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Don’t Get Penalized: What you Need to Know About New Foreign Exchange Regulations

Foreign investors should become familiar with China’s State Administration of Foreign Exchange’s new regulations, which have recently become effective. These regulations will tighten the rules for incoming foreign exchange, through both current and capital accounts.

Capital account items – Huizongfa [2008] No. 142

Paid-up capital should be verified before it is exchanged into RMB
Use of converted RMB should be within the allowable business scope, as approved by relevant Chinese authorities
Foreign Investment Enterprises are required to prepare a payment order to the bank specifying the payees of the converted RMB
Foreign Investment Enterprises are required to provide detailed documentation for converting more than $50,000 foreign exchange into RMB
In order to collect foreign exchange proceeds that result from the disposal of an equity interest in a Chinese entity, investors will need to open a specific foreign exchange account and provide a payment order
Foreign Investment Enterprises will be penalized if they use RMB capital for other than for which the loan was approved

Trade account items – Huifa [2008] 29, 30, &31

Exporters are required to open a specific bank account in order to collect export proceeds in foreign exchange
Exporters are required to register foreign debt on advance collections of export proceeds, via the SAFE on-line system
Exporters cannot convert export proceeds into RBM before the actual export has taken place
Importers are required to register foreign debt when making deferred import payments, via the SAFE on-line system

In an effort to stabilize China’s economy, the Chinese government has introduced new, stronger regulations that apply to the inflow of foreign exchange funds. This requires foreign investors to carefully consider their capital needs before applying for a business license in which they must state capital requirements.

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