Laws of the People's Republic of China

The People's Bank of China

Circular of the People's Bank of China on Issuing the Provisions on the Settlement and Sale of and Payment in Foreign Exchange

Decree [1996] No.1 of the People's Bank of China

June 20, 1996

Chapter I General Provisions

Article 1

These Provisions are formulated with a view to achieving convertibility of the Renminbi for current account transactions through the introduction of a set of rules governing the settlement and sale of and payment in foreign exchange.

Article 2

Banks involved in foreign exchange business shall comply with these Provisions in conducting businesses related to the settlement and sale of foreign exchange, opening foreign exchange accounts and making external payments all within the business scope duly authorized by the People's Bank of China and the State Administration of Foreign Exchange.

Article 3

Domestic entities shall promptly repatriate all foreign exchange from abroad unless otherwise authorized by the government.

Article 4

Domestic entities, resident individuals, foreign establishments in China and foreign nationals shall comply with these Provisions with respect to the settlement and sale of foreign exchange, opening foreign exchange accounts and making external payments.

Article 5

When receiving foreign exchange and making external payments in foreign exchange through banks involved in foreign exchange business, domestic entities and resident individuals are obliged to report on balance of payments statistics in accordance with the Measures on Reporting Balance of Payments Statistics and other relevant provisions as well.

Chapter II Settlement and Sale of and Payment in Foreign Exchange for Current Account Transactions

Article 6

Except as provided in Article 7 , 8 and 10 of these Provisions with respect to the coverage and quantity for foreign exchange settlement, all the following foreign exchange receipts for domestic entities shall be sold to designated foreign exchange banks in full:

1.

Export proceeds for goods in foreign exchange or foreign exchange income generated from entrepot business characterized by an initial payment and subsequent reimbursement and other types of transactions, among which export proceeds in foreign exchange settled under a documentary letter of credit/payment guarantee and documentary collection shall be sold to designated foreign exchange banks upon the presentation of valid commercial documents, and export proceeds for goods in foreign exchange settled by remittance shall be sold to designated foreign exchange banks upon the presentation of the Verification Certificate for Export Proceeds;

2.

Foreign exchange earned by successful international competitive bidding for contracts funded by overseas loans;

3.

Foreign exchange earned from domestic duty-free shops administered by the customs authorities;

4.

Foreign exchange earned by provision of goods or services in connection with transportation (inclusive of all means of transportation), ports (inclusive of airports) and postal and telecommunication services (exclusive of international remittances), advertisement, consulting, exhibition, consignment, repairs and maintenance, etc, and other agency services;

5.

All types of administrative fees, fines and confiscation in foreign exchange collected by administrative and judicial agencies;

6.

Foreign exchange received for the transfer of intangible assets such as land use right, copyright, trademark, patent, non-patent technologies and good will; in case that these intangible assets belong to an individual, the sale of foreign exchange is optional;

7.

Profits in foreign exchange repatriated by enterprises with direct investment abroad, foreign exchange earnings generated from foreign economic aid programs and other types of foreign exchange income derived from overseas assets;

8.

Compensation for claims abroad and refund for security deposit in foreign exchange;

9.

Foreign exchange income generated from property rentals and other types of foreign assets;

10.

Foreign exchange income from insurance companies for writing insurance policies denominated in foreign currency;

11.

Net foreign exchange income from financial institutions duly authorized under the License for Foreign Exchange Business;

12.

Foreign exchange from overseas grants, sponsorships and aid programs; and

13.

Other types of foreign exchange that shall be sold to designated foreign exchange banks in accordance with provisions of the State Administration of Exchange Control.

Article 7

Domestic entities (exclusive of enterprises with foreign investment) may apply to the State Administration of Exchange Control or its local branches (hereinafter referred to as the SAEC for both) for the permission to open foreign exchange accounts with banks involved in foreign exchange business and shall sell to the banks the following types of foreign exchange in accordance with the relevant provisions:

1.

Foreign exchange received in the course of normal business operations by companies undertaking contracts, providing labour, engaging in technical co-operation projects and offering other services abroad;

2.

Foreign exchange collected for payments on the part of those businesses that act as an agent for international transactions;

3.

Foreign exchange under suspense account, including overseas security deposit for tender bond, performance bond, receipts for later disbursements under entrepot trade; international foreign exchange remittances performed by post and telecommunication services; advance payments in foreign exchange received by Class A travel agencies from foreign travel agencies; foreign exchange received by railway carriers for providing insured overseas transportation; foreign exchange security deposit and collateral received by the customs authorities;

4.

Insurance premiums in foreign exchange received by insurance companies for providing insurance and reinsurance abroad and insurance premiums in foreign exchange pending settlement. The foregoing net foreign exchange income shall be sold in full to designated foreign exchange banks within the prescribed time limit.

Article 8

Foreign exchange earmarked for external payments for grants, sponsorships and payments under aid agreement can be retained subject to the approval of the SAEC.

Article 9

The following types of foreign exchange can be retained:

1.

Foreign exchange held by foreign embassies and consulates, resident offices of international organizations and other foreign legal persons; and

2.

Personal holdings of foreign exchange by residents and visitors from abroad.

Article 10

Enterprises with foreign investment may retain their foreign earnings derived from current account transactions below the ceiling prescribed by the SAEC and any excess amount shall be sold to designated foreign exchange bank or sold in foreign exchange swap centres.

Article 11

The sale of any foreign currency in cash for an equivalent amount exceeding US$10,000 shall require the customer to present to the designated foreign exchange bank his valid identification card and documents certifying the source of the foreign currency in question before the bank proceeds with the transaction and then files it for the records of the SAEC.

Article 12

Based on the permission to open foreign exchange accounts under Article 7 , 8, 9 and 10 of these Provisions, domestic entities, foreign establishments in China and visitors from abroad may open such accounts at banks involved in foreign exchange business in accordance with the relevant provisions governing the operations of foreign exchange accounts.

Article 13

Domestic entities may make external payments from their own foreign exchange accounts or with the purchased foreign exchange at designated foreign exchange banks for trade and non-trade related operational expenses upon the presentation of valid commercial documents consummate with the payment method as well as other valid commercial documents listed as following:

1.

For the import of goods under a documentary letter of credit/payment guarantee, in case of the purchase of foreign exchange for opening a letter of credit, the import contract, Verification Certificate for Foreign Exchange Payments for Imports and the application for opening L/C shall be presented; and in case of the purchase of foreign exchange for payments, valid commercial documents under the letter of credit for payments shall also be provided. The ensuing verification of imports shall require the presentation of the original form for customs declaration for the imported goods;

2.

For the import of goods under document collection, the import contract, the Verification Certificate for the Foreign Exchange Payment of Imports, the payment instrument for imports and other valid commercial documents under documentary collection shall be presented. The ensuing verification of imports shall require the presentation of the original form for customs declaration for the imported goods;

3.

For the import of goods under remittance payment, the import contract, the Verification Certificate for the Foreign Exchange Payment of Imports, the invoices, the original form for customs declaration for the imported goods, the original transportation documents shall be presented; and in case of any discrepancy between the name of the beneficiary on the bill of lading and the business on the customs declaration form and the name of the buyer on the import contract, and agency agreement between these two parties shall be presented;

4.

For an advance payment not exceeding 15 per cent of the total contract value or exceeding 15 per cent but in an amount of less than an equivalent of US100,000, the import contract and the Verification Certificate for the Foreign Exchange Payment of Imports shall be presented.

For the import of such goods among the foregoing four types of imports subject to import quota or import control given their special nature, the import permit issued by the relevant government agency or the import certificate shall be presented; for the import of goods under the automatic registration system, a completed form of registration shall also be presented;

5.

For transportation and insurance expenses for imports, the import contract and the original receipts for transportation and insurance charge shall be presented;

6.

For implicit commissions not exceeding 2 per cent of the total contract value and explicit commissions of 5 per cent or any other amount above the foregoing percentage but below an equivalent of US$10,000, the import contract or commissions agreement, foreign exchange sale receipt or notice of payment shall be presented; as far as transportation and insurance expenses for export are concerned, the export contract, the original receipts for transportation and insurance charge shall be presented;

7.

For the residual payment for imports, the import contract, Verification Certificate for the Foreign Exchange Payment of Imports and Quality Inspection Certificate shall be presented;

8.

For other subordinate charges, such as charges for the provision of written materials, technical know-how and information, the import or export contract, Verification Certificate for the Foreign Exchange Payment of Imports, Verification Certificate for Export Proceeds, invoices or receipts for these charges or notes of explanation signed by managers from the import and export businesses shall be presented;

9.

For purchase of goods from bonded areas and bonded warehouses and purchase of imported exhibits, valid documents specified in Section 1 to 8 and valid commercial documents shall be presented;

10.

For import of intangible assets such as patents, copyrights, trademarks, computer software, etc, the import contract or agreement shall be presented;

11.

For refund and compensation related to exports, the foreign exchange sale receipt or notice for payment, claim form, claim settlement certificate and verification certificate indicating the reduced export proceeds shall be presented; and

12.

For security deposit required by tender bond for overseas contracts, tender documents shall be presented; and for performance bond and advance funding for projects, contracts shall be presented.

Article 14

For the following types of external payment to be made by domestic entities for trade and non-trade related commercial purposes, the payment in foreign exchange can be made from the customers' foreign exchange accounts or with the purchased foreign exchange at banks involved in foreign exchange business upon the presentation the payment list and such transaction is subject to ex-post verification:

1.

Payments for duty-free imports made by businesses duly authorized by the State Council to sell duty free goods within the prescribed business scope;

2.

Payments made by airline, ocean freight, railway departments (businesses) for charges related to international transportation, equipment maintenance, port facilities, fuels, insurance, non-financial leasing and others;

3.

Food and other types of allowance paid by airline, ocean freight and railway transportation departments (businesses) to their crew for international service; and

4.

Post and telecommunication expenses incurred abroad by post and telecommunication departments.

Article 15

The following types of external payment can be made from their own foreign exchange account of the domestic entities or from the purchased foreign exchange at designated foreign exchange banks after the verification of the bona fide nature of the transaction by the SAEC:

1.

Advance payments for goods exceeding the prescribed percentage and amount as stipulated in Section 13.4;

2.

Commissions exceeding the prescribed percentage and amount as stipulated in Section 13.6;

3.

External payments under entrepot characterized by an initial payment with later reimbursement;

4.

Interest payment for external debt; and

5.

Cash withdraw exceeding an equivalent of US$10,000.

Article 16

Interest payment by domestic entities for loans in foreign currency extended by domestic financial institutions can be made from their own foreign exchange accounts or with the purchased foreign exchange at designated foreign exchange banks upon the presentation of the Foreign Exchange Loan (on-lending) Registration Certificate, loan agreement and interest payment notice.

Article 17

The provision of foreign exchange for the budgetary agencies, institutions and social organizations for non-trade and non-commercial activities shall proceed in accordance with the Interim Provisions on the Provision of Foreign Exchange for Non-trade and Non-Commercial Activities.

Article 18

The provision of foreign exchange for extra-budgetary domestic entities can be made from their own foreign exchange accounts or with the purchased foreign exchange at designated foreign exchange banks upon the presentation of the following documents:

1.

For expenses involved covering exhibitions, trade and investment promotion programs, training programs, film and television programs abroad, relevant contracts, the notice of payments from abroad and the approval of the government department in charge shall be presented;

2.

For expenses involved covering promotion programme abroad, foreign aid, grants, membership dues to international organizations, registration fees for international conferences, the approval of the government department in charge and other relevant documents shall be presented;

3.

For expenses involved covering the start-up fees and annual budget for establishing overseas representative offices, the approval of the government department in charge for such establishment and the proposed budget shall be presented;

4.

For examination fees paid abroad by the foreign examination co- ordination centers under the State Education Commission, the contract with foreign counterparts and the statement from foreign institutions offering such examinations as well as the settlement notice shall be presented;

5.

For expenses involved in arranging for trade mark, copy right registration, application for patent and other legal or consulting services, the contract and invoices shall be presented; and

6.

For traveling expenses on business trips abroad, the travel approval issued by the duly authorized government department shall be presented.

The provision of foreign exchange for such non-commercial activities listed in items 1 to 6 can be made from the customers' foreign exchange accounts or with the purchased foreign exchange at designated foreign exchange banks after the verification of the bona fide nature of the transaction by the SAEC.

Article 19

The provision of foreign exchange for personal travel abroad shall proceed in accordance with the Provisions on the Provision of Foreign Exchange for Personal Travel Abroad and the Provisions on Foreign Exchange Remittances by Residents in China.

Article 20

The following types of legitimate income for resident individuals who migrate abroad can be sent abroad with the purchased foreign exchange at designated foreign exchange banks duly authorized by the SAEC upon the presentation of their identification cards and valid documents listed as following:

1.

For interest on deposit in Renminbi, the statement for interest on deposit in Renminbi shall be presented;

2.

For rental income from property, the rent agreement and statement issued by the property rent agencies shall be presented; and

3.

For income generated from other assets, the relevant documents and income statement shall be presented.

Article 21

For repatriation of profits and dividends after tax by the foreign counterpart in an enterprise with foreign investment, the payment can be made from their own foreign exchange accounts or with the purchased foreign exchange at designated foreign exchange banks upon the presentation of the proposal for the profit distribution adopted by the board of directors.

For remittance of salary in Renminbi after tax by foreign, overseas Chinese employees and those from Hong Kong, Macao and Taiwan, the payment can be made with the purchased foreign exchange at designated foreign exchange banks upon the presentation of certifying documents.

Article 22

For dividends to be paid in foreign currencies based on the relevant provisions, the payment can be made from the customers' own foreign exchange accounts or with the purchased foreign exchange at designated foreign exchange banks upon the presentation of the proposal for the profit distribution adopted by the board of directors after taxes are paid.

Article 23

For remittance of legitimate income in Renminbi by foreign establishments in China and foreign nationals, the payment can be made at designated foreign exchange banks duly authorized by the SAEC upon the presentation of certifying documents and the statement for fees and charges collected.

Article 24

For remittance of sale proceeds in Renminbi by foreign establishments in China and foreign nationals for personal effects, equipment and utensils, etc, that they brought in from abroad or purchased in China, the payment can be made at designated foreign exchange banks duly authorized by the SAEC upon the presentation of the registration card issued by the State Business Administration or personal identification cards and the certificate for such sale.

Article 25

Foreign nationals in China, overseas Chinese and Chinese compatriots of Hong Kong, Macao and Taiwan may, prior to their exit, exchange back the unused portion of Renminbi balances upon presentation of their passports and the original exchange receipts (valid for six months after the transaction).

Chapter III Settlement and Sale of and Payment in Foreign Exchange Capital Account Transactions

Article 26

Domestic entities shall open up foreign exchange accounts for capital account transactions at banks involved in foreign exchange business.

Article 27

The following types of foreign exchange belonging to domestic entities can not be sold to designated foreign exchange banks without prior approval of the SAEC:

1.

Foreign exchange brought in by overseas legal persons or natural persons for direct investment in China;

2.

Foreign exchange proceeds from overseas loans and the issue of bonds or shares denominated in foreign currency; and

3.

Other types of foreign exchange derived from capital account transactions duly approved by the SAEC.

Except export proceeds under collection, loan proceeds in foreign currency collected in China and international commercial loans raised by Chinese and foreign joint ventures can not be sold to designated foreign exchange banks.

Article 28

Foreign exchange proceeds from the sale of property or other assets by domestic entities to people abroad can be sold to designated foreign exchange banks for any amount exceeding the ceiling provided in Article 10 .

Article 29

For repayment of loan principal in foreign exchange by domestic entities to Chinese financial institutions in China, the payment can be made from the customers' own foreign exchange accounts or with the purchased foreign exchange at designated foreign exchange banks upon the presentation of the Foreign Exchange Loan (on-lending) Registration Certificate, loan agreement and notice for repayment issued by the creditor.

Article 30

Domestic entities may apply to the SAEC for foreign exchange for the following capital account transactions upon the presentation of the following required documents and the payment can be made from their own foreign exchange accounts or with the purchased foreign exchange at designated foreign exchange banks based on the approval of the SAEC:

1.

For repayment of principal of foreign debt, the registration certificate for foreign debt, loan agreement and notice for principal repayment issued by the creditor;

2.

For external guarantee, the contract for guarantee, Registration Certificate for Guarantee in Foreign Exchange and payment notice issued by overseas entities shall be presented;

3.

For remittance of investment fund abroad, the approval issued by the government department in charge and investment contract shall be presented; and

4.

For authorized capital input in foreign exchange contributed by Chinese counterparts in the enterprises with foreign investment, the approval of the government department in charge and the contract shall be presented.

Article 31

For the increase, transfer and other forms of disposal of capital in foreign exchange by the enterprises with foreign investment, the decision made by the board of directors shall be presented to the SAEC for approval and then the payment can be made from their own foreign exchange accounts or with the purchased foreign exchange at designated foreign exchange banks upon the presentation of the notice for sale of foreign exchange issued by the SAEC:

The investment of capital in foreign exchange in China by the investment enterprises with foreign investment and the use of retained earnings by foreign counterparts for capital replenishment or reinvestment shall proceed upon the approval issued by the SAEC.

Chapter IV Supervision on the Settlement and Sale of and Payment in Foreign Exchange

Article 32

Enterprises with foreign investment may settle and sell foreign exchange at designated foreign exchange banks or in foreign exchange swap centres; other domestic entities, resident individuals, foreign establishments in China and visitors from abroad can only settle and sell foreign exchange at designated foreign exchange banks.

Article 33

Before making external payment from customers' own foreign exchange accounts, banks involved in foreign exchange business shall verify the transaction in accordance with the appropriate use for the given foreign exchange accounts and the provisions of Chapter Two and Three of these Provisions.

Article 34

Having completed a transaction for the settlement and sale of foreign exchange, designated foreign exchange banks shall stamp the valid corresponding documents as well various commercial documents and file all these documents for records.

Article 35

Designated foreign exchange banks shall quote the buying and selling rate to banks' customers on the basis of middle exchange rate for Renminbi announced by the People's Bank of China every day and within the prescribed margin for exchange service.

Article 36

The payment from customers' own foreign exchange accounts or with the purchased foreign exchange shall proceed on such a date provided by the settlement method or the relevant contract and earlier payment is prohibited; Advance purchase of foreign exchange is also prohibited except for debt servicing or opening a letter of credit/placing security deposit for payment guarantee.

Article 37

With a view to reducing exchange rate risk related to future payments or debt servicing for customers, designated foreign exchange banks may arrange for forward contracts between Renminbi and foreign currencies or provide other types of hedging services.

Article 38

The payment for the import of goods under barter trade can not be made with the purchased foreign exchange or from customers' own foreign exchange accounts unless otherwise approved by the SAEC.

Article 39

Banks involved in foreign exchange business are obliged to send to the SAEC reports on the settlement and sale of and payment in foreign exchange.

Designated foreign exchange banks shall formulate an internal monitoring system for the settlement and sale of foreign exchange and promptly report to the local branches of the State Administration of Foreign Exchange in case of any unusual circumstances.

Article 40

Domestic entities shall open foreign exchange accounts at the banks involved in foreign exchange business of their choice in the place of their incorporation and proceed with the settlement and sale of and payment in foreign exchange in accordance with these Provisions. Domestic entities shall need the approval of the SAEC for opening foreign exchange accounts in other places outside the place of their incorporation or abroad.

For foreign exchange derived from current account transactions for enterprises with foreign investment, they may open foreign exchange settlement accounts at the banks involved in foreign exchange business at their own discretion in their place of incorporation subject to approval.

Article 41

Banks involved in foreign exchange business and other domestic entities involved in the settlement and sale of and payment in foreign exchange are subject to the unconditional supervision and inspection of the SAEC and shall present or submit all documents when necessary. In case of violation of these Provisions, the SAEC may issue a warning, confiscate illegal income and impose a fine; in case of serious violation, the SAEC may order banks involved in foreign exchange business in question to suspend their business for the settlement and sale of foreign exchange.

Chapter V Supplementary Provisions

Article 42

The power of interpretation for these Provisions rests with the State Administration of Exchange Control.

Article 43

These Provisions shall enter into force as of July 1, 1996. The Interim Provisions on the Settlement and Saleof and Payment in Foreign Exchange issued on March 26, 1994 shall be nullified. In case of any contradiction with rules and regulations issued prior to these Provisions, the latter shall prevail.