Problems relating to Trade and Investment on China
12. Exchange controls |
|||
Issue |
Issue details |
Requests |
Reference |
| (1) Stringent Control on External Remittance and its Complex Procedures | - State Administration of Foreign Exchange (SAFE) requires completion of the system registration procedures for external remittance from the account pending examination before the capital move to the current account. It takes one day for capital move, with a possibility of payment delay. - While the taxation bureau allows external remittance of non-trade payment (consultant-fee) more than 50,000USD after filing application. However required documents for the audit remained uncertain, it makes difficult to accept the audit on normal business days - While State Administration of Foreign Exchange (SAFE) has been deregulating restrictions on receipt and payment in RMB, and in foreign exchange, the fact remains that SAFE continues to compel inconveniences in various ways, by way of conversion into RMB, remittance in foreign currency for advance made, relative to the procedural matters, etc. and in many circumstances. - Since 1 August 2012, GOC has deregulated international trade transactions, provided, however, that procedures such as verification of truthfulness, and crosscheck at customs clearance remain vexatiously complex and severe. |
- It is requested that SAFE: -- cuts down the time required for capital movement (previously 30 minutes), and -- simplifies the procedures. - It is requested that GOC deregulates the restrictions and streamlines the procedures. - It is strongly requested that GOC: -- liberalises in principle remittance in foreign currency to foreign funded enterprise, and -- simplifies the procedures. - It is requested that GOC: -- deregulates restrictions and -- streamlines the procedures. |
- Regulation on Foreign Exchange Settlement Administration, etc. - Foreign Exchange Control Act - Notice of SAFE on Matters concerning the Issuance of Foreign Exchange Administration Rules for Trade in Goods (HuiFa [2012] No.38) - SAFE "Detailed Rules for Advancing the Implementation of Pilot Administrative Guidelines on Foreign Exchange Control for Trade in Goods" - Notice of SAFE on Issuing Service Trading Foreign Exchange Pilot Administration Rules (Huifa [2013]No.40) - Regulation on Foreign Exchange Control, PBC Shanghai Branch Office "Response to Shanghai Banking Industry issued on 12 June)", etc. - Notice of SAFE on Further Improving and Adjusting Foreign Exchange Administration Policies for Direct Investment (19 November 2012) |
| (Action) - Since July 2005, People's Bank of China (PBC) has introduced managed float system in its foreign exchange. However, to be ready for the world financial crisis, since September 2008, it has reverted to the fixed rate pegged at USD1.00 = RMB6.8. - On 5 August 2008, GOC amended and enforced "Regulation on Foreign Exchange Control (RFEC)", tightening its control and supervision on foreign exchange over the enterprises making settlement of accounts in foreign exchange and the foreign exchange banks. On the other hand GOC deregulated its control on outflow of foreign currency. The Amended RFEC permits holding of foreign currency revenue offshore under certain conditions, repealing the requirements for conversion into RMB the total foreign currency gained, while enabling the holding of foreign currency gained in the normal course of business. - On 19 June 2010, PBC released its policy of further promoting the reform of RMB foreign exchange rates and enhancing resiliency of RMB foreign exchange rates, switching from the fixed foreign exchange rate system (against U.S.$) to the floating exchange system with reference to the currency basket. - Since August 2012, the pilot reform of the foreign exchange administration system for trade in goods has been implemented nationwide, introducing the system that includes: (1) move of monitoring system for foreign exchange relative to trade in goods, (2) move to total volume supervision through the system for settlement of foreign exchange, (3) classified control of export/import enterprises into A, B, and C, corresponding to compliance rule in provisions of foreign exchange administration,(4) off-site and on-site inspections by collation of export/import customs clearance data against non-trade income and expenditure in total volume, and (5) on site inspection. - On 6 December 2013, State Administration of Foreign Exchange (SAFE) promulgated "Notice on Issues concerning Improving the Foreign Exchange Administration of Trade Financing Business of Banks" (WaiHuiFa No. 44[2013]), in order to guard against inflow of "hot-money", holding banks responsible for ensuring the veracity and legality of receipts and payments under trade of enterprises (foreign trade financing), especially with usance in excess of 90-days. |
|||
| (Improvement) - On 5 August 2007, Regulation of PRC on Foreign Exchange Administration (2008) was amended to expressly provide: "International payments in foreign exchange and the transfer of foreign exchange under the current items shall not be subject to any state control or restriction" (Article 5). Thus "the current items concentration system" was repealed. - Effective 6 July 2009, GOC has started settlement of trade in goods in Renminbi between Hong Kong and PRC. The settlement of account in Renminbi is possible for only the trade between the enterprises authorised by GOC located in Shanghai, Guangzhou, Shenzhen, Dongguan and Zhuhai and Hong Kong, Macao and ASEAN countries. - On 17 June 2010, PBC and 5-other governmental organisations promulgated their policy titled, "Notice on the Relevant Issues Concerning the Expansion of Pilot RMB Settlement in Cross-border Trade" [PBC [2010] No. 186]. This Notice has expanded the settlement in RMB, which were permitted only on transactions between certain regions/countries, to all regions and countries, adding 18 Provinces (Autonomous regions and municipalities directly under the government control) in the pilot test programme for this measure. This expansion plan GOC has introduced as the internationalisation strategy of RMB is a significant measure after the pilot plan (from December 2008 through July 2009) that covered the limited municipalities. - Implementation on 1 December, 2010 of "Notice on Issues Concerning the Reform of the Verification of Foreign Exchange Payments in Import Trade" has dispensed with the need for case by case collation of import cargoes. - Since 1 January 2011, exporters satisfying certain conditions are permitted to hold in their overseas banks' accounts foreign currency revenue gained as cost of goods exported in the original currency, without requiring conversion into RMB. - As an improvement, it can be cited that settlement is RMB has now become possible between the parties in PRC and Japan. - On 24 August 2011, by "Notice on Expanding the Regions Supporting RMB Settlement in Cross-border Trade" (Yinfa[2011]No.203), the applicable regions for RMB settlement have been expanded nationwide in PRC. Furthermore, since 3rd February 2012, all enterprises have enabled to settle in RMB the consideration of export goods ("Notice on the Relevant Issues Pertaining to Administration over enterprises engaged in RMB Settlement of Export of Goods" was promulgated (Yinfa[2012]No.23)). This Notice has enabled foreign funded enterprises incorporated in PRC with import/export settlement of accounts to conduct the exchange marry in RMB in cross border transactions. - On 1 December 2011, pursuant to Announcement No. 2 [2011] of SAFE, SAT and GAC on "the Pilot Reform of the Foreign Exchange Administration System for Trade in Goods", its guidelines, and implementing rules, GOC implemented discontinuation of the collation system for proceeds from export trade in goods in the pilot regions. - Since 1 August 2012, GOC has discontinued the collation system nationwide on the export revenue and import payment, in each case in foreign currency, shifting into classified administration by enterprises (A, B and C classes). The simplified procedures for receipt and payment of foreign currency will apply to A class enterprises (found to be observing the compliance programmes with the record of orderly export/import procedures), where more rigorous procedures will apply to enterprises in B/C classes. GOC has shifted its administrative method from inspecting all applications to monitoring, whereby GOC inspects only the cases where abnormal numbers are detected for the record. ("Announcement of the SAFE, GAC and SAT on Reforming the Foreign Exchange Administration System for Trade in Goods", Huifa No. 1 [2012]) - On 1 August 2012, GOC discontinued the procedural collation requirement under the credit control registration system on the credit balance arising from the deferred import payment exceeding 90-days, and the advance payment received on export. GOC, alternatively introduced reporting requirement as regards external non-trade payments, including advance over 30-days, prepayment, collection of usance over 90-days, deferred payment, L/C payment with usance of more than 90-days, accompanied by establishment of certain threshold, such as the balance ratio of pre-payment received, advance payment made, collection with usance, and deferred payment, so that on-site verification takes place in cases where such threshold is exceeded. "Notice on Matters concerning the Issuance of Foreign Exchange Administration Rules for Trade in Goods (Huifa[2012]No.38)". - On 24 July 2013, State Administration of Foreign Exchange (SAFE) promulgated Notice on Simplifying the Exchange Control relative to Trade in Service. (Huifa[2013]No.30). (1) In lieu of the Competent Authority, Financial Institution shall directly examine exchange control on trade in service. (2) Examination on Transaction Certificate is not required on small Trade in Service in the amount not exceeding USD50,000. (3) The existing examination regulations amounting to a few dozens in kind on other transactions shall be streamlined and integrated, while the names of the presiding institutions, and the examination requirement shall be repealed for the majority of the submitted documents. Tax Certificate requirement for the receipt and payment in Foreign Currency shall be discontinued. (4) "Exchange Control Guidelines for Trade in Service" and its "Detailed Rules for Implementation" shall be stipulated. These shall replace and repeal the existing relative laws, regulations and documents, counting more than 50 in number. Systematic, clear-cut and transparent legal basis shall be provided for exchange procedures focused on external operations on account of trade in service. (5) Restrictive terms for depositing foreign currency revenue from trade in service by the domestic financial institutions shall be deregulated, permitting groups of an enterprise to concentrate externally outside PRC their deposit in foreign currency gained from trade in service. (6) Two-way monitoring shall be reinforced for inflow and outflow of foreign currency fund by trade in service for effecting macro analysis (analyzing the system as a whole), while relative to the mid area monitor, establishing a non-field supervisory system closely tied to micro analysis (analyzing each individual part of a system), and beefing-up the risk control by secondarily providing on-site check and inspection as necessary. - On 11 June 2014, with the view to support stable development of External Trade, The People's Bank of China announced its polity to implement measures to expand enterprises' fund procurement roots, approval of settlement of account in RMB for personal foreign trade, improvement in the formation mechanism of the RMB foreign exchange rate, etc. - Under the steering of SAFE, the DATA sharing has made a fair progress, streamlining procedures, such as remittance, money receipt, and VAT refund. - State Administration of Foreign Exchange (SAFE), which had run a pilot programme against selected multi-national enterprises in China Pilot Free Trade Zones in Beijing and Shanghai to concentrate the group foreign currency fund management through the designated foreign and domestic banks, promulgated on 8 April 2014 "SAFE Notice on issuing the provisions on the centralized operation and management of foreign exchange funds of multinational companies" (for Trial Implementation) No. 23 [2014], and has expanded the Pilot Programme nation-wide since 1 June 2014. |
|||
| (2) Restricted Conversion of the Capital Fund in Foreign Currency into RMB | - In various situations, such as conversion of RMB into other currency, foreign currency external remittance for expenses paid by MFS on behalf of MFS's parent in Japan, it takes time and cost for observance of due payment date, applicable regulation, etc., a factor that reduces the operational efficiency. Example: External remittance is not allowable, pending completion of the tax payment in full. - In regard to conversion of the capital fund in foreign currency, such conversion has become possible in pilot free trade zone by Shanghai Huifa [2014] No.26 and in certain specified zone by Huifa [2014] No.36. - As regards FFEs' free conversion into RMB of the capital fund in foreign currency for reinvestment in PRC, which was prohibited to FFEs, Shanghai Huifa No. 26 [2014] has enabled such reinvestment within the China (Shanghai) pilot free trade zone. Furthermore, Huifa No. 36 [2014] expanded the zones under the SAFE branches (to include Liaoning, Jiangsu, Hebei, Jiangsu, Sichuan, Beijing, Chongqing, Guangdong, Zhejiang, Heilongjiang, Fujian, Sizhou, Shinzhen, Guangxi, Qingdao, and Guizhou), limited only, however, to foreign funded enterprises investment companies in the specified regions. - An enterprise operating in PRC is unable to collect in foreign currency the expenses advanced in RMB on behalf of FFEs. If such advance payment is collected on account of service fee, etc. under contract, the amount so collected will attract business tax levy. |
- It is requested that GOC deregulates and simplifies restrictions. - It is requested that GOC deregulates the restrictions further to enable such conversion throughout the entire PRC States. - It is requested that GOC effects further deregulation as follows: (1) FFEs (both investment enterprises and general foreign investment enterprises alike) are allowed to enjoy the deregulation throughout PRC. (2) FFEs (both investment enterprises and general foreign investment enterprises alike) may invest out of the RMB fund procured domestically in PRC. - It is requested that GOC approves expenses advanced in RMB reimbursed in foreign currency. |
- Supplementary Notice of the General Affairs Department of the State Administration of Foreign Exchange on the Relevant Operating Issues concerning the Improvement of the Administration of Payment and Settlement of Foreign Currency Capital of Foreign-funded Enterprises (07-18-2011) WaiHuiFa (SAFE) No. 88 [2011] - SAFE No. 142 [2008] - SAFE No. 88 [2011] - Regulation on Foreign Exchange Administration "Reply to Shanghai Banking Association" - Notice of SAFE on Further Improving and Adjusting Foreign Exchange Administration Policies for Direct Investment (SAFE [2012]) - Regulation on Foreign Exchange Administration, etc. |
| (Action) - By repeal on 13 May 2013 under "Notice of SAFE on Reform of the Administration of Foreign Exchange Capital Surrender under Foreign Investment" No.59 [2002], the SAFE approval has been no longer required for the capital fund conversion into RMB, provided, however, that examination and approval as required by SAFE must be obtained from the authorised foreign exchange bank used for conversion of the capital fund into RMB. - In recent years, under the PRC SAFE Scheme, a substantial deregulation has taken place on the current account items (relative to mainly foreign trade in goods and services). However, on capital account items (capital transfer, direct investment, securities investment, financial derivatives, loans, etc.), the most severe controls remain, excepting enterprises in the China Pilot Free Trade Zones, such as Tianjin Haibin New Zone, Shenyan Economic Zone, Suzhou Industrial Park, etc., where the pilot programme applies. Furthermore, even within the Pilot Programme Zones, The funds secured by free conversion of the capital fund into RMB remain being subject to severe restrictions, such as the deposit method, and the scope of the expenditure. Utmost care should be exercised, as any violation on foreign capital fund into RMB is subject to the most severe penalties. - On 8 April 2015, SAFE promulgated "Notice on Reforming Administrative Measures on FFEs' Conversion of Capital Fund into RMB" (Huifa[2015]No.19), which allows, from 1 June 2015, foreign funded investment enterprises' "free conversion of capital exchange into RMB" (Free conversion of the total amount into RMB obviating the need for evidence submission). Furthermore "Notice No. 19" has enabled previously denied conversion into /payment in RMB for equity investment, payment of guarantee funds, cross border settlement in RMB, repayment in RMB of foreign debts. |
|||
| (3) Difficult Remittance of Expatriates' Wages Paid in Japan | - By enforcement from 1 September 2013 of "Notice of SAFE on Matters concerning the Issuance of Foreign Exchange Administration Rules for Trade in Services (Huifa [2013] No.30)" and "Announcement of SAT/SAFE on Issues concerning Taxation Recordation for Foreign Payments under Trade in Services and Other Items (Announcement No. 40 [2013])", our member firm experiences much difficulty in remitting PRC of wages paid in Japan to its expatriates, as the competent authority would not accept the member firm's preliminary draft plan. - Parent company (Member Firm) in Japan is obligated to pay social insurance premium (as to the portion payable by individual employees) on behalf of its expatriates to Member Firm's Subsidiary (MFS) in PRC. Should the expatriate choose to work in PRC alone, without any accompanying family members, payment of a portion of salaries, etc. to the left family members by way of advance money also becomes necessary. However, such remittance for advance (by way of repayment) by MFS, a local corporation, to its parent (Member Firm) is not necessarily allowed throughout PRC. It is possible in some, but not in other districts. Announcement of the SAT Notice (commonly named "Notice No.19") clearly authorises MFS' remittance (a portion of salaries etc.) to its parent (Member Firm), in apparent contradiction to the going practices on foreign exchange. |
- Overhaul of the implementing rules is necessary prior to issuance of legislation. - It is requested that SAFE authorises remittance from PRC of the advance of salaries, etc. made by parent company in exchange for presentation of some evidential documents. |
- Notice of SAFE on Matters concerning the Issuance of Foreign Exchange Administration Rules for Trade in Services (Huifa[2013]No.30) - Announcement of SAT/ SAFE on Issues concerning Taxation Recordation for Foreign Payments under Trade in Services and Other Items (No.40 [2013]) - Announcement of the STA on Relevant Issues concerning Levying Enterprise Income Tax on the Services Provided within China by the Personnel Dispatched by Non-resident Enterprises [2013] Notice No.19 |
| (4) Difficulty in Debtors and Creditors Offset | - Our member firm, the Head office in Japan, pays service fees to its subsidiary in PRC (MFS), while MFS pays guarantee fees on bank loan to its parent (member firm). From time to time, bank charge for remittance exceeds the guarantee fees. Because settlement by offset of debtors and creditors account is disallowed, member firm incurs irrational cost in PRC. - Settlement of debtors/creditors account by offset is disapproved, with the resultant accrual of irrational costs and expenses. - As it stands, a Member Firm is able to book and execute exchange contract only for payment, as it is unable to book and execute exchange contract for receipt commensurate with the expected fund received in the currency noted on the book. - State Administration of Foreign Exchange (SAFE) effectively halted acceptance of applications for cross border foreign currency pooling against the state wide multi-national enterprises. |
- It is requested that SAFE liberalises restrictions on reasonable settlement of debtors and creditors account by offset. - It is requested that GOC allows debtors/creditors offset account between parent and subsidiary. -It is requested that GOC broadens the scope for foreign exchange contract as stated in the left column. - It is requested that GOC resumes acceptance of new applications. |
|
| (Improvement) - On 18 April 2014, SAFE promulgated "SAFE Notice on Issuing the Provisions on the Centralized Operation and Management of Foreign Exchange Funds of Multinational Companies (for Trial Implementation)" (WaiHui No. 23 [2014]), as from 1 June 2014, expanding nationwide the application of the pilot program for an intensive operation and management of the foreign currency fund within each group through accounts at the designated foreign and domestic banks. By virtue of this SAFE Notice, it has become possible for the multinational companies, both domestic in PRC and abroad, to setoff inter-member enterprises debtors and creditors accounts, dispensing with the commissions for cross-border settlement of accounts, as well as the commissions relative to foreign exchange. |
|||
| (5) 90-Days Rule on Remittance from Abroad | - Failures to receive remittance as considerations for the goods exported within 90-days after the date of export, the subsequent remittance from overseas becomes extremely difficult. Certain Japanese firms outside the Member Firm's group (whose payment terms are 90-days or more) face severe difficulty in running its business. | - It is requested that GOC (GAD/SAFE) deregulates or repeals the 90-days rule. | - Notice of GAD/SAFE on Distributing the Operating Guidelines for the Trade Credit Registration Management System (Deferred Payment Section) |
| (6) Restricted Foreign Currency Remittance upon Local Sub-Contractors' Overseas Procurement | - A Member Firm subcontracting Chinese enterprises (including its own JVC company) faces restrictions on foreign currency remittance. It is unable to procure foreign currency for the goods domestically produced in PRC. A Member Firm faces inconveniences out of the Consortium, formed by compulsion, with a PRC enterprise, with off/on portion provisions, which do not reflect the actual state of affairs, with ambiguous definition of the responsible party, inconvenient to customers, as well. |
- It is requested that GOC repeals restrictions on foreign currency Remittance as regards transactions with foreign funded enterprises. | |
| (7) Restricted Actual Demand Based Forward Exchange Contract | - Due to the rigorous principle of the actual demand principle of the Forward Exchange Contract (FEC), contracting foreign exchange in excess of the actual demand position is disallowed. Upon execution of the FEC and its settlement in foreign currency, the use of plural banks in parallel is difficult in substance as it takes a complex operation including the document preparations. The receipt of the marginal profits gained from unwinding FEC involves a complex paperwork, requiring much work-time. |
- It is requested that SAFE deregulates the restrictions on forward exchange contract that allows flexible forward booking of foreign exchange. | - State Administration of Foreign Exchange |
| (8) Vexatiously Complex Procedures on Purposes of Usage for the Borrowed Foreign Currency | - GOC strictly controls purposes of usage on the borrowed foreign currency employed for payment, and its procedures are extremely complex. The fund procured for short-term borrowing cannot be deployed for payment of machineries and equipment. Furthermore, upon execution of the borrowed fund, a thorough preparation is necessary, complete with payment invoice, customs clearance documents, and contract, tax payment certificate, preparation of which requires a lot of person/hours. |
- It is requested that GOC simplifies the procedural requirement, when executing the borrowing. | |
| (9) Radical Fluctuations in Foreign Exchange | - As it stands, Member Firm's Subsidiary (MFS) benefits from exchange gain on a direct export transaction in yen. Nevertheless, negotiation for raise in price is difficult. In a transaction between related parties, the prevailing yen depreciation enables MFS to offer special prices to its customers. However, MFS runs on a thin margin, so that if the exchange rate swings toward appreciation of yen, it will instantly show operational loss: such is the severity of the fluctuation band. | - It is requested that SAFE will use its best efforts to maintain stability in foreign exchange, by holding the fluctuation band within the swing of a few percents in 6-months. | |
| (10) Regional Gaps in Interpretation, etc. of Legislation on Foreign Exchange | - Regional gaps are significant on interpretation of legislation relative to foreign exchange control. | - It is requested that SAFE will use its best efforts to narrow the regional gaps. | |
<<BACK |