Annual Report on Exchange Arrangements and Exchange Restrictions, 2007
Chapter

PEOPLE’S REPUBLIC OF CHINA

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
October 2007
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(Position as of February 28, 2007)

Status under IMF Articles of Agreement
Article VIIIDate of acceptance: December 1, 1996.
Exchange Measures
Restrictions and/or multiple currency practicesNo restrictions as reported in the latest staff report as of December 31, 2006.
International security restrictions
In accordance with IMF Executive Board Decision No. 144-(52/51)Measures have been taken to freeze the accounts and assets of listed individuals, groups, and organizations associated with terrorism. These measures were taken in accordance with the relevant UN Security Council resolutions.
Other security restrictionsYes.
References to legal instruments and hyperlinksn.a.
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
Crawling pegThe exchange rate of the renminbi is determined with reference to an undisclosed basket of currencies. Daily fluctuations in the renminbi-U.S. dollar exchange rate are limited to ±0.3% around a central rate set by the People’s Bank of China based on the market closing rate of the previous day. Daily fluctuations of the renminbi against other currencies are limited to ±3%.
Effective January 4, 2006, the method for determining the renminbi-U.S. dollar mid-rate is as follows: the China Foreign Exchange Trade System, before the daily interbank foreign exchange market opening quote, asks for quotes from all the market makers of the interbank foreign exchange market and makes the quoted prices of the market makers the calculation sample for the renminbi-U.S. dollar exchange rate mid-rate. After eliminating the highest and lowest quotes, it takes a weighted average of the remaining market makers’ quotes and obtains the daily renminbi-U.S. dollar foreign exchange mid-rate. The weighting is on a composite of indicators, such as the trading volume of quoting parties in the interbank foreign exchange market and the circumstances of the quotations. As of December 2006, 15 banks had been introduced to be market makers in foreign exchange. The U.S. dollar spot exchange bid-offer rate between designated foreign exchange banks and their customers may not exceed 1% of the benchmark rate, and spread on cash may not exceed 4%. Banks and their customers may negotiate their exchange and cash rates, but the negotiated rate of renminbi per dollar may not exceed the specified price range. On July 21, 2005, China announced a 2.1% revaluation of the renminbi-U.S. dollar exchange rate and a change in its exchange rate arrangement to allow the value of the renminbi to fluctuate based on market supply and demand with reference to an undisclosed basket of currencies. To permit a greater role for market forces in determining the renminbi exchange rate, steps have been taken since July 2005 to liberalize and develop China’s foreign exchange markets, including the establishment of an over-the-counter spot foreign exchange market and markets for currency swaps and futures. Since the July 2005 revaluation, the exchange rate appreciated by about 5% until end-April 2007, while the rate has remained in a 2% crawling band. The observed path of the exchange rate and information on intervention and reserves buildup suggest that the exchange rate is determined mainly by official action, resulting in a classification as a crawling peg, effective August 1, 2006.
Exchange taxNo.
Exchange subsidyNo.
Forward exchange marketBanks qualified to perform forward foreign exchange settlement and sales business may transact forward exchange settlement and sales business for the following foreign exchange transactions of domestic institutions: current account transactions, repayment of banks’ own foreign exchange loans, repayment of offshore borrowings registered with the State Administration of Foreign Exchange (SAFE), the foreign exchange revenue from offshore direct investments, the revenue from foreign exchange capital of commercial investment enterprises, the foreign exchange revenue from the offshore public listing of domestic institutions, and other foreign exchange revenue and expenditures from processing forward exchange settlement and sales approved by the SAFE. Effective October 20, 2006, any foreign exchange transaction that is eligible for spot settlement under the regulations is eligible for forward settlement.
References to legal instruments and hyperlinksPBC Circular on Issues Related to the Interbank Foreign Exchange Market Trading Exchange Rates and Administration of the Foreign Exchange Posted Rates of Foreign-Exchange-Designated Banks (Yin Fa [2005] No. 183); PBC Public Announcement on Perfecting the Reform of the Renminbi Exchange Rate Mechanism (PBC Public Announcement [2005] No. 16); PBC Circular on Issues Relating to Expansion of Forward Settlement and Sales Business of Foreign-Exchange-Designated Banks with Their Customers and the Launching of Swap Transactions between Renminbi and Other Currencies (Yin Fa [2005] No. 201); Accelerating Development of the Foreign Exchange Market (Yin Fa [2005] No. 202); PBC Circular on Further Improving the Management of Interbank Foreign Exchange Market Trading and Exchange Rates and the Administration of Foreign-Exchange-Designated Banks’ Posted Exchange Rates (Yin Fa [2005] No. 250); SAFE Circular on Issues Related to the Promotion of Spot Rate Inquiry Transactions on the Interbank Foreign Exchange Market (Hui Fa [2005] No. 87); PBC Public Announcement on Further Improvement of the Interbank Spot Foreign Exchange Market (PBC Public Announcement [2006] No. 1); SAFE Public Announcement on Foreign Exchange Administration Issues Related to Foreign-Exchange-Designated Banks’ Forward Settlement and Sales Business and Renminbi-Foreign Currency Swap Business with Customers (Hui Fa [2006] No. 52); www.safe.gov.cn.
Arrangements for Payments and Receipts
Prescription of currency requirementsParties may stipulate in contracts that freely convertible currencies be used in the transactions involved. When border trading companies carry out border trade with trading agencies in foreign countries, they may value and settle accounts in freely convertible currencies, the currency of the neighboring country, or renminbi.
Controls on the use of domestic currency
For current transactions and paymentsThe PBC provides clearing arrangements for banks in Hong Kong SAR and Macao SAR that handle personal renminbi deposits, exchange services, bank cards, and remittance services. Mainland residents may use personal renminbi-denominated bank cards issued by mainland banks to pay for tourism expenses and for withdrawing small sums in Hong Kong SAR and Macao SAR. Participating banks in Hong Kong SAR and Macao SAR may open renminbi-denominated accounts; accept renminbi deposits; provide exchange services between renminbi, Hong Kong dollars, and Macao patacas; and effect renminbi remittances for resident individuals and designated commercial customers in Hong Kong SAR and Macao SAR, respectively. Residents of the mainland may use certain renminbi-denominated bank cards for purchases in Thailand and for withdrawing cash and making purchases in the Republic of Korea and Singapore. These cards may be used for withdrawing funds and making purchases in Belgium, France, Germany, Indonesia, Japan, Luxembourg, the Philippines, Spain, the United States, and Vietnam.
For capital transactionsn.a.
Use of foreign exchange among residentsThe use of foreign exchange for pricing or settlement of transactions among residents is prohibited.
Payments arrangementsNo.
Administration of controlThe SAFE is responsible for foreign exchange administration, under the direction of the PBC.
Payments arrearsNo.
Controls on trade in gold (coins and/or bullion)Gold is subject to a system of centralized purchase and distribution. Mining companies must sell their gold to the PBC, and companies that use gold must buy it from the PBC.
On domestic ownership and/or tradeApproval is required for enterprises to produce, process, or engage in the production, processing, sale, or resale of gold products. Possession of gold or silver by individuals is subject to state controls. No organization or individual may appraise or use gold or silver. Private trading is prohibited.
On external tradeImports of gold require PBC approval. Gold may be imported by individuals for reasonable personal use only. Exports are subject to quota controls.
Controls on exports and imports of banknotes
On exports
Domestic currencyIndividuals may not take out more than 20,000 renminbi from China.
Foreign currencyResidents and nonresidents are allowed to take their personal, legitimately held foreign currencies abroad as follows: (1) Those taking foreign currency cash out of the customs territory in an amount not exceeding the amount declared at their most recent time of entry are not required to apply for a Permit to Take Foreign Exchange out of the Customs Territory. (2) If the amount of foreign currency cash is either in excess of the amount of foreign currency cash declared at their most recent time of entry, or there was none, and the amount carried is less than the equivalent of US$5,000, application for a Permit to Take Foreign Exchange out of the Customs Territory is not required. Those carrying more than US$5,000 and up to US$10,000 are required to apply for a Permit to Hold Foreign Currency at a foreign-exchange-designated bank. Other than in special circumstances, taking more than US$10,000 in foreign currency cash out of the customs territory is not permitted. If the amount is in excess of US$10,000, application for a permit at the local SAFE is required to take foreign currency cash out of the customs territory. (3) Taking foreign currency payment vouchers such as traveler’s checks out of the customs territory does not fall under the rules on exports of cash.
On imports
Domestic currencyResidents and nonresidents may bring into China up to 20,000 renminbi.
Foreign currencyResidents and nonresidents importing more than US$5,000 must declare it to customs.
References to legal instruments and hyperlinksForeign Exchange Regulations of the PBC (State Council Decree No. 193); Border Trade Foreign Exchange Administration Procedures (Hui Fa [2003] No. 113); PBC Circular on Issues Related to the Conducting of Personal Renminbi Business by China Mainland Banks with Hong Kong and Macao Banks (Yin Fa [2004] No. 254); Interim Measures for the Administration of Foreign Currency Cash Taken into and out of the Customs Territory (Hui Fa [2003] No. 102); www.safe.gov.cn.
Resident Accounts
Foreign exchange accounts permittedYes.
Held domesticallyAll domestic and foreign-funded enterprises may open foreign exchange current accounts. Domestic institutions may, within the quota, retain foreign exchange receipts from current account transactions in their foreign exchange current accounts. Domestic institutions may establish current account foreign exchange accounts with proof of a business license (or organization registration) and an institution identification number and retain foreign exchange revenue resulting from 80% of the previous year’s current account foreign exchange revenue minus 50% of current account foreign expenditure. Domestic institutions that in the previous accounting year had no current account foreign exchange revenue may retain an initial limit of foreign exchange revenue of US$500,000 when establishing accounts. Institutions with actual trade background and payment needs abroad may purchase foreign currency ahead of time at banks where they have accounts, with proof of valid permits and commercial receipts stipulated by the Regulations on Foreign Exchange Settlement, Sales, and Payment and other foreign exchange laws and regulations, and they may deposit the funds in their current account foreign exchange accounts.
Current account foreign exchange accounts with special sources and designated uses have limits of 100% of actual foreign currency income. In the case of export-import and manufacturing enterprises that, because of actual operating needs, must retain all current account foreign exchange revenues, the SAFE may determine their limits to be 100% of actual foreign exchange revenue and actual needs. Foreign exchange funds in these current accounts may be used for current account and approved capital account payments. With the approval of the SAFE, domestic institutions may open foreign exchange capital accounts to deposit capital account receipts in foreign currency. Natural persons may open foreign currency savings accounts without approval.
Approval requiredYes.
Held abroadThese accounts are permitted, but approval is required for legal persons.
Approval requiredYes.
Accounts in domestic currency held abroadn.a.
Accounts in domestic currency convertible into foreign currencyWhen making foreign payments, institutions and individuals requiring foreign exchange must present effective evidence and commercial documents to the bank to convert domestic currency into foreign currency. The purchase of exchange for nontrade items in excess of the official quota must have the approval of the SAFE. Residents making purchases within the yearly quota may do so with personal identification and after declaring at a bank the reason for its use; those making purchases in excess of the yearly quota may do so after a bank verifies evidence of actual need, as specified in the foreign exchange regulations.
References to legal instruments and hyperlinksRegulations on the Administration of Domestic Foreign Exchange Accounts (Yin Fa [1997] No. 416); Regulations on the Administration of Foreign Exchange Accounts ([97] Hui Zheng Fa Document No. 10); Specific Regulations on Domestic Institutions’ Guarantees Abroad ([97] Hui Zheng Fa Document No. 10); SAFE Public Announcement Regarding Adjustment of Policy on Current Account Foreign Exchange Administration (Hui Fa [2006] No. 19); Administration of Individual Foreign Exchange (PBC Public Announcement [2006] No. 3); Specific Regulations on Individual Foreign Exchange (Hui Fa [2007] No. 1); www.safe.gov.cn.
Nonresident Accounts
Foreign exchange accounts permittedNonresident individuals in China may open foreign currency savings accounts. Foreign investors may establish foreign exchange accounts, with approval, in order to reserve and directly invest relevant foreign exchange funds. Qualified foreign institutional investors (QFIIs) may establish foreign currency accounts with approval.
Approval requiredYes.
Domestic currency accountsYes.
Convertible into foreign currencyThe legal renminbi income of nonresident individuals in China may, on the basis of the relevant documentation, be freely converted at banks into foreign currency.
Approval requiredQFIIs and international development agencies issuing renminbi bonds in China must receive permission to open accounts.
Blocked accountsNo.
References to legal instruments and hyperlinksAdministration of QFII Securities Investments in China (Order of China Securities Regulatory Commission (CSRC), PBC, and SAFE, August 24, 2006); Interim Regulations of International Development Agencies’ Renminbi Bond Issuance (Public announcement of PBC, MOF, National Development and Reform Commission, CSRC [2005] No. 5, February 28, 2005).
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for imports
Advance payment requirementsFor advance payments, importers must present to a bank an import contract and other relevant documents regarding the settlement of payment obligations.
Documentation requirements for release of foreign exchange for importsIn order to purchase foreign exchange or make payments from a foreign exchange account, importers must provide the import contract, the exchange control declaration related to the import payment in foreign exchange, the customs declaration (required for payment-on-delivery settlement), the invoice, and the import bill of lading. Collections and LCs do not require customs declaration, and cash-on-delivery payments do not require bills of lading.
Import licenses and other nontariff measures
Positive listApart from forbidden and restricted goods, other goods may be freely imported.
Negative listImports of tiger bones, rhinoceros horns, opium, asbestos, carbon tetrachloride, old clothing, asphalt macadam, urban garbage, overheated boilers, coin-operated electronic game machines, as well as some animals, plants, and animal and plant products are forbidden (included in the Index of Forbidden Imports).
In addition, the importation of the following items is prohibited: weapons; ammunition and explosives; manuscripts; printed and recorded materials; and films that are deemed to be detrimental to Chinese political, economic, cultural, or moral interests.
Open general licensesYes.
Licenses with quotasBased on commitments made on accession to the WTO, China currently implements an import tariff quota administration regime for wheat, corn, husked rice, sugar, cotton, wool, wool tops, and chemical fertilizers. Imports within the quota require the appropriate approvals.
Other nontariff measuresBased on the stipulated targets agreed to by the WTO, China implements inspections, quarantines, and certifications with regard to import products. An import quarantine approval system is applied to high-risk plants and animals and plant and animal products.
Import taxes and/or tariffsThere are four categories of import customs duty: the MFN tariff rate, conventional tariff rate, preferential tariff rate, and general tariff rate.
The MFN tariff rate is applied to import goods whose place of origin is a member of the WTO to which the MFN treatment clause is applied; to import goods whose place of origin is in countries or regions that have signed bilateral trade agreements with the People’s Republic of China and that contain clauses of reciprocal MFN treatment, as well as import goods whose place of origin is within the territory of the People’s Republic of China.
The conventional tariff rate is applied to import goods whose place of origin is a country or region that has signed with the People’s Republic of China a regional trade agreement that contains clauses of favorable customs duty.
The preferential tariff rate is applied to import goods whose place of origin is a country or region that has signed with the People’s Republic of China a trade agreement that contains special clauses of favorable customs duty rates.
The general tariff rate is applied to import goods whose place of origin is in countries or regions other than the above-mentioned countries or regions, including import goods whose place of origin is unclear.
State import monopolyThe following products are subject to state trading: wheat, maize, husked rice, crude oil, oil products, sugar, tobacco and tobacco products, cellulose diacetate fiber, chemical fertilizers, and cotton. In addition, based on WTO commitments, China has begun to eliminate its state import monopolies.
References to legal instruments and hyperlinksProvisions for the Administration of Exchange Settlements, Sales, and Payments (Yin Fa [1996] No. 210); State Administration of Foreign Exchange Circular on Issues Related to Strengthening Import Deferred Exchange Payments, and the Administration of Deferred Exchange Payment (Hui Fa [2005] No. 8); State Administration of Foreign Exchange Circular on Issues Related to Further Simplifying Exchange Payment for Trade Imports and Verification and Cancellation Procedures (Hui Fa [2005] No. 67); Law of the People’s Republic of China on Import and Export Commodity Inspection, Implementing Regulations of the Law of the People’s Republic of China Law on Import and Export Commodity Inspection; Law of the People’s Republic of China on Entry and Exit Animal and Plant Matter Quarantine, Implementing Regulations of the Law of the People’s Republic of China on Entry and Exit Animal and Plant Matter Quarantine; Law of the People’s Republic of China on Frontier Health and Quarantine, Implementing Rules of the Law of the People’s Republic of China on Frontier Health and Quarantine; and Law of the People’s Republic of China on Food Hygiene; www.safe.gov.cn.
Exports and Export Proceeds
Repatriation requirementsYes.
Surrender requirementsDomestic institutions may establish current account foreign exchange accounts with proof of a business license (or organization registration) and an institution identification number and may retain foreign exchange revenue resulting from 80% of the previous year’s current account foreign exchange revenue minus 50% of current account foreign expenditure. Domestic institutions that in the previous accounting year had no current account foreign exchange revenue may retain an initial limit of foreign exchange revenue of US$500,000 when establishing accounts.
Current account foreign exchange accounts with special sources and designated uses have limits of 100% of actual foreign currency income. In the case of export-import and manufacturing enterprises that, because of actual operating needs, must retain all current account foreign exchange revenues, SAFE may determine their limits as 100% of actual foreign exchange revenue and actual needs.
Surrender to the central bankn.a.
Surrender to authorized dealersn.a.
Financing requirementsNo.
Documentation requirementsFor trade-related foreign exchange administration, a list of “enterprises requiring special attention” has been established. Enterprises that receive foreign exchange and are not on the list may receive and settle foreign exchange directly according to relevant regulations. Enterprises on the list that receive foreign exchange must provide foreign-exchange-designated banks with a written explanation regarding the nature of foreign exchange settlement. Specifically, foreign exchange revenue from transit trade where payment is followed by collection should be settled with the original copy of the validated verification form of the import payment with the bank’s transaction seal (enterprise copy) and the transit trade contract. Foreign exchange revenue from transit trade where collection is followed by payment, should not be settled before the transit trade payment abroad. After payment abroad is complete, the balance should be settled with the original copy of the verification form of the import payment validated with the bank’s transaction seal (enterprise copy) and transit trade contract. Other transaction types (including prepayment for export merchandise) should be settled with the original copy of the export declaration validated with the specific verification form code of export collection and the export contract. Trade-related fees such as commissions (agency fees) and shipping insurance should be settled according to the contract (agreement) and receipt. Other current account foreign exchange revenue falling outside trade-related foreign exchange, should be settled according to the contract (agreement) and receipt.
Export licenses
Without quotasEighteen commodity types are administered under general export permits: live cattle, live pigs, and live chickens (all for markets other than Hong Kong SAR and Macao SAR); fresh-frozen and frozen beef; fresh-frozen and frozen pork; fresh-frozen and frozen chicken; ozone-depleting substances; paraffin; platinum (exported in processed trade); some precious metals; automobiles (including completely disassembled kits) and their chassis; fans; bicycles; motorcycles (including all-terrain vehicles) and their engines; vehicle frames; and zinc and zinc-containing alloys.
With quotasExport quota administration includes both quota allocation and calls for tenders.
Export taxesExport duties are levied on 88 products.
Other export taxesn.a.
References to legal instruments and hyperlinksRegulations on Foreign Exchange Settlement, Sales and Payment (Yin Fa [1006] No. 210); SAFE Notice on Issues Related to Loosening Regulations on Domestic Institutions’ Retaining of Current Account Foreign Exchange Revenue (Hui Fa [2005] No. 58); SAFE Notice Regarding Issues Related to Further Improving Administration of Import-Export Foreign Exchange Collection and Settlement (Hui Fa [2006] No. 49); SAFE Notice on Adjusting Policy Governing Current Account Foreign Exchange Administration (Hui Fa [2006] No. 19); www.safe.gov.cn.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersNontrade payments by foreign-funded enterprises (FFEs) and domestic-funded enterprises are subject to the same provisions. Resident individuals are subject to different regulations. The sale of and payment for foreign exchange for nontrade items are not included in the current laws and regulations. Nontrade transactions less than US$100,000 may be processed through a foreign-exchange-designated bank. Transactions in amounts more than US$100,000 require local SAFE approval. Multinational companies’ invisible transfers (such as administrative expenditures or salary advances) must be processed directly by foreign-exchange-designated banks with supporting documentation.
Trade-related payments
Quantitative limitsThe payment of commissions for export business is allowed in accordance with export contracts and commission contracts. Prior approval of the SAFE is required for contracts with an unwritten commission exceeding 2% of the contract amount or contracts with a documented commission exceeding 10% or US$100,000.
Indicative limits/bona fide testProof of transaction is required for all trade-related payments. 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 for government agencies, public service units, and enterprises and their institutional units are provided according to the limits prescribed by the MOF. There are no restrictions on payments for travel of staff of FFEs. Residents traveling overseas with tour groups may purchase foreign currency from the travel agency to pay for tour group costs.
Prior approvalVerification and approval of the SAFE are required for amounts exceeding the specified limits.
Indicative limits/bona fide testResident individuals’ foreign exchange purchases equal to or less than US$50,000 a year are processed with personal identification and bank declarations; foreign exchange purchases in excess of this limit may be processed after bank verification of actual-need documents stipulated by the SAFE.
Personal payments
Indicative limits/bona fide testEffective May 1, 2006, residents may purchase foreign exchange up to US$20,000 a year for current account transactions. Effective February 1, 2007, this limit is US$50,000. Resident individuals’ foreign exchange purchases equal to or less than US$50,000 a year are processed with personal identification and after bank declarations; foreign exchange purchases in excess of this limit may be processed after bank verification of actual-need documents stipulated by the SAFE.
Foreign workers’ wages
Indicative limits/bona fide testProof of earnings and tax clearance are required.
Credit card use abroadDomestic cards may be used abroad for current account transactions, but not for capital account investment, trade payments, or for transactions and acts prohibited by law.
Quantitative limitsCash withdrawals made abroad through domestically issued cards are subject to quotas.
Indicative limits/bona fide testn.a.
Other payments
Indicative limits/bona fide testFor transfers in payment of subscriptions and membership fees, a proof of transaction is required.
References to legal instruments and hyperlinksSAFE Circular on Issues Related to the Sales and Payment of Foreign Exchange for Nontrade Items Not Specified in Current Laws and Regulations (Hui Fa [2003] No. 35); SAFE Circular on Issues Related to the Administration of Nontrade Foreign Exchange Purchases by Multinational Companies (Hui Fa [2004] No. 62); SAFE Circular on Standardizing Banks’ Administration of Foreign Currency Cards (Hui Fa [2004] No. 66); SAFE Circular on Adjusting Policy Governing Current Account Foreign Exchange (Hui Fa [2005] No. 19); Administration of Individual Foreign Exchange (PBC Public Announcement [2006] No. 3); Implementing Regulations on Administration of Individual Foreign Exchange (Hui Fa [2007] No. 1); www.safe.gov.cn.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsYes.
Surrender requirementsForeign embassies and consulates, representative offices of international organizations, affiliates of foreign juridical persons, resident persons, and foreign expatriates may retain their foreign exchange.
Surrender to authorized dealersDomestic institutions 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 designated foreign exchange banks. The surrender of foreign exchange by individual residents exceeding the equivalent of US$50,000 requires submission of documentation to the local SAFE office for verification.
Restrictions on use of fundsYes.
References to legal instruments and hyperlinksSAFE Circular on Certain Questions Related to Further Adjusting the Administrative Policy on the Foreign Exchange Accounts of Current Accounts (Hui Fa [2002] No. 87); SAFE Circular on Issues Related to Standardizing the Administration of Foreign Exchange Settlement Business of Resident Individuals (Hui Fa [2004] No. 18); www.safe.gov.cn.
Capital Transactions
Controls on capital transactionsYes.
Repatriation requirementsProceeds from the issuance of shares by an overseas listed FFE and the foreign exchange funds earned by the domestic equity holding unit of China-held foreign listed companies (CHFLCs) from sales of listed shares, assets, or liquidity of the company must be repatriated within six months of receipt. With the approval of the SAFE, this period may be extended to two years, and the funds may be used to purchase certain structured products of a deposit bank. If exchange settlement is required, this must be with the approval of the SAFE.
Surrender requirements
Surrender to authorized dealersWith the approval of the SAFE, domestic institutions may open foreign exchange capital accounts to deposit capital account receipts in foreign currency.
Controls on capital and money market instruments
On capital market securities
Shares or other securities of a participating nature
Purchase locally by nonresidentsQFIIs may invest domestically in A shares, subject to the following limitations: (1) A QFII must have a minimum experience in the industry of five years for fund managers and insurance companies, 30 years for securities firms; at least US$5 billion for fund management firms and insurance companies and US$10 billion for securities firms in assets under management in the most recent financial year; and must be clear of any major irregularities in its home market over the past three years. (2) A QFII that is a bank must have assets that rank it among the top 100 internationally in the most recent financial year and must manage securities of not less than US$10 billion; other investors must have been in the business for at least five years, and the securities assets they managed in the most recent accounting year may not be less than US$5 billion. (3) Ownership of any Chinese company listed on the Shanghai or Shenzhen stock exchange by a QFII may not exceed 10%, and the total shares owned by QFIIs in a single Chinese company may not exceed 20%. Closed-end QFIIs may remit capital only after three years, in installments of no more than 20% of the total each time, at intervals of one month or more. Other QFIIs may remit capital only after one year, in installments of no more than 20% of the total, and at intervals of three months or longer. Offshore beneficiaries of the above-mentioned remitted funds should be qualified investor principal parties. (4) Each investor may authorize only one custodian. QFIIs should authorize a custodian to apply on their behalf at the securities registration and settlement institution to set up securities accounts. When the custodian applies on their behalf to set up securities accounts, it should hold documents such as the qualified investor’s power of attorney and other securities investment business approvals, etc. In addition, within five working days of setting up the securities account, the custodian must report the related circumstances to the CSRC for recording purposes. QFIIs should authorize a custodian to represent them in setting up a renminbi settlement funds account at the securities registration and settlement institution for carrying out funds settlement with the securities registration and settlement institution. The custodian will be responsible for the settlement of the domestic securities investment of qualified investors.
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 may be bought by foreign and domestic investors. Domestic investors may purchase B shares with new or existing foreign currency deposits.
Sale or issue locally by nonresidentsNonresidents may sell A and B shares, but may not issue them.
Purchase abroad by residentsDomestic companies may repurchase the shares issued by them overseas, provided the SAFE verifies the source of the funds and approves payment abroad. Approved insurance companies may invest in shares in offshore markets within the permitted limit, but may not exceed 10% of the investment limit permitted by the SAFE. Effective April 13, 2006, on approval, qualified fund management firms and other securities management companies may, within a certain limit, combine foreign exchange funds owned by domestic institutions and individuals and use the funds overseas for portfolio investments, including for stocks.
Sale or issue abroad by residentsPrior approval by the CSRC is required for the issuance of shares abroad by offshore listed foreign-funded joint-stock companies. CHFLCs (i.e., companies registered and listed abroad and controlled by Chinese shareholders), depending on the situation, may have to either obtain prior CSRC approval to issue shares abroad or file the documents with the CSRC after the completion of the issuance.
Bonds or other debt securities
Purchase locally by nonresidentsQFIIs may invest in treasury bonds, convertible bonds, and corporate bonds listed on domestic securities exchanges.
Sale or issue locally by nonresidentsRenminbi-denominated bonds may be issued by international development agencies with the approval of the MOF, the PBC, and the National Development and Reform Commission.
Purchase abroad by residentsEffective April 13, 2006, insurance companies and securities firms that have received the approval of the China Insurance Regulatory Commission and the SAFE may purchase foreign bonds that meet rating requirements. Qualified banks may also combine the renminbi funds and foreign exchange funds of domestic institutions and individuals and invest the funds in fixed-income products abroad.
Sale or issue abroad by residentsFollowing authorization by the State Development and Reform Commission and the SAFE, applications for these transactions are to be submitted to the State Council for Examination for approval. Foreign exchange earnings from bond flotation must be repatriated.
On money market instruments
Purchase locally by nonresidentsQFIIs may purchase publicly issued securities funds and currency market funds.
Sale or issue locally by nonresidentsNonresidents are not allowed to sell or issue money market instruments.
Purchase abroad by residentsThe regulations governing bonds or other debt securities apply.
Sale or issue abroad by residentsWhen approved by the SAFE, residents may issue abroad instruments such as bonds with less than one year duration and commercial instruments.
On collective investment securities
Purchase locally by nonresidentsQFIIs may invest in domestic closed-end and open-end funds.
Sale or issue locally by nonresidentsThese transactions are not allowed.
Purchase abroad by residentsThe regulations governing bonds or other debt securities apply.
Sale or issue abroad by residentsThe regulations governing the sale or issue of money market instruments apply.
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 residentsBanking institutions may purchase and sell derivative instruments without SAFE approval only when they have obtained the approval of the Chinese Banking Regulatory Commission (CBRC) and if they manage their own foreign exchange business or participate in the foreign exchange transaction for their customers. The purchase or sales of derivative instruments should be for risk hedging, not for speculation. Nonfinancial institutions may participate in this type of transaction through the approved business of financial institutions and they do not need prior permission. To participate in this type of transaction with foreign institutions, prior approval from the SAFE is necessary. Foreign investment firms may directly engage in derivatives trading with foreign institutions and without approval. However, changes in the credit items and other relevant changes of foreign debt must be registered after the fact.
Sale or issue abroad by residentsThe regulations governing purchases apply.
Controls on credit operationsPurchases of foreign exchange for advance repayment of foreign debt require SAFE authorization and must conform to the following guidelines: (1) debt examination, approval, and registration requirements must be satisfied in accordance with regulations; (2) the loan contract must contain an advance repayment clause, and both the creditor and the debtor must agree to the advance repayment; (3) the debtor must submit an application to purchase foreign exchange for an advance foreign debt repayment; and (4) owned foreign exchange must be used first, and foreign exchange may be purchased only when all owned foreign exchange is exhausted.
Commercial credits
By residents to nonresidentsFinancial institutions authorized by the CBRC may borrow from overseas institutions or lend overseas with SAFE approval. Resident subsidiaries of multinational corporations may either directly lend or arrange for a domestic bank to lend to the offshore member company of the group.
To residents from nonresidentsOne-year or longer international commercial borrowing by Chinese institutions must be approved in advance. Financial institutions with an approval to engage in foreign borrowing may conduct short-term foreign borrowing with maturities of one year or less within the balance approved by the SAFE. Specific transaction-based approval is not required. All foreign borrowing must be registered with the SAFE.
Forward LCs with a maturity of more than 90 days but less than one year are included in the category of short-term credits, whereas those exceeding one year are included in medium- and long-term international commercial loans. Deferred payments under trade with terms of more than 180 days and amounts above US$200,000 must fit into external debt and limit management.
FFE’s mid- and long-term foreign debts and net short-term debts must be managed within the difference between the total investment amount and registered capital. Within this limit, borrowing from a nonresident does not require prior approval but the borrower must register the credit with the SAFE.
If the guidelines for purchases of foreign exchange to make advance repayments for loans are satisfied, the debtor may submit an application to the SAFE for the purchase. Renminbi credits extended by banks to domestic institutions may be used only for productive purposes and may not be used to purchase foreign exchange for debt-service payments.
Financial creditsThe regulations governing commercial credits apply.
Guarantees, sureties, and financial backup facilities
By residents to nonresidentsDomestic banks’ foreign financial guarantees and all guarantees provided by other domestic institutions (except the collateral or mortgage by solely foreign investment enterprises for their own credit) are subject to prior authorization by the SAFE. The external nonfinancing guarantees provided by banks do not require prior approval; however, all external guarantees must be registered. When a guarantee is exercised, the specific transactions must be approved on a case-by-case basis by the SAFE.
To residents from nonresidentsFFEs may accept guarantees from foreign institutions.
Controls on direct investmentA three-tier classification system is in effect, defining activities in which foreign exchange investment is encouraged, restricted, or banned.
Outward direct investmentOutward direct investment is permitted only after examination of the source of the foreign exchange funds, approval of the authorities concerned with foreign direct investment, and completion of offshore investment foreign exchange registration. Foreign direct investment that does not involve foreign exchange purchases or outward foreign exchange remittance does not require examination of the source of the foreign exchange funds. Effective July 1, 2006, the limit on the amount of foreign exchange used in Chinese enterprises’ direct investments abroad has been abolished, allowing domestic investors to purchase foreign currency to participate in direct investments abroad.
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 Ministry of Commerce. Capital remitted as inward foreign direct investment may be converted into renminbi only on the basis of a written payment order by the foreign-invested enterprise.
Controls on liquidation of direct investmentPrior approval from the original review and approval department is required for liquidation. SAFE verification is required to purchase foreign exchange to remit funds belonging to foreign investors after liquidation.
Controls on real estate transactionsThe regulations governing direct investment apply.
Purchase abroad by residentsYes.
Purchase locally by nonresidentsForeign exchange funds of more than US$50,000 remitted by nonresident individuals to purchase real estate require SAFE approval before conversion into renminbi. Effective September 1, 2006, local real estate purchases by nonresidents in China must be based on their actual needs and for their own use.
Sale locally by nonresidentsThe purchase of foreign exchange and outward remittance of funds belonging to a nonresident individual from the sale of real estate requires SAFE authorization.
Controls on personal capital transactions
LoansControls apply to all these transactions.
Gifts, endowments, inheritances, and legacies
By residents to nonresidentsWhen providing aid and assistance to immediate relatives overseas, and purchasing foreign exchange within the annual maximum (US$50,000), a resident may do so at a bank with valid proof of identity. If the total foreign exchange purchased exceeds the annual limit, a resident may purchase foreign exchange at a bank with valid documents of identification and certified materials related to the transaction amount.
Foreign exchange remittances out of foreign exchange deposit accounts that are US$50,000 or less may be arranged at a bank with the individual’s valid proof of identity. Transactions exceeding the above amount may be arranged with proof of the availability of the transaction amount in the current account. Cash remittance of foreign exchange equal to or less than US$10,000 may be arranged at a bank with the individual’s proof of identity. Transactions exceeding this amount may be arranged with proof of the availability of the transaction amount in the current account, and a “Traveler’s Luggage Declaration Form” stamped by customs officials or proof of cash withdrawal from the individual’s original bank of deposit.
Foreign heirs, including those from Hong Kong SAR, Macao SAR, and Taiwan Province of China, are permitted to transfer inheritance out of the country.
To residents from nonresidentsResidents’ individual foreign exchange incomes from gifts, donations, bequests, and estates within the annual amount (US$50,000) may be arranged at a bank with proof of identity. When these exceed the annual total, donation incomes should be settled with proof of identity and a certified donation agreement or contract, and estate inheritance incomes should be settled with proof of identity and an estate inheritance legal document or certificate.
Settlements of debts abroad by immigrantsn.a.
Transfer of assets
Transfer abroad by emigrantsIncome from pensions and old-age allowances may be remitted abroad. Natural persons moving abroad or going to reside in the Hong Kong and Macao SARs, may, before obtaining emigrant status, apply to liquidate the lawful property they possess within the territory of China and purchase and remit the foreign exchange. For emigration transfers in excess of 200,000 renminbi, a nonrecurring application for distributive remittances must be submitted. After receiving approval, one-half may be transferred. One year later, half of the remainder may be transferred. The rest may be transferred after two full years.
Transfer into the country by immigrantsn.a.
Transfer of gambling and prize earningsn.a.
References to legal instruments and hyperlinksAdministration of QFII Securities Investments in China (Order of CSRC, PBC, and SAFE [2006] No. 36); Interim Administrative Measures on the Sales and Payment of Foreign Exchange for Outbound Personal Property (PBC [2004] No. 16); Interim Administrative Measures for the Offshore Use of Foreign Exchange Insurance Funds ([2004] No. 9); Interim Administrative Measures on the Issuance of Renminbi Bonds by International Development Institutions (PBC, Ministry of China, National Development and Reform Commission, CSRC [2005] Decree No. 5); SAFE Circular on Issues Related to the Administration of Foreign Exchange from Offshore Public Offerings (Hui Fa [2005] No. 6); SAFE Circular on Issues Related to Expanding the Pilot Study on Reforming the Administration of Offshore Investment Foreign Exchange (Hui Fa [2005] No. 35); China Securities Law, State Council Special Decree on Limited Shareholding Companies’ Stock Financing and Public Listing Abroad (State Council Decree No. 160); State Council Circular on Further Strengthening of Administration of Overseas Share Issuance and Public Offering (Guo Fa [1997], No. 21); www.csrc.gov.cn; www.safe.gov.cn.
Provisions Specific to the Financial Sector
Provisions specific to commercial banks and other credit institutionsAccording to Arrangements on Establishing Closer Commercial Relationships between the Mainland and Hong Kong, the asset scale requirement for Hong Kong banks to set up branches and legal entities on the mainland has been lowered to US$6 billion. Requirements for Hong Kong banks’ mainland branches to conduct renminbi business have also been loosened, in that the minimum of three years of being in business on the mainland has been lowered to two years. Beginning December 11, 2006, China extends to foreign banks full national treatment. According to China’s WTO accession pledges, foreign legal-entity banks registered in China are allowed to provide the same financial services provided by Chinese-funded banks, including retail renminbi deposits. The regulation of foreign banks is the same as that of domestic banks. Foreign bank branches with CBRC approval to conduct renminbi business may accept fixed-term deposits from Chinese citizens living in China in the amount of no less than 1 million renminbi per transaction.
Borrowing abroadThe regulations governing commercial credits apply. Domestic banks that are funded abroad may not convert proceeds from debt contracted abroad into renminbi and are not allowed to purchase foreign exchange to service these debts.
Maintenance of accounts abroadRegistration with the SAFE is required for domestic banks to open foreign exchange accounts abroad. Domestic nonbank financial institutions and nonfinancial enterprises require prior approval by the SAFE.
Lending to nonresidents (financial or commercial credits)The regulations governing commercial credits apply.
Lending locally in foreign exchangeBanks must adhere to regulations concerning asset-debt ratios laid out in the Commercial Banking Law of China. Borrowers must register the transaction after the fact with the SAFE and must obtain a permit from the SAFE to repay the principal. SAFE registration and SAFE permission to repay the principal are not required for residents to borrow foreign exchange from domestic Chinese financial institutions. However, creditors must submit the regular loan registration to the SAFE and report the principal and interest repayment status.
Purchase of locally issued securities denominated in foreign exchangeOn approval from relevant government agencies, two policy banks have issued foreign currency bonds.
Differential treatment of deposit accounts in foreign exchange
Reserve requirementsReserve requirements are different for renminbi deposits and foreign currency deposits. The annual interest rates for required and excess reserves are currently at 1.89% and 0.99%, respectively. No such interest is accrued on foreign currency reserves.
Liquid asset requirementsThe ratio of current asset balance and current debt balance may not be lower than 25%.
Credit controlsThe ratio of the credit balance for a single borrower to a bank’s capital may not exceed 10%.
Investment regulationsNonbank financial institutions’ total equity investment (excluding trust accounts) should not exceed the difference between their capital and mandatory paid-in capital.
Abroad by banksYes.
In banks by nonresidentsCBRC 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 or foreign exchange operating funds.
Provisions specific to institutional investors
Insurance companies
Limits (max.) on securities issued by nonresidentsApproved insurance companies may invest in shares in offshore markets within the permitted limit, but may not exceed 10% of the investment limit permitted by the SAFE.
Pension fundsn.a.
Investment firms and collective investment fundsOn September 1, 2006, the Interim Implementing Regulations on QFII Securities Investments in China were abolished and the Administration of QFII Securities Investments in China went into effect.
Limits (max.) on securities issued by nonresidentsEffective April 15, 2006, on approval, qualified fund management firms and other securities management companies may, within a certain limit, combine foreign exchange funds owned by domestic institutions and individuals and use the funds overseas for portfolio investments, including for stocks.
Limits (max.) on investment portfolio held abroadn.a.
Limits (min.) on investment portfolio held locallyn.a.
Currency-matching regulations on assets/liabilities compositionn.a.
References to legal instruments and hyperlinksn.a.
Changes during 2006
Exchange arrangementJanuary 4. The system for quoting the mid-rate was changed.
August 1. The exchange rate arrangement was reclassified to the category crawling peg from the category conventional pegged arrangement.
October 20. Any foreign exchange transaction that is eligible for spot settlement under the regulations became eligible for forward settlement.
December 18. The number of banks permitted to be market makers increased to 21 from 13.
Payments for invisible transactions and current transfersMay 1. Residents were allowed to purchase foreign exchange up to US$20,000 a year for current account transactions.
Capital transactions
Controls on capital and money market instrumentsApril 13. Domestic banks’ overseas foreign exchange fund management services for customers was expanded; qualified banks are allowed to combine renminbi funds of domestic institutions and individuals and purchase foreign exchange within limits to invest in fixed-income products abroad; qualified fund management firms and other securities firms are allowed to combine within limits foreign exchange funds of domestic institutions and individuals for overseas portfolio investments, including for stocks; insurance institutions’ securities investment business abroad was expanded; qualified insurance companies are allowed to purchase foreign currency to invest in fixed-income products and currency market instruments abroad, with the foreign exchange purchase amount subject to a certain proportion of the insurance institution’s total assets.
Controls on direct investmentJuly 1. The limit on the amount of foreign exchange used in Chinese enterprises’ direct investments abroad was abolished.
Controls on real estate transactionsSeptember 1. Nonresidents may purchase domestic real estate based on actual needs and for their own use.
Provisions specific to the financial sector
Provisions specific to commercial banks and other credit institutionsDecember 11. China provides full national treatment for foreign banks. Under its WTO agreement, foreign banks, after being incorporated locally, are permitted to engage in the same range of financial services as Chinese banks, including taking retail renminbi deposits, and they are regulated and supervised in the same way as domestic banks. Foreign bank branches with CBRC approval to conduct renminbi business may accept fixed-term deposits from Chinese citizens living in China in the amount of no less than 1 million renminbi a transaction.
Provisions specific to institutional investorsApril 15. On approval, qualified fund management firms and other securities management companies may, within a certain limit, combine foreign exchange funds owned by domestic institutions and individuals and use the funds overseas for portfolio investments, including for stocks.
September 1. The Interim Implementing Regulations on QFII Securities Investments in China were abolished and the Administration of QFII Securities Investments in China went into effect.
Changes during 2007
Exchange arrangementJanuary 15. The number of market-maker banks increased to 22 from 21.
Payments for invisible transactions and current transfersFebruary 1. Residents are allowed to purchase foreign exchange up to US$50,000 a year for current account transactions.

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