Central Bank Revises Six Forex Rules

The People's Bank of China (PBOC) recently issued a circular on the revision of six policies concerning foreign exchange control. The circular states that three policies on the current account will be adjusted, and that qualified banks, fund management companies and insurance companies may pool together the capital they have on the mainland or purchase the forex needed to invest and manage their funds outside the mainland.

Details of the adjustments are as follows:

1.The rules governing the purchase of forex by individual mainland residents will be relaxed and an annual quota system will be introduced.

The purchase of forex by individual mainland residents will be capped at the equivalent of US$20,000 a year. Individual mainland residents may purchase forex at banks by presenting their identification document and stating the purpose of purchase. If the requested amount exceeds the annual limit, the bank will verify the genuine need of the buyer before processing his request.

Individual mainland residents who purchase forex within the annual limit may deposit the funds into their own forex bank accounts or use them to make payments under the current account. The original forex control measures concerning outward remittance, foreign currency cash withdrawal, and carrying foreign currency cash out of the country will remain in force.

Individual mainland residents wishing to purchases forex within the annual limit should do so in person or authorise their immediate family members to do so. In the latter case, the identification documents of the applicant and the authorised agent, proof of their relationship, and an authorisation letter should be presented.

Foreign exchange administration departments will no longer carry out verification and cancellation procedures concerning the purchase of forex by individual mainland residents.

2.The financial services offered by domestic banks will be expanded. Qualified banks will be permitted to pool together the renminbi funds of institutions and individuals on the mainland, convert a certain portion of these funds into forex, and invest in investment products with fixed returns outside the mainland.

3.Qualified securities trading firms such as fund management companies will be allowed to pool together, up to a certain limit, the forex of domestic institutions and individual mainlanders and invest in securities investment portfolios including stocks outside the mainland.

4.The securities investment business of insurance companies will be expanded. Qualified insurance companies will be permitted to invest in products and monetary tools that promise fixed returns outside the mainland. The amount of forex that can be purchased will be maintained at a certain percentage of the insurance firm's total assets.

5.The forex sale and settlement verification system on trade in services is to be simplified, and the approval limits of the respective authorities concerned will be adjusted.

Mainland organisations and individuals making payments of no more than the equivalent of US$50,000 to organisations outside the mainland or no more than US$5,000 to individuals outside the mainland under trade in services can purchase forex for payment by presenting the contract or proforma invoice (payment order). If the amount exceeds the said limit, the original rule will apply. If the payment to be made under trade in services is conducted online via the Internet, the mainland organisation or individual concerned may download the contract and payment order from the Internet, duly affix a seal or sign on the contract, and proceed to complete forex purchase and payment procedures.

For forex sale and settlement applications relating to trade in services which are not stipulated in laws and regulations, those not exceeding the equivalent of US$100,000 may be approved by banks and those over US$100,000 will be approved by the local foreign exchange administration department.

International shipping lines (including international maritime transport, non-vessel operating common carrier, shipping agency and freight forwarding company) making payments for international transportation and related charges can purchase forex at banks directly; and shippers can pay international transport and related charges to transport companies outside the mainland directly depending on actual business needs.

6.The requirement of advance approval for opening forex account under the current account will be cancelled, and the quota for forex account under the current account will be raised.

The opening, alteration and closing of forex accounts under the current account by domestic organisations will no longer require the prior approval of the foreign exchange administration department. A domestic organisation which already has an existing forex account under the current account can proceed to apply for opening another account of the same kind at designated banks directly by submitting an application form, business licence (or social organisation registration certificate) and organisation code certificate. If the applicant does not have a forex account under the current account yet, it should first register its business licence (or social organisation registration certificate) and organisation code certificate with the foreign exchange administration department.

The quota of forex retention under the current account of domestic organisations will be raised, which will be set as the sum of 80% of forex income under the current account and 50% of forex expenditure under the current account of the organisation concerned during the preceding year. For those domestic organisations which did not have any forex income or expenditure during the previous year and which have the need to open a forex account under the current account, the initial quota will be adjusted to the equivalent of US$500,000.

If a domestic organisation is genuinely engaged in trading and has a need to make external payments, it can make advance forex purchase at designated banks where it has opened an account by presenting the valid documents and commercial bills as stipulated in the Regulations on Forex Sale, Purchase and Payment, and other relevant forex rules and regulations. Upon purchase, the forex should be deposited into its forex account under the current account.