Foreign Exchange Capital: Restrictions on Domestic Investment
Recently, the Chinese government issued a couple of new laws and regulations to curb overseas “hot” money and strengthen the administration of foreign exchange. On August 5, 2008, the State Council amended and promulgated the Regulations on Foreign Exchange Administration of the People's Republic of China which requires that foreign exchange and the fund for settlement in a capital account should be used as approved by relevant approval authorities. On August 29, 2008, the Circular of Relevant Implementation Questions Concerning the Improvement of Administration of Payment and Settlement of Foreign Exchange Capital of Foreign Invested Enterprises (the “Circular”) was then issued by the State Administration of Foreign Exchange (“SAFE”), according to which the RMB settled from the capital account of a foreign invested enterprise (“FIE”) should be used in accordance with the business scope approved by the governmental agencies and may not be used to make equity investments in China. This means foreign investors cannot directly make use of the foreign exchange in their capital account to invest in China, which is expected to have a major impact on domestic re-investment by FIEs.
In the past, a number of foreign investors used to invest in China by first establishing a FIE and then using the FIE as an investment arm to re-invest in China. Please note such an FIE referred to here is not the so-called “foreign funded investment company” (“Investment Company”) which is a special entity set up by foreign investors to mainly engage in direct investment in China. Rather it refers to such a FIE whose business scope may include production, retail, wholesale of products, consulting or technology services or other businesses rather than “investment” as permitted under PRC law.
Interestingly, the item of “investment” is normally not allowed to be included in the business scope of a FIE by approval authorities like the Ministry of Commerce (“MOFCOM”) and corporate registration bodies like the State Administration for Industry and Commerce (“SAIC”) along with their local counterparts. However, the Provisional Regulations on Investment within China by Foreign Invested Enterprises which was promulgated dated July 25, 2000 jointly by MOFCOM and SAIC does grant a FIE a qualification to re-invest in China. In practice, a FIE is permitted to conduct investment in China e.g. acquiring the equity interests of other FIE(s) or domestic company(s), but a FIE is required to use RMB to make such investment under the current PRC law. Thus a question arises: if a FIE has no or cannot obtain sufficient amount of RMB by whatever lawful means, could it be allowed to convert funds into RMB from its capital account for the purpose of investment? [continue reading to find out the current policy]
Huang Caihua, Associate, FDI
Before the issuance of such a Circular, the above-mentioned question has for a very long time confused not only foreign investors, its lawyers, and other consultants, but also some local officials of SAFE partly due to the reason that SAFE did not clarify this question by issuing an official and universally-applicable rule. As a result the answer to this question has to depend, to large extent, on the local regulatory practice. Not surprisingly, in practice, some local offices of SAFE held a view that a FIE should not be allowed to exchange the foreign currency from its capital account into RMB for purposes of re-investing in China on the grounds that the foreign currency deposited in such account had been specially approved to satisfy the defined project as described in the business scope. In the meantime, some others officials held different views and allowed the FIE to settle the foreign exchange into RMB to satisfy the needs of re-investing in China. This is particularly the case where a local government is thirsty for foreign investment and it may be driven to take a more flexible policy.
Now, with the promulgation of the Circular, the door to direct re-investment by FIE(s) using the RMB settled from its foreign exchange capital account in China is closed. If a FIE happens to come upon a good investment opportunity, it will have to use its accumulated RMB profits or income or borrow RMB from domestic banks.
As is known in recent years, international “hot” money has unnerved the Chinese government which has thus taken a series of measures to cope with the issue. Without doubt the new rule is intended to strengthen the administration of foreign exchange flow and curb the inflow of hot money. However while it may contribute to the strengthening of its foreign exchange administration and the stability of its economic growth, it may also add the cost of making re-investment by foreign investors through their FIE(s) in some cases more difficult from a commercial perspective.
Revolution in the Foreign Exchange Control System
——A Brief Analysis on the New Administrative Rules on Foreign Exchanges
Background
On August 5, 2008, the Premier of the PRC State Council, Mr. Wen Jiabao, issued the State Council Order No. 532, which promulgates the newly revised “Administrative Rules of the People’s Republic of China on Foreign Exchanges” (hereinafter referred to as the “New Rules”). This document came into force upon its promulgation, and to a large extent changes the rules of the old foreign exchange supervision system. This tremendous change in the regulatory system is for the purpose of accommodating the rapid development of
By King & Wood’s Banking Group
The New Rules amended the old “Administrative Rules of the People’s Republic of
Furthermore, for the purpose of accommodating the enhancement of supervisions on cross-boarder funds flow and the implementation of the examination on the authenticity of the underlying transactions as required by the New Rules, the State Administration of Foreign Exchange (“SAFE”) promulgated on
We set out below an introduction on the key features of the New Rules, the Circular and their respective relevant provisions. This Bulletin is for general guidance only.
Administration on FX under Current Accounts
● Remittance back to
The New Rules no longer require a domestic entity to remit its proceeds generated in FX back to
● Exchange of proceeds in FX into RMB is no longer required
The New Rules do not restrict on international payment or remittance under current accounts, which further enhances the convenience of FX transactions under current accounts. Proceeds in FX are no longer required to be exchanged into RMB. Proceeds in FX may now be retained in FX or sold to financial institutions in exchange of RMB according the relevant rules.
Administration on FX under Capital Accounts
● Broadening of the channels for capital flowing out of
The New Rules simplify the administrative method on direct offshore investment. In this regard, instead of the mandatory approval for direct offshore investment, a registration approach is employed. The New Rules also add certain principles for financing in
● Revolution in the supervision method for supervising FX under capital accounts
The New Rules abolish the old default rule that the FX proceeds under capital accounts shall be deposited into FX accounts maintained with the relevant designated FX bank. Instead, except for those FX that do not need to be approved, FX under capital accounts may be retained in FX or be exchanged into RMB upon the approval by the FX supervising authority. With regard to the purchase of FX under capital accounts, such FX may in principle be purchased after the relevant transaction documents are submitted to the relevant financial institution which sells FX.
● Enhancement of supervision on the utilization of capital remitted into
The New Rules adopt a measure to trace the utilization of foreign capital remitted into
Supervision and Administration on FX Transactions and FX Market
● Power of regulatory authorities has been specified and financial institutions assume the obligation to assist in regulatory supervision
With regard to the supervision and administration on FX transactions, the New Rules on the one hand specifically provide that the FX supervising authority is entitled to the supervision and examination on FX transactions and on the other hand establish a system under which financial institutions engaging in FX businesses shall assist in the regulatory supervision by certain measures taken through FX accounts.
● Permissibility of non-financial institutions to engage in FX businesses
With regard to the supervision and administration on FX market, the New Rules ease the requirement on subjects allowed to participate in inter-bank transactions, and permit an entity other than a financial institution to engage in such inter-bank market transaction according to the relevant rules issued by the FX supervising authority as long as such an entity meet the requirements set out by the FX supervising authority.
Liabilities and Legal Consequences
The New Rules reduce the punishment scale of illegal outflow of FX, and create punishment on illegal inflow of FX, which aims to balance the control on both inflow and outflow of FX. Meanwhile, the New Rules focus supervision on the authenticity of the underlying transactions. As long as the underlying transaction based on which a FX transaction is to be carried out is authentic, no regulatory punishment would generally be imposed on such a FX transaction. To accommodate the assistance by financial institutions in regulatory supervision, the New Rules increase the punishment level of the punishment for financial institutions and create punishment on the liable personnel in the financial institutions.
Foreign Debt Registration Measures under Trade in Goods
In relation to the enhancement of supervisions on cross-boarder funds flow and the examination on the authenticity of the underlying transactions as required by the New Rules, the Circular issued before the New Rules has already to some extent implemented part of the relevant rules set out in the New Rules.
● Application
The registration requirements under the Circular apply generally to enterprises established under PRC law and the individual foreign traders within the PRC, no matter whether the enterprise is registered in any special area, whether the goods in question will be actually in or out of the PRC Customs or whether relevant trade proceeds would be subject to the cross examination by SAFE and the relevant Customs.
● Registration
Corporations need to log on the SAFE’s trade credit registration management system and complete the online registration on a case by case basis. No hardcopy documents need to be submitted for such online registration.
With regard to the registration for prepayments, where there is a prepayment clause in the export contract, the PRC exporter shall complete the prepayment registration within 15 working days starting from the execution date thereof and complete the prepayment withdrawal registration within 15 working days upon the actual receipt of such prepayment.
With regard to the registration for deferred payments (Apply from October 1, 2008), the PRC importer shall, within 15 working days upon either the execution date of an import contract containing a deferred payment clause or the issuance date of the Custom declaration of the importation of goods, the payment in connection with which will not due in 90 days, complete the deferred payment registration, and shall complete the cancellation registration within 15 working days after the registered deferred payment is actually made.
● Noncompliance
It’s noteworthy that to make clear the legal consequences for noncompliance with foreign debt management under the Circular, SAFE issued separately a Circular on Issues concerning Penalties on Violating Management of the Registration of the Foreign Debt under the Item of Corporate Trade in Goods (Huifa[2008]No. 34), providing in detail the liabilities of corporations and banks for breaches of the Circular.
Conclusion
The New Rules adopt the experience of supervision gained through the recent revolution and opening of
Considering that the relevant systems are of their initial launching, it’s foreseeable that both the management measures and the systems would be fine-tuned over time. Going forward, we will follow up with this issue and if you need any further information, please contact:
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外汇管理制度的重大变革
——解读新《中华人民共和国外汇管理条例》
金杜律师事务所 融资组银行部
背景
新条例对1996年公布的原《中华人民共和国外汇管理条例》(以下简称“原条例”)作了全面修订。新条例为了应对中国国际收支形势发生的根本性变化，即由外汇短缺转为外汇储备增长过快，对外汇流入流出实施了均衡管理。这可能意味着新条例的实施将使得外汇流入的条件更加严格，而外汇流出的条件则变得宽松。新条例也健全了外汇监管手段和措施，从单一的监管机关监管扩展到监管机关、经营外汇业务的金融机构和有外汇经营活动的境内机构三方面共同配合进行全面管理，并将监管重点放在了对交易真实性的审查上。
另外，在新条例出台之前，为配合新条例加强跨境资金流动监管并细化对交易真实性的审查，外汇局于
我们将在下文介绍新条例和通知的主要内容及其相关规定。本简报旨在做出一般性的指引，而不够成对某一特定案例的具体意见。
经常项目外汇管理
● 取消经常项目外汇收入强制汇入国内的要求
新条例不再要求境内机构将经常项目项下的外汇收入调回境内，而是允许境内机构和境内个人将其外汇收入调回境内或者存放境外。调回境内或者存放境外的具体条件、期限等将由国务院有关部门做出规定。
● 取消经常项目外汇收入强制结汇要求
新条例规定对经常性国际支付和转移不予限制，并进一步便利经常项目外汇收支。新条例取消了经常项目外汇收入强制结汇要求，经常项目外汇收入可按照相关规定保留或者卖给金融机构。
资本项目外汇管理
● 资本流出渠道被拓宽
新条例简化了对境外直接投资外汇管理的行政审批，将审批制更改成了登记制；增设境外主体在境内筹资、境内主体对境外证券投资和衍生产品交易、境内主体对外提供商业贷款等交易项目的管理原则。
● 改革资本项目外汇管理方式
新条例废除了资本项目项下的外汇收入应当存入指定银行开立的外汇账户的原则性要求，而规定除国家规定无需批准的以外，资本项目外汇收入可以经外汇管理机关的批准后保留或者结汇；资本项目外汇支出国家未规定需事前经外汇管理机关批准的，原则上可以持规定的有效单证直接到金融机构办理。
● 加强流入资本的用途管理
新条例新增了旧的监管模式中未曾使用过的流入资本用途管理。新条例要求资本项目外汇及结汇后人民币资金应当按照有关主管部门及外汇管理机关批准的用途使用，并授权外汇管理机关对资本项目外汇及结汇后人民币资金的使用和账户变动情况进行监督检查。
外汇交易监督管理和外汇市场管理
● 监管机关职权更明确，金融机构新增协助义务
在外汇交易管理方面，新条例进一步确定了外汇管理机关对外汇交易进行监督检查的权力，同时，新条例也建立了由经营外汇业务的金融机构通过外汇账户进行协助监管的制度。
● 允许非金融机构进行外汇交易
新条例放宽了对银行间外汇市场交易主体的要求，允许符合国务院外汇管理部门规定的相关条件的非金融机构也可以按照国务院外汇管理部门的相关规定在银行间外汇市场进行外汇交易。
法律责任
新条例降低了对外汇非法流出行为的处罚力度，并增加了对外汇非法流入行为的处罚，以实现对外汇流入和流出的均衡管理。同时，新条例在极大程度上将监管重点放到了对真实交易的监管上，原则上只要是有真实交易基础的用汇行为，则不加以处罚。为了配合金融机构的协助监管，新条例调高了对金融机构违法行为的处罚力度，并增加了对与外汇违法行为有关的金融机构负有直接责任的人员的处罚。
货物贸易项下外债登记管理制度
与上述的新条例加强跨境资金流动管理以及对交易真实性进行监管相关，在新条例之前发布的通知已经在一定程度上细化了新条例中相关部分的规定。
● 适用
通知中针对预收货款和延期付款的贸易外债登记管理普遍适用于境内注册的企业和个人对外贸易经营者，无论企业注册地是否在特殊经济区域，无论货物是否进出关，无论出口收入是否纳入外汇局和海关的联网核查，均要办理贸易项下外债登记。
● 登记管理
企业需登陆外汇局网上服务平台上的贸易信贷登记管理系统，对预收货款和延期付款办理逐笔登记和注销。在线登记环节无需向外汇局提供书面资料。
就预收货款登记而言，在出口合同包括预收货款条款的情况下，企业应于合同签订之日起15个工作日内，办理预收货款登记，并于实际收到该等预收货款之日起15个工作日内办理预收货款提款登记。
就延期付款登记（自
● 违规行为的处罚
值得注意的是，对于违反货物贸易项下外汇管理规定的行为外汇局专门下发《关于货物贸易项下违反外汇管理行为有关处罚问题的通知》（汇发[2008]34号），规定银行和企业的相关违规责任。
总结
新条例吸收了近年来改革开放在监管措施方面的成果，并为下一步改革预留了政策空间，以使贸易投资更加便利，行政监督更加完善，交易环境更加安全。而通知则对新条例中对于跨境资金流动监管和基础交易真实性审查做出了细化的规定，明确了贸易项下外债的登记管理制度，并为银行和企业进行贸易项下的预收货款和延期付款安排规定了新的合规要求。
鉴于与新条例和通知相关的管理系统均处于初建阶段，该等系统的运行尚需进一步的调整和完善，我们将及时注意相关法规的发展。
如您需要任何进一步的信息，请联系：
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