Laws of the People's Republic of China

State Administration of Foreign Exchange

Circular of State Administration of Foreign Exchange concerning Extension of the Operation Pilot of Long Term Foreign Exchange Settlement and Sales

Hui Fa [2004] No.103

October 13, 2004

Branch bureaus and foreign exchange administration departments under State Administration of Foreign Exchange of various provinces, autonomous regions and municipalities directly under the Central Government, branch bureaus in the municipalities of Shenzhen, Dalian, Qingdao, Xiamen and Ningbo and the Chinese designated foreign exchange banks,

In order to meet the requirements of China opening up and deepening of the financial reform, satisfy the market demand for enterprises to evade the risks of foreign exchange rate and further develop China foreign exchange market, in accordance with the Regulations of the People's Republic of China on the Management of Foreign Exchange, Interim Measures for the Administration of People's Bank of China on the Operation of Settlement and Sales of Long Term Foreign Exchange and other relevant provisions, relevant issues regarding extension of the operation pilot of long term foreign exchange settlement and sales are hereby notified as follows:

1.

Access Requirements

The designated foreign exchange banks which meet the following requirements can apply for the operation of long term foreign exchange settlement and sales:

(1)

having obtained the operation qualification for settlement and sales of foreign exchange two years at least (including two years);

(2)

able to seriously implement the administrative provisions of State Administration of Foreign Exchange on the operation of settlement and sales of foreign exchange, and having no record of material violation of the laws and regulations governing the operation of settlement and sales of foreign exchange within first two years after submitting the application;

(3)

the operation amount of settlement and sales of foreign exchange of the whole bank in the previous year is over 20 billion USD (including 20 billion USD);

(4)

possessed of strong ability of inter-bank borrowing of local/foreign currency;

(5)

possessed of sound and uniform risk management system, internal control system and other relevant operation regulations of the operation of long-term foreign exchange settlement and sales;

(6)

possessed of complete technical support system of disposal and risk real-time management of the operation of long-term foreign exchange settlement and sales;

(7)

possessed of the technical support system of settlement and sales of long term foreign exchange rate, position pooling and issuing the relevant report forms required by State Administration of Foreign Exchange; and

(8)

other requirements stipulated by State Administration of Foreign Exchange.

2.

Approval Procedures

(1)

Application for the operation of long term foreign exchange settlement and sales by designated foreign exchange banks should abide by the approval principle of legal person.The applications of policy banks inside China, wholly state-owned commercial banks and shareholding commercial banks shall be filed by their head offices to State Administration of Foreign Exchange.The application of city commercial banks inside China, rural commercial banks and other Chinese designated foreign exchange banks shall be directly filed by their head offices, and the application of foreign banks shall be filed directly by main reporting banks inside China to branch bureaus of SAFE where they are located, examined by branch bureaus of the SAFE where they are located and be submitted to the State Administration of Foreign Exchange for approval.

(2)

Where the branches of the designated foreign exchange banks inside China are engaged in the operation of long-term foreign exchange settlement and sales, the administrative measures that legal person conducts authorization and the branches put on record shall be abided by.Application for putting on record should be made to branch bureaus of the SAFE where they are located based on the written authorization documents of head office, qualification certificate of foreign exchange settlement and sales and the approval documents of State Administration of Foreign Exchange.Until the approval and record by branch bureaus of the SAFE where they are located, the operation of long-term foreign exchange settlement and sales cannot be launched.

(3)

Sub branch bureaus of the SAFE where they are located shall examine the time limit and legitimacy of business of foreign exchange settlement and sales operation of the branches of the bank within 20 working days after receiving the material for record of the bureaus of the bank in accordance with the provisions of Article 1 (1), (2) of the present Circular.Those who satisfy the requirements can be recorded and the approval and record result should be reported to the International Revenue and Expenditure Department of State Administration of Foreign Exchange.

3.

Application Documents

The following documents should be submitted if the designated foreign exchange banks apply for the operation of long-term foreign exchange settlement and sales:

(1)

The application report and feasibility report satisfying the foregoing access requirements;

(2)

License of the operation of foreign exchange settlement and sales;

(3)

Internal administrative rules and systems on the operation of long-term foreign exchange settlement and sales, including:

a.

Administrative provisions of risk exposure of long-term foreign exchange settlement and sales operation;

b.

Administrative provisions of position covering of long-term foreign exchange settlement and sales operation;

c.

Administrative provisions of power limit of long-term foreign exchange settlement and sales operation;

d.

Basic operation provisions of long term foreign exchange settlement and sales operation; and

e.

Accounting provisions of long term foreign exchange settlement and sales.

(4)

Setting and function explanation on technical support system of long term foreign exchange settlement and sales operation; and

(5)

other documents and materials required by State Administration of Foreign Exchange.

4.

The Scope of Business

The following revenue and expenditure of foreign exchange of the institutions inside China can make the application for the operation of long-term foreign exchange settlement and sales to the banks:

(1)

revenues and expenditure under the trade item;

(2)

revenues and expenditure under the service trade and income items;

(3)

reimbursing foreign exchange loans of the bank itself;

(4)

reimbursing the loan inside China registered by State Administration of Foreign Exchange.

The contract cannot be repeatedly reached based on the same revenues and expenditure of foreign exchange.

5.

The Administration of Business

Besides the principle of real need, the following administrative regulations should be abided by if the designated foreign exchange banks handle long-term foreign exchange settlements and sales operation:

(1)

Approval of the authenticity of the content of the long term foreign exchange settlements and sales contract should by strengthened if the designated foreign exchange banks handle long term foreign exchange settlements and sales operation.The revenue and expenditure of foreign exchange need to be pre-examined and approved by foreign exchange bureaus according to the relevant regulations of the administration of foreign exchange settlement and sales should be examined the banks based on the valid certificate provided by the institutions inside China which signed the long term foreign exchange settlement and sales contract in accordance with the administrative regulations of settlement and sales of foreign exchange;

(2)

If the long-term foreign exchange settlements and sales contract expires, all relevant certificates should be provided by the institutions inside China according to the administrative requirements of settlement and sales of foreign exchange.After examining the completion and the authenticity of the documents provided by the institutions inside China, the formalities of the implementation of long term contract can be done with the institutions inside China; If the institutions inside China cannot provide all effective certificates in time, the long term contract cannot be implemented and the institutions inside China should shoulder the responsibilities of breach of the contract.

(3)

The operation of long term foreign exchange settlement and sales should be handled according to the provisions of the contract regarding the origin of foreign exchange revenue and the purpose of the foreign exchange expenditure.The institutions inside China cannot offset by using other foreign exchange revenue and expenditure.If foreign exchange revenue and expenditure is inconsistence with the provisions of the contract, the institutions inside China are regarded as breach of the contract.

(4)

In the two provisions abovementioned, if the default of long term foreign exchange settlement and sales contract is caused by the institutions inside China, the banks can require the institutions inside China shoulder the caused damage.

6.

Long Term Price-fixing

Settlement and sales of long-term foreign exchange rate is based on the supply and demand of the market and price should be uniformly fixed with negotiation of the banks which operate the long-term foreign exchange settlement and sales.State Administration of Foreign Exchange is in charge of the supervision and administration of the price-fixing methods of settlement and sales of long-term foreign exchange rate.

7.

Period Composing

The maximum period of the contract of long-term foreign exchange settlement and sales operation reached by the designated foreign exchange banks and the institutions inside China is one year (including one year).The period composing within one year can be confirmed by the designated foreign exchange banks of their own.

8.

Position Supervision

State Administration of Foreign Exchange administers the designated foreign exchange banks handling the operation of long-term foreign exchange settlement by implementing integrated position and checks and adjusts integrated position limitation upon the application of the head offices of all banks.

The designated foreign exchange banks should daily report and submit the daily report forms of integrated position and other relevant report forms to State Administration of Foreign Exchange in accordance with Circular of State Administration of Foreign Exchange concerning Adjustment of Bank Reporting of Foreign Exchange Settlement and Sales Position (Hui Fa [2003] No.133).

9.

Business Scrutiny and Sanction

State Administration of Foreign Exchange will irregularly inspect and spot-check the operation of long-term foreign exchange settlement and sales handled by the designated foreign exchange banks.If there is any of the following activities, State Administration of Foreign Exchange and its branch bureaus will make the sanctions including fine, withdrawal of the operation qualification and etc.according to the Regulations of the People's Republic of China on the Management of Foreign Exchange and the relevant regulations of settlement, sales and payment of foreign exchange.

(1)

in case that the banks violates the provisions of the present Circular and fails to strictly examine the effective certificate of the institutions inside China;

(2)

in case that the relevant administrative provisions of position are violated or the relevant report forms fail to be reported and submitted on time;

(3)

in case that the banks handle the operation of long term foreign exchange settlement and sales without the approval of People's Bank of China and State Administration of Foreign Exchange.

The present Circular shall be implemented as of November 1, 2004 and interpreted by State Administration of Foreign Exchange.The branch bureaus of State Administration of Foreign Exchange shall forward the present Circular to their sub-branches and commercial banks (including foreign banks) upon receiving the present Circular.Problems encountered in the course of implementation of the present Circular shall be promptly reported to the State Administration of Foreign Exchange.

Contact entity: The International Revenue and Expenditure Department of State Administration of Foreign Exchange

Contact Telephone: (010) 68402160