pay directly from their foreign exchange accounts.
Import licenses and other non tariff measuresOn December 2, 1999, China began to implement the agreement on agricultural cooperation with the United States, which sets resolutions on the quarantine of wheat, citrus, and meat existing between the two countries.
Positive listTo engage in foreign trade, all enterprises must obtain approval from the foreign trade administration and register with the administrations for industry and commerce, according to the law.
Negative listImports of all secondhand garments, poisons, narcotic drugs, diseased animals, and plants are prohibited. In addition, the importation of weapons; ammunition and explosives; manuscripts; printed and recorded materials; and films that are deemed to be detrimental to Chinese political, economic, cultural, and moral interests is prohibited.
Open general licensesYes.
Licenses with quotasYes.
Import taxes and/or tariffsImport tariff rates fall into two categories: general and preferential. Preferential rates are granted to imports from countries with which China has a trade treaty or agreement. Other imports are subject to the general rate of duty. Imports of inputs and capital goods of FFEs are exempt from tariffs.
State import monopolyProducts subject to designated trading include wheat, chemical fertilizers, cotton, natural rubber, plant oil, plywood, steel, sugar, timber, tobacco and its products, and wool.
Exports and Export Proceeds
Repatriation requirementsYes.
Surrender requirementsQualifying DFEs are allowed to retain 15% of the value of their foreign trade (exports plus imports) of the previous year. Qualifying enterprises are foreign trade companies (FTCs) with a trade volume greater that $30 million and with registered capital greater than Y 10 million, and product-oriented enterprises with foreign trade rights whose volume of trade exceeds $10 million and registered capital exceeds Y 30 million. FFEs may retain their export earnings provided these earnings do not exceed the maximum amount allowed for a foreign exchange account as prescribed by the SAFE; otherwise, the balance, if any, must be sold to authorized banks. The purchases and sales of foreign exchange by FFEs have been included under the banking surrender system.
Financing requirementsNo.
Documentation requirementsNo.
Export licenses
With quotasQuotas for 33 products in the first half of 1999 and for 29 products in the latter part of 1999 were allocated through a bidding system.
Export taxesExport duties are levied on 36 products.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersNontrade payments by FFEs and DFEs are subject to the same provisions. Resident individuals are subject to different regulations.
Trade-related payments
Quantitative limitsThe payment of export commission proceeds are allowed according to the export contracts and the commission contracts. For a hidden commission exceeding 2% of the contract amount and a stated commission exceeding 5% of the contract amount and the equivalent of $10,000, prior approval of the SAFE is required. A hidden commission not exceeding 2% of the contract amount or a stated commission not exceeding 5% or the equivalent of less than $10,000 may be settled directly through a bank.
Indicative limits/bona fide testProof of transaction is required for all trade-related payments. SAFE approval is required for amounts exceeding the prescribed limits for commissions. Traders may pay directly at authorized banks by presenting valid proof and commercial bills.
Investment-related payments
Indicative limits/bona fide testYes.
Payments for travelThe foreign exchange requirements of companies within the budget are provided according to the prescribed limits. There are no restrictions on payments for travel of FFE staff, whereas the amount of foreign exchange that may be bought by other corporations is limited.



Residents traveling to Hong Kong SAR and Macao SAR for personal reasons may purchase up to $1,000 worth of foreign currencies; individuals traveling to other countries or regions (including the Taiwan Province of China) may purchase up to $2,000 worth of foreign currencies. For amounts exceeding these ceilings, verification of authenticity by the SAFE is required.



When residents travel abroad as part of touring parties, their registration fees may be purchased and remitted abroad by touring agencies. Effective October 1, 1999, the restriction of providing foreign exchange once a year to residents traveling abroad for private reasons, excluding residents who hold a multiple pass to and from Hong Kong SAR and Macao SAR, was removed.
Prior approvalVerification and approval of the SAFE are required for amounts exceeding the specified limits.
Quantitative limitsYes.
Indicative limits/bona fide testYes.
Personal payments
Quantitative limitsResidents may purchase foreign exchange up to $1,000 for payments of medicines and medical equipment abroad; for larger amounts, they must submit appropriate documentation for SAFE verification. Persons paying for their own studies abroad may be allowed a onetime purchase of foreign exchange of up to $2,000. Larger amounts require the verification and approval of the SAFE.
Indicative limits/bona fide testYes.
Foreign workers’ wages
Indicative limits/bona fide testProof of earnings and tax clearance is required.
Other payments
Indicative limits/bona fide testFor transfers regarding subscriptions and membership fees, proof of transaction is required.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsYes.
Surrender requirementsForeign grants and financial aid received by domestic establishments, and foreign exchange earmarked for external payments as prescribed by aid contracts may be maintained with the approval of the SAFE. Foreign embassies and consulates, representative offices of international organizations and affiliates of foreign juridical persons, resident persons, and foreign expatriates may retain their foreign exchange. FFEs may retain foreign exchange earnings from current account transactions, provided the retained amount does not exceed the maximum limit allowed by the SAFE. Balances, if any, must be sold to authorized banks. The purchase and sale of foreign exchange by FFEs have been included under the banking surrender system.
Restrictions on use of fundsn.a.
Capital Transactions
Controls on capital and money market instruments
On capital market securities
Shares or other securities of a participating nature
Purchase locally by nonresidentsNonresidents may only purchase B shares. The face value of B shares is denominated in U.S. dollars or Hong Kong dollars. These shares are listed on the Chinese Securities Exchange and can only be bought by foreign investors.
Sale or issue locally by nonresidentsThese transactions are not permitted.
Purchase abroad by residentsResidents, except financial institutions permitted to engage in foreign borrowing, and authorized industrial and trade enterprises or groups, are not permitted to purchase securities abroad. A qualifications review by the SAFE is required in order for financial institutions to purchase securities abroad.
Sale or issue abroad by residentsPrior approval by the China Securities Regulatory Committee (CSRC) is required.
Bonds or other debt securities
Purchase locally by nonresidentsThese transactions are not permitted.
Sale or issue locally by nonresidentsThese transactions are not permitted.
Purchase abroad by residentsPrior approval by the external investment administrative department and the SAFE is required. Residents are allowed to make payments for such securities with privately owned foreign exchange but are not allowed to purchase foreign exchange to make the relevant payments.
Sale or issue abroad by residentsPrior approval by the SAFE is required. The issuing of bonds abroad must be integrated into the state’s plan for the use of foreign capital. Bonds may only be issued by financial institutions or authorized enterprises approved by the SAFE.



Prepayment of external debt is prohibited when there is no prepayment clause in borrowing contracts. If there is such a clause, borrowers may use their own foreign exchange to prepay with the verification of the SAFE. Prepayments with purchased foreign exchange are prohibited. Borrowers are not allowed to purchase foreign exchange from a bank located outside the local area to repay foreign debt.
On money market instruments
Purchase locally by nonresidentsNonresidents are not allowed to purchase money market instruments.
Sale or issue locally by nonresidentsNonresidents are not allowed to sell or issue money market instruments.
Purchase abroad by residentsThe same regulations apply as for bonds or other debt securities.
Sale or issue abroad by residentsThe sale or issue abroad of securities, other than stocks, requires SAFE approval.
On collective investment securities
Purchase locally by nonresidentsThese transactions are not allowed.
Sale or issue locally by nonresidentsn.r.
Purchase abroad by residentsThe same regulations apply as for the purchase of money market instruments.
Sale or issue abroad by residentsThe same regulations apply as for the sale or issue of money market instruments.
Controls on derivatives and other instruments
Purchase locally by nonresidentsThese transactions are not allowed.
Sale or issue locally by nonresidentsThese transactions are not allowed.
Purchase abroad by residentsDomestic establishments must entrust authorized financial institutions to make these purchases. If the entrusted institution is abroad, prior approval from the SAFE is required. Operations in such instruments by financial institutions are subject to prior review of qualifications and to limits on open foreign exchange positions. FFEs do not need prior approval; for them, ex post registration is required.
Sale or issue abroad by residentsThe same regulations apply as for purchases.
Controls on credit operations
Commercial credits
By residents to nonresidentsn.r.
To residents from nonresidentsOnly domestic-funded financial institutions are permitted by the SAFE to engage in external borrowing, and authorized industrial and commercial enterprises or groups may engage in external borrowing of commercial credit. For credit over a one-year maturity, the loan must be part of the state plan for utilizing foreign capital and must be approved by the SAFE. Financial institutions permitted to engage in foreign borrowing are free to conduct short-term foreign borrowing, with a maturity of one year or less, within the target balance without obtaining approval, but they must register the borrowing with the SAFE.



Forward LCs with a maturity exceeding 90 days but less than 365 days are included in the category of short-term credits, while those exceeding one year are included in medium- and long-term international commercial loans.



FFEs may borrow from nonresidents without obtaining approval but must register the borrowing with the SAFE.



If there are no provisions on the advance repayment in the lending contract, no redemption of debt is permitted. If there are provisions on advance repayment, enterprises may redeem debt with their own foreign exchange, provided that approval has been granted by the SAFE, but they may not purchase foreign exchange for that purpose. Renminbi credits extended by banks to domestic institutions should be used only for productive purposes and may not be used to purchase foreign exchange for debt service. At the same time, domestic banks are prohibited from accepting foreign bank guarantees for renminbi loans to domestic-funded enterprises. However, domestic banks may accept guarantees from foreign banks and enterprises to extend renminbi loans. Commercial banks are to ensure that companies do not borrow from bank branches in different locations to evade controls.
Financial credits
By residents to nonresidentsn.r.
To residents from nonresidentsThe same regulations apply as for commercial credits.
Guarantees, sureties, and financial backup facilities
By residents to nonresidentsThe provision of guarantees by authorized financial institutions and nonfinancial legal entities that have foreign exchange receipts is allowed. Without the approval of the State Council, government agencies or institutions cannot provide guarantees.



The new definition of guarantees includes collateral, liens, and pledges; and domestic-funded banks need approval from the SAFE for each guarantee for financing transactions. They do not need approval to issue guarantees of nonfinancing transactions but must register them with the SAFE.



Domestic banks are allowed to extend renminbi loans to FFEs with a foreign exchange lien or guarantee provided by foreign banks. Until July 15, 1999, when these controls were eased, it was also required that (1) liens in foreign exchange pledged by FFEs be restricted to their foreign exchange proceeds from external borrowing; (2) institutions providing guarantees be restricted to domestic foreign banks and overseas banks with good credit ratings; (3) guarantees only be granted in the form of stand-by LC or unconditional letter of guarantee for the honoring of a contract; (4) renminbi loans with guarantee in foreign exchange only be used to meet the working capital shortage of enterprises; and (5) FFEs that have obtained renminbi loans from domestic Chinese banks by pledging foreign exchange proceeds from external borrowing in lien or as a guarantee in foreign exchange arranged by foreign banks must register with local SAFE branches within a certain period of time.
Controls on direct investment
Outward direct investmentForeign exchange is provided for the investment after (1) examination of sources of foreign exchange and an assessment of the foreign exchange risk involved, (2) approval by the Ministry of Foreign Trade and Economic Cooperation (MOFTEC), and (3) approval and registration of outward foreign exchange remittance with the SAFE.
Inward direct investmentNonresidents are free to invest in China as long as they meet requirements under Sino-foreign joint-venture laws and other relevant regulations, and are approved by the MOFTEC. There is no restriction on the inward remittance of funds as far as exchange control is concerned. For environmental and security reasons, inward direct investment in some industries is prohibited.
Controls on liquidation of direct investmentNo.
Controls on real estate transactionsThe same regulations apply as for direct investment.
Controls on personal capital movements
Loans
By residents to nonresidentsYes.
To residents from nonresidentsYes.
Gifts, endowments, inheritances, and legacies
By residents to nonresidentsIn the case that a resident’s directly related family member abroad encounters illness, death, or unexpected disaster, the resident is allowed to purchase and remit abroad up to $1,000 or its equivalent, once the resident has valid, notarized proof or proof from the Chinese embassy or consulate; application from the patient’s local agency (work unit) or prescription from the hospital; the relevant documents from the resident’s work unit (if without a work unit, from the local subdistrict office or the people’s government department above the town level); and proof of the documents related to foreign exchange payments. As for other foreign exchange purchases, amounts of up to $500 may be provided by the bank. For a onetime purchase of foreign exchange for private purposes with an amount exceeding the stipulated standard and up to $50,000 or its equivalent, application to the local SAFE offices against specific documented proof is required, and, after verification by the local SAFE office, the foreign exchange needed may be purchased from the bank and remitted or taken abroad. When a onetime purchase exceeds the stipulated standard or $50,000 or its equivalent, the transaction must be reported to the SAFE by the local SAFE office for verification before the bank provides the foreign exchange.



Remittances from a resident’s foreign currency account abroad for payments for gifts, donations, inheritances, or legacies, for a onetime amount of less than $10,000 or its equivalent, may be made directly through a bank. For amounts of more than $10,000 but less than $50,000 or their equivalents, application to the local SAFE office is required with stipulated documented proof, and, after verification by the local SAFE office, remittances may be made through a bank. For amounts of more than $50,000 or its equivalent, the transaction must be reported to the SAFE by the local SAFE office for verification before the bank makes the foreign exchange remittances.



Transfers of a resident’s foreign currency cash or deposits from a resident’s foreign currency cash account abroad for payments of gifts, donations, inheritances, or legacies, for a onetime amount of less than $2,000 or its equivalent, may be made directly by a bank. For amounts of more than $2,000 but less than $10,000 or their equivalents, application to the local SAFE office is required with specific documented proof and corresponding customs declaration documents to remit foreign currency before remittances may be made by a bank. For amounts above $10,000 or its equivalent, the transaction must be reported to the SAFE by the local SAFE office for verification before the bank makes the foreign exchange remittances.
To residents from nonresidentsIf the foreign currency income from donations and legacies needs to be paid in foreign currency cash or converted into renminbi and if the onetime amount is less than $10,000 or its equivalent, payments may be made directly by banks. When the amount is above $10,000 but less than $50,000 or their equivalents, relevant documented proof must be provided to the banks or the SAFE. For inherited foreign currency, the required documentation includes proof of identification of authenticity, a notarized statement, and proof of tax clearance abroad. For household use of foreign currency, proof of identification of authenticity and documentation of kinsfolk relationship are required. For foreign currency donations, proof of identification of authenticity and a donation agreement are needed. Banks may make the payments after verifying the documented proof and recording the transaction. When the amount is above $50,000 but less than $200,000 or their equivalents, application to the local SAFE office is required with documented proof, and after the verification of authenticity by the local SAFE office, payments may be made through banks. For amounts above $200,000 or its equivalent, application to the local SAFE office is required with documented proof and the transaction must be reported to the SAFE by the local SAFE office for verification before the bank makes the foreign exchange remittances.
Provisions specific to commercial banks and other credit institutions
Borrowing abroadThe same regulations apply as for commercial credits.
Maintenance of accounts abroadRegistration with the SAFE is required for domestic banks to open foreign exchange accounts abroad. As for domestic nonbank financial institutions and nonfinancial enterprises, prior approval by the SAFE is required.
Lending to nonresidents (financial or commercial credits)n.r.
Lending locally in foreign exchangeLending is mainly subject to review of qualifications by the PBC and to asset-liability ratio requirements. Borrowers need to register ex post the transaction with the SAFE and should get a permit from the SAFE to repay the principal.
Purchase of locally issued securities denominated in foreign exchangeChina does not issue securities denominated in foreign currency.
Differential treatment of deposit accounts in foreign exchange
Reserve requirementsThere are different reserve requirements for deposits in renminbi and in foreign currency, and also within the latter for domestic banks and for FFEs (i.e., for FFEs 13% for deposits in renminbi, 5% for any foreign currency deposit for domestic banks, and 3% for deposits of foreign currency of over three months and 5% for less than three months).
Liquid asset requirementsBanks’ foreign exchange liquid assets (one year or less) should not be less than 60% of liquid liabilities (one year or less) and 30% of total foreign exchange assets. Total deposits with three-month maturities, deposits in both domestic and foreign banks, funds used for purchasing transferable foreign currency-denominated securities, deposits with the central bank, and cash holdings should not be less than 15% of banks’ total foreign exchange assets. Nonbank foreign exchange liquid assets (one year or less) should not be less than 60% of liquid liabilities (one year or less) and 25% of total assets. Total deposits with three-month maturities, deposits in both domestic and foreign banks, funds used for purchasing transferable foreign currency-denominated securities, deposits with the central bank, and cash holdings should not be less than 10% of nonbank total foreign exchange assets.
Credit controlsTotal loans, investment guarantees (calculated as 50% of the balance guaranteed), and other foreign exchange credits provided to a legal entity by a bank or nonbank financial institution should not exceed 30% of the foreign exchange capital owned by the bank or nonbank financial institution.
Investment regulationsBank equity investment should not exceed the difference between bank capital and mandatory paid-in capital. Nonbank financial institutions’ total equity investment (excluding trust accounts) should not exceed the difference between their capital and mandatory paid-in capital.
Abroad by banksInvestment in foreign securities other than equities on foreign securities markets by banks is subject to quarterly approval by the PBC.
In banks by nonresidentsPBC approval is required.
Open foreign exchange position limitsFor financial institutions trading foreign exchange on their own behalf, the daily total amount traded (total open foreign exchange position) should not exceed 20% of the foreign exchange working capital. As authorized by the highest level of management, financial institutions trading foreign exchange on their own behalf may retain a small amount of overnight open position, but this should not exceed 1% of the foreign exchange working capital.
On resident assets and liabilitiesYes.
On nonresident assets and liabilitiesYes.
Provisions specific to institutional investorsNo.
Other controls imposed by securities lawsNo.
Changes During 1999
Exchange arrangementApril 1. The longest maturity of forward purchase and sale of foreign exchange was extended to six from four months.
Arrangements for payments and receiptsOctober 18. Restrictions on domestic ownership and trade of silver and silver products were lifted.
Imports and import paymentsDecember 2. Certain restrictions on imports of wheat, citrus, and meat from the United States were eliminated.
Payments for invisible transactions and current transfersOctober 1. The restriction of providing foreign exchange once a year to residents traveling abroad for private reasons, excluding residents who hold a multiple pass to and from Hong Kong SAR and Macao SAR, was removed.
Capital transactions
Controls on credit operationsJuly 15. Some controls on renminbi loans to FFEs under foreign exchange liens or guarantees were eased.

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