Laws of the People's Republic of China

State Administration of Foreign Exchange

Circular of State Administration of Foreign Exchange on Issues concerning Improving Annual Inspection of Foreign Exchange of Foreign-funded Enterprises

No.7 [2004] of the State Administration of Foreign Exchange

February 18th, 2004

The branches and departments of foreign exchange administration of State Administration of Exchange Administration of all provinces, autonomous regions and municipalities directly under the Central Government and branches of Shenzhen, Dalian, Qingdao, Xiamen and Ningbo:

Annual inspection of foreign exchange of foreign-funded enterprises in 2004 is to be carried out. For the purpose of regulating practices of accounting firms in the annual inspection of foreign exchange, increasing the participation rate of foreign-funded enterprises in annual inspection of foreign exchange and supervising from all aspects the overall situation of foreign exchange receipts and payments of foreign-funded enterprises in China. We hereby make the following notice on relevant issues concerned:

1.

In accordance with related provisions of Circular of Ministry of Finance and State Administration of Foreign Exchange on Strengthening Auditing Work of Foreign Exchange of Foreign-funded Enterprises(No.607 (1998) of the Ministry of Finance) and Circular of State Administration of Foreign Exchange and Ministry of Finance on Adjusting Foreign Exchange Content Form of Annual Inspection of Foreign Exchange of Foreign-funded Enterprises (No.124 (2002) of the State Administration of Foreign Exchange), all the branches and departments of foreign exchange administration shall require accounting firms to fill in Foreign Exchange Receipts and Payments Form and issue it with reports when they are issuing auditing reports. Meanwhile, whether the examined enterprise has complied with provisions of foreign exchange administration with respect to foreign exchange receipts and payments shall be specified by characters in auditing reports thereof, and the accounting firms issuing auditing reports shall not assign that examination work to other accounting firms.

2.

The branches and departments of foreign exchange administration shall require accounting firms to fill in BAL B/F and C/F in full in the Foreign Exchange Receipts and Payments Form issued thereby in and after 2004.

3.

After the annual inspection of foreign exchange winds up, where the branches and department of foreign exchange administration discovers that any accounting firm fail to issue Foreign Exchange Receipts and Payments Form or that the quality of more than 10% of the Form is obviously questionable, the lists of such accounting firms shall be submitted to the State Administration of Foreign Exchange with Work Reports of Annual Inspection of Foreign Exchange. The State Administration of Foreign Exchange shall deal with it in conjunction with the Ministry of Finance.

4.

The branches and departments of foreign exchange administration shall strengthen their work contact and communication with local Institute of Certified Public Accountants, conduct together with them business training of Certified Public Accountants with respect to annual inspection of foreign exchange, and notify the local Institute of Certified Public Accountants of the updates of foreign exchange administration policies in a timely manner through internet, distribution of documents and other channels of information transmission.

5.

Work Reports of Annual Inspection of Foreign Exchange submitted by all branches and departments of foreign exchange administration after the annual inspection winds up shall be prepared pursuant to the basic contents and formats of Reports of Annual Inspection of Foreign Exchange of Foreign-funded Enterprises in China in 2003, shall be added the analysis of flows of all items in Foreign Exchange Receipts and Payments Form, and shall contain corresponding content focusing on supervision and analysis with respect to the foreign exchange receipts and payments status of foreign-funded industries which exert considerable influence over the local national economy.

6.

Where foreign-funded enterprises have not participated in the joint inspection for two consecutive years, the foreign exchange registry certificate thereof shall be invalidated, and the branches and departments of foreign exchange administration issuing the certificates shall cancel the foreign exchange registration thereof, notify them of withdrawing foreign exchange registration certificate of foreign-funded enterprises, make a public notice of the List of Enterprises whose Foreign Exchange Registration Is Cancelled on one of the local major newspapers and copy that list to foreign exchange designated banks where they are located. Without the approval of foreign exchange administration, foreign-funded enterprises whose foreign exchange registration is cancelled shall not go through receipts and payments of foreign exchange in foreign exchange appointed banks.

7.

Participation rate in annual inspection of foreign exchanges shall be determined by the two indexes, namely the number of enterprises participating in annual inspection of foreign exchange and the number of enterprises participating in joint inspection in their respective jurisdiction. Participation rate in annual inspection of foreign exchanges is the major index in assessing the work efficacy of the branches and departments of foreign exchange administration in annual inspection of foreign exchanges in 2004. After the annual inspection of foreign exchange winds up, branches and departments of foreign exchange administration, in case that the participation rate is 15% lower than the national average participation rate shall be criticized by the State Administration of Foreign Exchange.

8.

The branches and departments of foreign exchange administration shall attach great importance to the supervision of receipts and payments of foreign exchange of foreign-funded enterprises formed by transfer of cross border assets, and supervise and urge such local state-owned enterprises as mobile communications corporation which have transformed into foreign-funded enterprises and certain privately-run enterprises to participate in annual inspection of foreign exchange on schedule.

9.

The branches and departments of foreign exchange administration, when they discovers in the annual inspection in 2004 that there exist significant abnormal problems in receipts and payments of foreign exchange in foreign-funded enterprises, shall report to the Capital Items Administration Department of the State Administration of Foreign Exchange in time.

This is hereby notified.