Laws of the People's Republic of China

Circular of the State Administration of Foreign Exchange concerning Further Improving the Administration of Foreign Exchange Collection and Settlement in Trade

Hui Fa [2006] No. 49 September 29, 2006

The local bureaus and foreign exchange management departments of the State Administration of Foreign Exchange in all provinces, autonomous regions, and municipalities directly under the Central Government, the Local Bureaus of the State Administration of Foreign Exchange in Shenzhen, Dalian, Qingdao, Xiamen and Ningbo, and all designated foreign exchange banks:

For the purpose of further improving the administration on foreign exchange collection and settlement in commodity trade (hereinafter referred to as trade), facilitating normal capital use of the enterprises and boosting the validity of the administration of the genuineness of foreign exchange in trade and maintaining the international payment balance, the relevant issues are hereby announced as follows:

1.

The local bureaus and foreign exchange management departments of the State Administration of Foreign Exchange (hereinafter referred to as the Foreign Exchange Bureau) shall perform a classified administration of foreign exchange in trade to the foreign exchange collection entities.

2.

All foreign exchange administrations shall carry out an examination on the foreign exchange collection entities. In case of any of the following circumstances that occurs to any entity foreign exchange collection, it shall be incorporate into the list of enterprises under focused supervision:

(1)

Any foreign exchange collected under the trade item within one year has a balance of 10 percent or above as contrasted with the total receivable foreign exchange under the trade item for the current period;

(2)

Any entity was punished by the foreign exchange administration due to its violation of the provisions on the administration of foreign exchange within one year; or

(3)

Any entity shall be incorporated into the list of enterprises under focused supervision by the foreign exchange administration according to the credit records and term for business initiation thereof.

3.

With respect to any foreign exchange collection entity that has any special demand in terms of production, operation and capital settlement concerning the export of vessels and large complete set of equipments, and any foreign exchange collection entity that has a balance of less than US$ 0.5 million of equivalent value between the foreign exchange collected under its trade item within one year and the receivable foreign exchange under the trade item for the current period, the Foreign Exchange Bureau may properly release the requirements as prescribed in Subparagraph (1), Article 2 herein upon examination and approval.

4.

Canceling the administration method of collecting and settling the foreign exchange under the trade item through the settlement account of foreign exchange or payment of foreign exchange. With regard to any foreign exchange collection entity that is not listed as an enterprise under focused supervision, the collection and settlement of foreign exchange thereof may directly be handled in accordance with the relevant provisions. With respect to any foreign exchange collection entity listed as an enterprise under focused supervision, the settlement of foreign exchange for all its incomes under the current item shall be handled upon strict examination and approval in accordance with the provisions of this Circular.

5.

Where any foreign exchange collection entity listed as an enterprise under focused supervision goes through the direct settlement for the foreign exchange under the current item or the settlement for the foreign exchange upon being entered into the current item, it shall provide an explanation in written form relating to the nature of foreign exchange settlement to the designated foreign exchange bank (hereinafter referred to as the bank) and go through the relevant formalities in accordance with the provisions as follows:

(1)

With respect to any foreign exchange income as generated from transit trade where the payment is made before collection, it shall go through the foreign exchange settlement upon the original of the verification and write-off form of import in trade (the page to be kept by enterprise)as affixed with the bank seal as well as the transit trade contract;

With respect to any foreign exchange income as generated from transit trade where the collection is made before payment, it may not perform the foreign exchange settlement before the external payment in the transit trade is concluded. After the external payment is concluded, the settlement for the remnant amount of foreign exchange shall be handled upon the corresponding original of the verification and write-off form of import in trade (the page to be kept by enterprise)as affixed with the bank seal and the transit trade contract.

(2)

With respect to any other sum under the trade item (including the goods price subject to advance collection in export), the foreign exchange settlement shall be handled upon the original of the declaration form of exported goods corresponding to the collection of foreign exchange and with an indicated serial number of the verification and write-off form of foreign exchange collection in export, as well as the export contract.

(3)

With respect to such affiliated expenses in trade as commissions (agency fees) and freight/insurance costs, the relevant settlement for foreign exchange shall be handled upon the relevant contract (agreement) and invoices. Any settlement for foreign exchange income that is not generated from trade under any item shall be handled upon the relevant contract (agreement) and relevant invoices.

After handled the formalities for foreign exchange settlement for an enterprise under focused supervision, the bank shall specify the relevant amount and date of foreign exchange settlement on the relevant original of instruments as provided by the said enterprise and reserve the original of explanation in written form as well as the original or photocopy of relevant instruments in accordance with the relevant provisions.

6.

As for any foreign exchange collection entity that has been listed into the enterprises under focused supervision, if it fails to provide the materials as described in Article 5 to prove the nature of foreign exchange collection, no formality for foreign exchange settlement may be handled by the bank without the approval of the foreign exchange administration.

7.

Where any group company performs the collection and payment as well as administration of foreign exchange capital under the current item in concentrated manner upon the approval of the foreign exchange administration, if a member company thereof has been listed as an enterprise under focused supervision, it may not participate in the collection and payment as well as administration of foreign exchange capital under the current item of the group company in concentrated manner. If there is any violation of the relevant provisions, the qualification of the group company for collection and payment as well as administration of foreign exchange capital in concentrated manner shall be revoked.

8.

Where any foreign exchange has been collected from trade into account or anyone applies for the refunding of settled foreign exchange for any reason, the foreign exchange administration shall implement strict verification as required by the relevant provisions of the Detailed Rules for Implementing the Measures for the Administration of Verification and Write-off of Foreign Exchange Collected in Export (Hui Fa [2003] No. 107, hereinafter referred to as the "Detailed Rules"). With respect to any overseas foreign exchange capital that is remitted into the territory of China by mistake and has not yet been written off, the relevant foreign exchange collection entity shall provide the statements in written form as produced by the bank in order to specify the payment time of foreign exchange, the serial number of declared international payment as well as whether the collected foreign exchange has been settled in addition to the materials as prescribed in Paragraph 4, Article 66 of the Detailed Rules.

9.

The foreign exchange administration shall carry out an examination on the listed enterprises under focused supervision annually, and report the result to the State Administration of Foreign Exchange for filing with copies dispatched to other foreign exchange bureaus. All foreign exchange administrations shall provide to the banks within its jurisdiction the list of enterprises under focused supervision as forwarded by its jurisdiction region or any other region by way of written documents or electronic name list and shall inform the relevant foreign exchange collection entities of the information concerning the determination of the list of enterprises under focused supervision.

10.

The bank shall be in strict accordance with this Circular and other relevant provisions regarding foreign exchange, strengthen the verification on the genuineness of foreign exchange capital inflow in trade. Where any bank is in violation of the provisions of this Circular by handling the formalities for any foreign exchange settlement, it shall be punished in accordance with the provisions of Article 42 of the Regulation of the People's Republic of China on Foreign Exchange Administration. Where any bank or foreign exchange collection entity is in violation of this Circular or any other provision, it shall be punished in accordance with the Regulation of the People's Republic of China on Foreign Exchange Administration and other provisions on foreign exchange administration.

11.

All foreign exchange administrations shall strengthen the surveillance on the bank and the enterprises under focused supervision and attach more attention to the analysis, verification and elimination of any abnormal circumstance. In case of any violation of the provisions on foreign exchange administration, it shall be timely forwarded to the examination department of foreign exchange for investigation and punishment.

12.

This Circular may not be applicable to the enterprises in the bonded areas, bonded harbors, export processing areas, bonded logistic parks and bonded logistic centers.

13.

This Circular shall come into force as of November 1, 2006. Any capital that has been entered into the account for foreign exchange settlement prior to the implementation of this Circular shall be forwarded into the account of foreign exchange under the current item. Where there is any previous provision that fails to comply with this Circular, this Circular shall prevail.

All local bureaus of the State Administration of Foreign Exchange shall transmitted it to the central sub-branches, sub-branches, foreign-funded banks, local commercial banks and relevant entities within their jurisdictions as of the receipt of this Circular. All Chinese-funded designated foreign exchange banks shall transmitted it to the local bureaus and sub-branches within their jurisdictions as soon as possible as of the receipt of this Circular. In case of any problem arising in the process of implementation, please promptly feed it back to the Administrative Department of Current Item of the State Administration of Foreign Exchange.