Circular on Revising the Policies on Control of Foreign Exchange on the Current Account

(Issued by the State Administration of Foreign Exchange on April 13 2006 and effective as of May 1 2006.)

Hui Fa [2006] No.19

Branches and offices of the State Administration of Foreign Exchange of each province, autonomous region and municipality directly under the central government and the Shenzhen, Dalian, Qingdao, Xiamen and Ningbo municipal branches of the State Administration of Foreign Exchange; Chinese-invested designated foreign exchange banks:

With a view to further satisfying the demand of organizations and individuals in China for foreign exchange and facilitating trade, pursuant to the People's Bank of China, Announcement [2006] No.5, we hereby notify you concerning matters relevant to the revision of the policies on control of foreign exchange on the current account as follows:

1. Abolition of Advance Examination and Approval of the Opening of Current Account Related Foreign Exchange Accounts, and Increasing the Limits on Current Account Related Foreign Exchange Accounts

(1) Foreign exchange bureaux shall no longer carry out advance examination and approval of the opening, modification and closing of the current account related foreign exchange accounts (Accounts) of organizations in China. If an organization in China has previously opened an Account and needs to open a new Account, it may carry out Account opening procedures directly with a designated foreign exchange bank (a Bank) on the strength of an Account opening application, its business licence (or social organization registration certificate) and its organization code certificate. If an organization has not previously opened an Account, it shall first register its basic particulars with the relevant foreign exchange bureau on the strength of its business licence (or social organization registration certificate) and its organization code certificate.

(2) The limit on the amount of foreign exchange that may be retained in the Account of an organization in China shall be increased, and such limit shall be determined by adding 80% of the receipts in the Account and 50% of the expenditures from the Account in the previous year. If an organization in China did not have any current account related foreign exchange receipts and expenditures in the previous year and needs to open an Account, the initial limit on the opened Account shall be increased to no more than the equivalent of US$500,000.

(3) If an organization in China has a genuine trade background and needs to make payments to foreign parties, it may purchase foreign exchange from its Bank in advance on the strength of the valid vouchers and commercial documents specified in the Regulations for the Administration of the Settlement, Sale and Payment of Foreign Exchange and other relevant foreign exchange control regulations and deposit the same in its Account.

2. Simplification of Foreign Exchange Sale and Payment Documents for Trade in Services, and Revision of the Authority for the Examination of Sales and Payments of Foreign Exchange in Relation to Trade in Services

(1) When making payment of a charge in relation to trade in services of not more than the equivalent of US$50,000 to an organization abroad or the equivalent of US$5,000 to an individual abroad, an organization or individual in China shall carry out foreign exchange purchase and payment procedures on the strength of the contract (agreement) or invoice (payment notice). For amounts exceeding the foregoing limits, procedures shall be carried out in accordance with existing provisions.

(2) If an organization or individual in China makes a payment in relation to trade in services to a foreign party by electronic commerce means, such as the internet, it may carry out foreign exchange purchase and payment procedures on the strength of the relevant contract (agreement) or payment notice downloaded from the network and affixed with its/his/her stamp or signed with its/his/her signature.

(3) For sales and payments of foreign exchange in relation to trade in services on which regulations are silent concerning the examination of the documents, if the amount is not more than the equivalent of US$10,000, the examination shall be carried out by the Bank and if the amount is more than the equivalent of US$10,000, the examination shall be carried out by the local foreign exchange bureau.

(4) When international maritime transport enterprises (including international shipping enterprises, non-vessel operating common carriers, shipping agents and freight forwarding agents) are to pay international maritime transport related freight and relevant charges, they may purchase foreign exchange directly from a Bank. A freight owner may, in line with its business requirements, directly pay the international maritime transport related freight and relevant charges to the transport enterprise abroad.

3. Relaxation of Policies on the Purchase of Foreign Exchange by Resident Individuals of China, and Implementation of Control of the Total Annual Amount

(1) Control of the total annual amount of foreign exchange purchased by a resident individual of China shall be implemented. The total annual amount shall be the equivalent of US$20,000 per person per year. When a resident individual of China wishes to purchase foreign exchange within the total annual amount, he/she shall carry out the procedures with a Bank on the strength of his/her genuine proof of identity and after declaring to the Bank the purpose of such foreign exchange. If he/she wishes to purchase foreign exchange in excess of the total annual amount, the Bank shall carry out the procedures after examining the document of genuine need specified in foreign exchange control provisions.

(2) The foreign exchange purchased within the total annual amount by a resident individual of China may be deposited into his/her foreign exchange account in China or used for a current account related foreign exchange payment. The remittance abroad of foreign exchange, the withdrawal of foreign currency cash and the carrying of foreign currency cash abroad shall continue to be handled in accordance with existing foreign exchange control provisions.

(3) When a resident individual of China purchases foreign exchange within the total annual amount, he/she shall carry out the procedures himself/herself or entrust a direct relative to do so on his/her behalf. When the procedures are carried out by a direct relative, the proofs of identity of both the principal and the person carrying out the procedures on his/her behalf, proof of their familial relationship and the power of attorney from the principal shall be provided.

(4) Foreign exchange bureaux shall no longer carry out verification and reconciliation on the purchase of foreign exchange by resident individuals of China.

4. Regulation of Administration of Business and Strengthening of Monitoring and Early Warning

(1) Foreign exchange bureaux shall regulate the foreign exchange receipt and expenditure activities of organizations and individuals in China via information system, and, in line with the objective requirements of the foreign-related economic development and the state of international receipts and payments, revise the limits on Accounts and the total annual amount of foreign exchange that resident individuals of China may purchase.

(2) Banks shall, as required, strengthen their review of the genuineness of the foreign exchange fund inflows of, and settlement of foreign exchange by, organizations and individuals in China and submit to the foreign exchange bureaux information on the opening and closing of foreign exchange accounts, receipts and payments of foreign exchange and the purchase of foreign exchange by individuals.

(3) Foreign exchange bureaux shall investigate and handle violations of this Circular in accordance with relevant foreign exchange control regulations.

This Circular shall be effective as of May 1 2006. Matters not covered herein shall continue to be handled in accordance with current provisions. In the event of a conflict between this Circular and previous provisions, this Circular shall prevail.

Upon receipt of this Circular, all branches shall promptly transmit the same to sub-branches within their jurisdiction, foreign-invested banks, urban commercial banks and rural credit cooperative banks. Upon receipt of this Circular, the head offices of Chinese-invested designated foreign exchange banks shall promptly transmit the same to their branches and sub-branches. If any problems are encountered in the implementation hereof, you are asked to report the same to the State Administration of Foreign Exchange in a timely manner.