Current Foreign Exchange Reforms by SAFE

July 02, 2006 | BY

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Service-related foreign exchange payment procedures are simplified. Domestic entities and domestic individuals benefit from procedure simplification for contracts below US$5,000 and an increased foreign exchange purchase limits to US$20,000.

Current account foreign exchange retention, conversion from renminbi, and outbound remittance as payment for goods and especially for services by individuals as well as by companies and other entities have been further liberalized with effect from May 1 2006.

By Neal A. Stender and Yan Zeng,
Orrick, Herrington & Sutcliffe LLP, Hong Kong;
Lei Cui and Nicholas Sheets,
Coudert Brothers LLP, Beijing and Shanghai

The latest liberalization measures for current account transactions include simplified procedures, increased limits on foreign exchange amounts and an expanded role for foreign exchange banks, with SAFE pulling back to a more supervisorial posture. These measures were addressed in general terms by the People's Bank of China, Announcement [2006] No.5 (PBOC Announcement), issued by the People's Bank of China (PBOC) on April 13 2006, with the approval of the State Council. More details were provided in the Circular on Revising the Policies on Control of Foreign Exchange on the Current Account (SAFE Circular) issued by the State Administration of Foreign Exchange (SAFE) on the same day, with effect from May 1 2006.

PBOC Announcement

The PBOC Announcement's current account provisions stated that:

i. enterprises may establish, modify or close their current accounts directly with commercial banks without prior approval;

ii. enterprises may retain more foreign exchange in current accounts;

iii. enterprises will be permitted to make advance purchases of foreign exchange

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