PRC Regulations for the Control of Foreign Exchange (2nd Revision)

Article 2: The State Council's foreign exchange control department and its branches (Exchange Control Authorities) shall perform their foreign exchange control duties in accordance with the law, and be responsible for the implementation of these Regulations.

Article 3: For the purposes of these Regulations, the term “foreign exchange” means the following means of payment and assets denominated in foreign currencies and that can be used for international settlement:

(1) cash foreign currency, including banknotes and coins;

(2) payment vouchers or payment instruments denominated in foreign currencies, including negotiable instruments, bank deposit certificates, bank cards, etc.;

(3) negotiable securities denominated in foreign currencies, including bonds, stocks, etc.;

(4) special drawing rights; and

(5) other foreign exchange assets.

Article 4: These Regulations shall apply to foreign exchange receipts and payments, and the business activities conducted in foreign exchange by organisations and individuals in China as well as the foreign exchange receipts and payments, and the business activities conducted in foreign exchange in China by overseas organisations and individuals.

Article 5: The state does not restrict current account transactions of international payments and transfers.

Article 6: The state implements a system for the reporting of statistics on international receipts and payments.

The State Council's foreign exchange control department shall compile statistics on and monitor international receipts and payments and regularly issue releases on the international payments position.

Article 7: Financial institutions engaging in foreign exchange business shall open foreign exchange accounts for customers in accordance with the provisions of the State Council's foreign exchange control department, and handle foreign exchange transactions through such accounts.

Financial institutions engaging in foreign exchange business shall, in accordance with the law, submit information on their customers' foreign exchange receipts and payments and changes in their accounts to Exchange Control Authorities.

Article 8: The circulation of foreign currencies in the People's Republic of China is prohibited. Additionally, pricing and settlement may not be effected in foreign currencies, unless otherwise provided by the state.

Article 9: The foreign exchange receipts of organisations and individuals in China may be repatriated or retained overseas. The conditions, periods, etc. for repatriation or retention overseas shall be specified by the State Council's foreign exchange control department based on the international payments position and foreign exchange control requirements.

Article 10: The State Council's foreign exchange control department shall hold, manage and apply the state's foreign exchange reserves in accordance with the law and abide by the principles of safety, liquidity and value increase.

Article 11: If a serious imbalance in international receipts and payments has arisen or could arise or if a serious crisis has arisen or could arise in the national economy, the state may take the necessary security, control and other such measures in respect of international receipts and payments.

PART TWO: CONTROL OF FOREIGN EXCHANGE ON THE CURRENT ACCOUNT

Article 12: Genuine and lawful transactions shall underlie receipts and payments of foreign exchange on the current account. Financial institutions that engage in the conversion and sale of foreign exchange shall conduct reasonable examinations of the genuineness of transaction documents and their consistency with the foreign exchange receipts or payments in accordance with the provisions of the State Council's foreign exchange control department.

The Exchange Control Authorities shall have the authority to conduct monitoring inspections of the matters specified in the preceding paragraph.

Article 13: Foreign exchange receipts on the current account may, in accordance with relevant state provisions, be retained or sold to a financial institution that engages in the conversion and sale of foreign exchange.

Article 14: Foreign exchange payments on the current account shall, in accordance with provisions for the payment and purchase of foreign exchange of the State Council's foreign exchange control department and on the strength of valid documents, be made with self-owned foreign exchange or foreign exchange purchased from a financial institution that engages in the conversion and sale of foreign exchange.

Article 15: The limits on cash foreign currency that may be carried into or out of China, or declared, shall be specified by the State Council's foreign exchange control department.

PART THREE: CONTROL OF FOREIGN EXCHANGE ON THE CAPITAL ACCOUNT

Article 16: If an overseas organisation or individual directly invests in China, following approval by the relevant competent departments, it/he/she shall carry out registration procedures with Exchange Control Authorities.

If an overseas organisation or individual engages in the issuance and/or trading of negotiable securities or derivatives in China, it/he/she shall abide by relevant state provisions on market access and carry out registration procedures in accordance with the provisions of the State Council's foreign exchange control department.

Article 17: If an organisation or individual in China directly invests abroad or engages in the issuance and/or trading of negotiable securities or derivatives overseas, it/he/she shall carry out registration procedures in accordance with the provisions of the State Council's foreign exchange control department. If the state requires that approval or record filing procedures be carried out first with the relevant competent departments, such approval or record filing procedures shall be carried out before foreign exchange registration.

Article 18: The state controls the scale of foreign debts. The taking out of foreign debts shall be carried out in accordance with relevant state provisions and foreign debt registration shall be carried out with Exchange Control Authorities.

The State Council's foreign exchange control department shall be responsible for compiling statistics on and monitoring foreign debts, and shall release information on foreign debts on a regular basis.

Article 19: If security is to be provided for a foreign party, an application shall be submitted to Exchange Control Authorities and Exchange Control Authorities shall render a decision on whether or not to grant approval based on the assets and liabilities, etc. of the applicant. If the state specifies that the scope of business of the applicant requires approval by the relevant competent departments, such approval procedures shall be carried out before the application is submitted to Exchange Control Authorities. Once the applicant has entered into the contract for the provision of security to the foreign party, it shall carry out the procedures for the registration of such security with Exchange Control Authorities.

The preceding paragraph shall not apply to the provision of security to a foreign party for an on-lent loan for the purpose of using a loan from a foreign government or international financial organisation subject to the approval of the State Council.

Article 20: A banking financial institution may, within its approved scope of business, directly extend commercial loans to parties overseas. If another organisation wishes to provide a commercial loan to a party overseas, it shall submit an application to Exchange Control Authorities and Exchange Control Authorities shall render a decision on whether or not to grant approval based on the assets and liabilities, etc. of the applicant. If the state specifies that the scope of business of the applicant requires approval by the relevant competent departments, such approval procedures shall be carried out before the application is submitted to Exchange Control Authorities.

To provide commercial loans to parties overseas, registration procedures shall be carried out in accordance with the provisions of the State Council's foreign exchange control department.

Article 21: If foreign exchange receipts on the capital account are to be retained or sold to a financial institution that engages in the conversion and sale of foreign exchange, the approval of Exchange Control Authorities shall be required, unless the state specifies that such approval is not required.

Article 22: Foreign exchange payments on the capital account shall, in accordance with provisions for the payment and purchase of foreign exchange of the State Council's foreign exchange control department and on the strength of valid documents, be made with self-owned foreign exchange or foreign exchange purchased from a financial institution that engages in the conversion and sale of foreign exchange. If the state specifies that the approval of Exchange Control Authorities is required, the approval procedures shall be carried out before payment of foreign exchange is made.

Renminbi proceeds of the foreign party to a foreign-invested enterprise whose business has been terminated in accordance with the law may, after liquidation in accordance with relevant state provisions and payment of taxes, be converted into foreign exchange at a financial institution that engages in the conversion and sale of foreign exchange, and remitted abroad.

Article 23: Foreign exchange on the capital account and the funds derived from the conversion thereof shall be used for the purpose approved by the relevant competent departments and Exchange Control Authorities. The Exchange Control Authorities shall have the authority to conduct monitoring inspections of the use of foreign exchange on the capital account and the funds derived from the conversion thereof and changes in the accounts.

PART FOUR: CONTROL OF THE FOREIGN EXCHANGE BUSINESS OF FINANCIAL INSTITUTIONS

Article 24: If a financial institution wishes to engage in or terminate its engagement in the conversion and selling of foreign exchange, it shall require the approval of Exchange Control Authorities. If it wishes to engage in or terminate its engagement in other foreign exchange business it shall require the approval of Exchange Control Authorities or financial regulatory authorities, depending on whose purview such business falls under.

Article 25: The Exchange Control Authorities shall oversee the overall foreign exchange position of financial institutions. The specific measures therefor shall be formulated by the State Council's foreign exchange control department.

Article 26: If a financial institution needs to convert renminbi into a foreign currency or a foreign currency into renminbi in connection with its capital or profits or due to the unmatching of its renminbi and foreign currency assets, it shall require the approval of Exchange Control Authorities to do so.

PART FIVE: ADMINISTRATION OF THE RENMINBI EXCHANGE RATE AND THE FOREIGN EXCHANGE MARKET

Article 27: The renminbi exchange rate shall be subject to a managed floating exchange rate mechanism based on market supply and demand.

Article 28: Financial institutions that engage in the conversion and sale of foreign exchange and other institutions that satisfy the conditions of the State Council's foreign exchange control department may conduct foreign exchange trading on the interbank foreign exchange market in accordance with the provisions of the State Council's foreign exchange control department.

Article 29: Trading on the foreign exchange market shall be conducted on the basis of the principles of transparency, fairness, impartiality and good faith.

Article 30: The currencies for, and the form of, trading on the foreign exchange market shall be specified by the State Council's foreign exchange control department.

Article 31: The State Council's foreign exchange control department shall oversee the national foreign exchange market in accordance with the law.

Article 32: The State Council's foreign exchange control department may, in accordance with the law, make adjustments to the foreign exchange market in line with changes in the market and the requirements of monetary policy.

PART SIX: OVERSIGHT

Article 33: In performing their duties in accordance with the law, Exchange Control Authorities shall have the authority to take the following measures:

(1) conducting onsite inspections of financial institutions that engage in foreign exchange business;

(2) entering premises where violations of foreign exchange control regulations are suspected of having been committed to investigate and obtain evidence;

(3) questioning organisations and persons that have foreign exchange receipts and payments or business activities conducted in foreign exchange and requiring them to provide explanations in respect of matters directly related to violations of foreign exchange control regulations that are under investigation;

(4) reviewing and taking copies of transaction documents and other such information that are directly related to violations of foreign exchange control regulations that are under investigation;

(5) reviewing and taking copies of the financial accounting information and related documents of parties being investigated for violations of foreign exchange control regulations and of directly connected work units and individuals, and where there is a possibility that documents and information will be diverted, concealed or destroyed, sealing the same;

(6) subject to the approval of the person in charge of the State Council's foreign exchange control department or the provincial level Exchange Control Authority, making inquiries about the accounts of parties being investigated for violations of foreign exchange control regulations and of directly connected work units and individuals, with the exception of savings accounts of individuals; and

(7) where there is evidence that implicated property, such as illegal funds, etc., have been or could be diverted or concealed or that important evidence could be concealed, forged or destroyed, applying to a people's court for a freeze or placement under seal.

Connected work units and individuals shall cooperate in the monitoring inspections conducted by Exchange Control Authorities, give truthful explanations of relevant circumstances and provide relevant documents and information, and may not refuse or interfere with such investigations or withhold information.

Article 34: When Exchange Control Authorities conduct a monitoring inspection or investigation, there may not be less than two inspectors or investigators and they shall present their credentials. If there are less than two inspectors or investigators or if they fail to present their credentials, the work unit or individual being inspected or investigated shall have the right to refuse such inspection or investigation.

Article 35: An organisation in China that conducts business in foreign exchange shall submit financial accounting reports, statistical statements, etc. in accordance with provisions of the State Council's foreign exchange control department.

Article 36: If a financial institution that engages in foreign exchange business discovers that a customer has committed a violation of foreign exchange control regulations, it shall report the same to Exchange Control Authorities in a timely manner.

Article 37: The State Council's foreign exchange control department may, in order to perform its foreign exchange control duties, obtain necessary information from relevant departments and institutions of the State Council, and such departments and institutions shall provide the same.

The State Council's foreign exchange control department shall circulate information on its foreign exchange control work to relevant departments and institutions of the State Council.

Article 38: Any work unit or individual has the right to report violations of foreign exchange control regulations.

The Exchange Control Authorities shall maintain the confidentiality of whistleblowers and shall, in accordance with provisions, reward such whistleblowers, and work units and individuals that have given valuable assistance in investigations of violations of foreign exchange control regulations.

PART SEVEN: LEGAL LIABILITY

Article 39: If acts of evading exchange control such as transferring abroad foreign exchange from China in violation of provisions or capital abroad from China through fraudulent means, Exchange Control Authorities shall order the repatriation of the foreign exchange within a specified period of time and impose a fine less than 30% of the amount transferred abroad. If the circumstances are serious, Exchange Control Authorities shall impose a fine of not less than 30% and not more than the equivalent of the amount transferred abroad. If a criminal offence is constituted, criminal liability shall be pursued in accordance with the law.

Article 40: If, in violation of provisions, an amount that is required to be received or paid in renminbi is received or paid in foreign exchange, or if foreign exchange is illegally obtained by fraudulently purchasing foreign exchange from a financial institution that engages in the conversion and sale of foreign exchange on the strength of fraudulent or invalid transaction documents, etc., Exchange Control Authorities shall order the illegally obtained foreign exchange funds to be reconverted into renminbi and impose a fine less than 30% of the illegally obtained foreign exchange funds. If the circumstances are serious, Exchange Control Authorities shall impose a fine of not less than 30% and not more than the equivalent of the amount of the illegally obtained foreign exchange funds. If a criminal offence is constituted, criminal liability shall be pursued in accordance with the law.

Article 41: If foreign exchange is remitted into China in violation of provisions, Exchange Control Authorities shall order rectification of the matter and impose a fine less than 30% of the illegal amount. If the circumstances are serious, Exchange Control Authorities shall impose a fine of not less than 30% and not more than the equivalent of the illegal amount.

If foreign exchange is converted illegally, Exchange Control Authorities shall order the illegally converted funds to be reconverted into foreign exchange, and impose a fine less than 30% of the illegal amount.

Article 42: If foreign exchange is brought into or out of China in violation of provisions, Exchange Control Authorities shall give a warning and may impose a fine less than 20% of the illegal amount. If laws or administrative regulations specify that penalties are to be imposed by customs, the provisions thereof shall apply.

Article 43: If a violation of foreign debt control is committed, such as extending a loan to a foreign party, issuing bonds overseas, or providing security to a foreign party without approval, Exchange Control Authorities shall give a warning and impose a fine less than 30% of the illegal amount.

Article 44: If the purpose of foreign exchange or the proceeds derived from the conversion thereof is changed without approval in violation of provisions, Exchange Control Authorities shall order rectification of the matter, confiscate the illegal income and impose a fine of not less than 30% of the illegal amount. If the circumstances are serious, Exchange Control Authorities shall impose a fine of not less than 30% and not more than the equivalent of the illegal amount.

If foreign exchange is used in an illegal manner, such as, in violation of provisions, effecting pricing or settlement in a foreign currency or transferring foreign exchange, Exchange Control Authorities shall order rectification of the matter, give a warning and may impose a fine less than 30% of the illegal amount.

Article 45: If foreign exchange is purchased or sold without authorisation, in a disguised manner or in a speculative manner, or if acting as a go-between in the purchase or sale of foreign exchange is engaged in illegally and the amount thereof is relatively large, Exchange Control Authorities shall give a warning, confiscate the illegal income and impose a fine less than 30% of the illegal amount. If the circumstances are serious, Exchange Control Authorities shall impose a fine of not less than 30% and not more than the equivalent of the illegal amount. If a criminal offence is constituted, criminal liability shall be pursued in accordance with the law.

Article 46: If the conversion and sale of foreign exchange is engaged in without approval, Exchange Control Authorities shall order rectification of the matter, confiscate the illegal income, if there is any, and if such illegal income is Rmb500,000 or more, impose a fine of not less than the equivalent of and not more than five times the illegal income. If there is no illegal income or if the illegal income is less than Rmb500,000, Exchange Control Authorities shall impose a fine of not less than Rmb500,000 and not more than Rmb2 million. If the circumstances are serious, the relevant competent department shall order suspension of operations to undergo rectification or revoke the business permit. If a criminal offence is constituted, criminal liability shall be pursued in accordance with the law.

If foreign exchange business other than the conversion and sale of foreign exchange is engaged in without approval, Exchange Control Authorities or financial regulatory authorities shall impose penalties in accordance with the preceding paragraph.

Article 47: The Exchange Control Authorities shall order rectification within a specified period of time, confiscate the illegal income and impose a fine of not less than Rmb200,000 and not more than Rmb1 million, or, if the circumstances are serious or rectification is not carried out within the specified period of time, order a halt to the engagement in the relevant business if a financial institution:

(1) in the handling of receipts or payments on the current account, fails to conduct a reasonable examination of the genuineness of the transaction documents and their consistency with the foreign exchange receipts or payments;

(2) violates provisions in the handling of receipts or payments on the capital account;

(3) violates provisions in converting or selling foreign exchange;

(4) violates oversight of its overall foreign exchange position; or

(5) violates regulation of the trading of the foreign exchange market.

Article 48: The Exchange Control Authorities shall order rectification of the matter, give a warning and may impose a fine less than Rmb300,000, in the case of an organisation, or less than Rmb50,000, in the case of an individual, if it/he/she:

(1) fails to report statistics on international receipts and payments in accordance with provisions;

(2) fails to submit information such as financial accounting reports or statistical statements in accordance with provisions;

(3) fails to submit valid documents in accordance with provisions or submits untruthful documents;

(4) violates provisions on the administration of foreign exchange accounts;

(5) violates provisions on the administration of foreign exchange registration; or

(6) refuses or interferes with monitoring inspections or investigations conducted by Exchange Control Authorities in accordance with the law.

Article 49: If an organisation in China violates provisions on foreign exchange control, in addition to having penalties imposed in accordance herewith, the supervisor directly in charge and other directly responsible persons shall be disciplined. Directly responsible directors, supervisors, senior management personnel and other directly responsible persons of a financial institution shall be given a warning and fined not less than Rmb50,000 and not more than Rmb500,000. If a criminal offence is constituted, their criminal liability shall be pursued in accordance with the law.

Article 50: If a member of the working personnel of Exchange Control Authorities practices favouritism, engages in graft, abuses his/her authority or is derelict in his/her duties and the same constitutes a criminal offence, his/her criminal liability shall be pursued in accordance with the law. If a criminal offence is not constituted, he/she shall be disciplined in accordance with the law.

Article 51: If a party is not satisfied with a specific administrative act carried out by Exchange Control Authorities, it may apply for administrative review in accordance with the law. If it remains dissatisfied with the decision rendered after administrative review, it may institute an administrative action in a people's court.

PART EIGHT: SUPPLEMENTARY PROVISIONS

Article 52: The following terms herein shall have the meanings assigned to them below:

(1) “Organisation in China” means a state authority, enterprise, public institution, association, military unit, etc. in the People's Republic of China, with the exception of a diplomatic office in China of a foreign country or a representative office in China of an international organisation.

(2) “Individual in China” means a citizen of China or a foreign national who has resided continuously in the People's Republic of China for at least one year, other than a foreign diplomat in China or a representative in China of an international organisation.

(3) “Current account” means the trading account reflecting goods, services, income and recurrent transfers connected with international receipts and payments.

(4) “Capital account” means the trading account that reflects changes in the level of foreign assets and liabilities arising from international receipts and payments, including capital transfers, direct investment, securities investment, derivatives, loans, etc.

Article 53: The engagement in the conversion and sale of foreign exchange by an organisation other than a financial institution shall require the approval of the State Council's foreign exchange control department. The specific measures for the administration thereof shall be formulated separately by the State Council's foreign exchange control department.

Article 54: These Regulations shall be effective as of the date of promulgation.