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Foreign ExchangeAdministrativeRegulation andRelevant Circulars
Since 2008, China government promulgates and revised a series ofregulations on the administration of foreign exchange, including:
Foreign Exchange Administrative Regulations of the People'sRepublic of China (2008 Revision) issued on 5
th
August 2008
Circular of the State Administration of Foreign Exchange and theState Administration of Taxation on the Relevant Issues of the TrialTax Filing System of Overseas Payment for Service Trade (Hui Fa[2008] 8) issued on 26
th
February 2008
Circular of the General Department of Foreign ExchangeAdministrative Authority on improving the management of thesettlement operations for registration capital of foreign-investedenterprises (Hui Zong Fa [2008] 142) 29
th
August 2008
Foreign ExchangeAdministrativeRegulations of thePeople's Republic ofChina (FEAR)
The macro-economic growth of China has given rise to the strongappreciation of RMB. It has also been attracting the speculative capitaland huge hot money flowing into China. In order to balance theinternational payments and avoid the surge of speculative foreignexchange, China government revised the foreign exchangeadministrative regulations. The government changed the policy of “loosemanagement on inflow and strict management of outflow”.General Provisions
The State will not impose any restrictions on international paymentsor transfers on current account.
When any material imbalance in international receipts and paymentsoccur, or any serious economic crisis occur in China, the State mayimplement the necessary safeguards, controls and other measures.
Foreign Exchange AdministrativeRegulations and Relevant Circulars
 
 
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Administration of Foreign Exchange on Current Account
Current account foreign exchange income may, in accordance withrelevant provisions of the state, be retained or converted into RMB.
 
Foreign exchange payments from current account shall, inaccordance with relevant provisions, be made on the strength ofvalid documents.
 
Administration of Foreign Exchange on Capital Account
Any foreign organization or individual that seeks to make a directinvestment in China shall, after obtaining approval from the relevantcompetent department, make the registrations with the relevantforeign exchange administrative authority.
Any domestic organization or individual that seeks to make a directinvestment overseas shall make the registrations in accordance withthe relevant provisions. Any such organization or individual that isrequired to obtain approval from or make a filing with the relevantcompetent authority in accordance with State provisions shall gothrough the approval or filing formalities before making saidregistrations.
Where any foreign exchange income on capital account is to beretained or converted into RMB, an approval shall be obtained fromthe relevant foreign exchange administrative authority, other thanwhere no approval is required under State provisions.
Any foreign exchange payment from capital account shall, inaccordance with State Council foreign exchange administrativedepartment provisions, be made on the strength of valid documents.Where an approval from the relevant foreign exchangeadministrative authority is required in accordance with Stateprovisions, the relevant approval formalities shall be handled beforethe foreign exchange payment is made.
Foreign exchange on capital account and funds converted fromforeign exchange shall be utilized in accordance with the purposesapproved by the relevant competent authority and the relevantforeign exchange administrative authority.
 
 
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Administration of the Foreign Exchange Business of FinancialInstitutions, RMB Exchange Rates and the Foreign Exchange Market
Any financial institution that seeks to engage in or cease engaging inforeign exchange settlement and sales business shall obtain anapproval from the relevant foreign exchange administrative authority.The foreign exchange administrative authorities shall administer theforeign exchange business of financial institutions on an overallposition basis.
A well-managed floating exchange rate system based on marketsupply and demand shall be implemented for RMB exchange rates.
The State Council foreign exchange administrative department may,in light of changes in the foreign exchange market and monetarypolicy requirements, make adjustments to the foreign exchangepolicies in accordance with the law.Supervision and Administration and Legal Liability
Foreign exchange administrative authorities shall discharge theirduties in accordance with the law and shall have the power to takeactions such as conduct onsite inspections, carry out an appropriateinvestigation and gather relevant evidence, consult, copy and seizethe relevant transactional documents, freeze up or seize relevantproperty.
Any domestic organization engaged in foreign exchange businessactivities shall, in accordance with relevant provisions, submit itsfinancial reports, statistical statements and other information.
Rank the behavior of receiving or making payments in foreignexchange which should have been made in RMB as illegal arbitrage.
Penalize on foreign exchange control evasion, illegal arbitrage,illegal conversion into RMB, unauthorized changing the usage of theforeign exchange or funds converted from foreign exchange and thebreach the relevant provisions by financial institutions and otherinstitutions.
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