Laws of the People's Republic of China

Circular of the State Administration of Foreign Exchange on Issues concerning Foreign Exchange Control Relating to the Restructuring of Foreign-funded Banks

Hui Fa [2007] No.15

The branches and foreign exchange departments of the State Administration of Foreign Exchange in each province, autonomous region and municipality directly under the Central Government, as well as the municipal branches of the State Administration of Foreign Exchange in Shenzhen, Dalian, Qingdao, Xiamen and Ningbo:

According to the Regulation of the People's Republic of China on the Administration of Foreign-funded Banks as promulgated by the State Council on November 11, 2006, the related issues concerning foreign exchange control relating to the restructuring of the branches of foreign banks are hereby notified as follows:

1.

Business qualification

A restructured solely foreign-funded bank shall succeed to the qualification of the original foreign bank branch that has been approved for developing spot foreign exchange settlement and sale, forward foreign exchange settlement and sale, RMB and foreign currency swap as well as other derivative business between RMB and foreign currencies, etc., and shall go through the registration alteration formalities at the branch of the State Administration of Foreign Exchange (including foreign exchange department, hereinafter referred to as foreign exchange branch) at the place where it is located. A branch of the solely foreign-funded bank shall succeed to its own qualification for developing the related settlement and sale business as well as the derivative business between RMB and foreign currencies as approved before the restructuring of bank, and shall go through the registration alteration formalities at the foreign exchange branch of the place where it is located.

A restructured solely foreign-funded bank shall assume the membership of the original foreign bank branch in the foreign exchange market. A solely foreign-funded bank that assumes the membership in the inter-bank spot foreign exchange market shall go through the registration alteration formalities at China Foreign Exchange Trading Center; a solely foreign-funded bank that assumes the forward foreign exchange trading qualification or the inter-bank RMB and foreign currency swap trading qualification shall go through the registration alteration formalities at the State Administration of Foreign Exchange after reporting the alteration information to China Foreign Exchange Trading Center for preliminary examination; a solely foreign-funded bank that assumes the qualification of market maker for the transactions between RMB and foreign currencies in the inter-bank foreign exchange market shall submit the information about alteration to the State Administration of Foreign Exchange for archival filing.

With respect to the restructuring of a foreign bank branch that has obtained the custodian qualification for QFII, the successor of the custodial qualification shall be applied for approval to the State Administration of Foreign Exchange. If the successor is a solely foreign-funded bank, it shall go through the registration alteration formalities at the State Administration of Foreign Exchange; if the successor is a foreign bank branch reserved for developing the wholesale business of foreign exchange (hereinafter referred to as book-keeping bank), it shall apply to the State Administration of Foreign Exchange for archival filing.

Where a solely foreign-funded bank is restructured from a foreign bank branch with QDII business qualification, it may directly succeed to the QDII quota.

2.

Administration of Synthetic Positions in Foreign Exchange Settlement and Sale

The State Administration of Foreign Exchange and the branches thereof shall manage the synthetic positions in the foreign exchange settlement and sale of solely foreign-funded banks by following the current management style. A solely foreign-funded bank may assume the limit of synthetic position in foreign exchange settlement and sale of the original foreign bank branch. In case of any adjustment to the limit of synthetic position in foreign exchange settlement and sale by any solely foreign-funded bank, it shall, according to its own capital status, send an application to the foreign exchange branch of the place where it is located subject to the Circular of the State Administration of Foreign Exchange on the Measures for Adjusting the Administration of Synthetic Positions in the Foreign Exchange Settlement and Sale of Banks (Hui Fa [2005] No. 69), Circular of the Comprehensive Department of State Administration of Foreign Exchange on Related Issues concerning the Verification of the Limit of Synthetic Positions in the Foreign Exchange Settlement and Sale of Banks (Hui Zong Fa [2005] No.118) and other related provisions.

With respect to a book-keeping bank that did not practice uniform management on synthetic positions in foreign exchange settlement and sale prior to the restructuring, it may assume the limit of synthetic position in foreign exchange settlement and sale of the original foreign bank branch. As for a book-keeping bank that has practiced uniform management on synthetic position in foreign exchange settlement and sale before the restructuring, it shall apply to the foreign exchange branch of the place where it is located for re-examining the limit of synthetic position in foreign exchange settlement and sale along with the related materials.

3.

Transfer of foreign exchange capital and swap between RMB and foreign currencies

The transfer of foreign exchange working capital between a restructured solely foreign-funded bank and the branches thereof may be handled by the bank independently. As for the swap of the (working) capital of a solely foreign-funded bank between RMB and foreign currencies, it shall apply for approval to the foreign exchange branch of the place where it is located in advance pursuant to the Circular of the State Administration of Foreign Exchange on the Banks' Own Capital and the Principles and Procedure for the Examination and Approval of Foreign Exchange Settlement and Sale of Financial Projects (Hui Fa [2004] No.61) and other related provisions. With respect to any bank that has annually accumulated (working) capital swapped between RMB and foreign currencies in excess of the equivalent amount of 500 million yuan (including 500 million yuan) shall apply to the foreign exchange branch for preliminary examination, and then it shall be submitted to the State Administration of Foreign Exchange for approval.

4.

Accounting items for foreign exchange settlement and sale

In accordance with the Interim Measures for the Administration of Foreign Exchange Settlement and Sale Operations by Designated Foreign Exchange Banks (Decree No. 4, 2002 of the People's Bank of China), a restructured solely foreign-funded bank shall establish independent accounting items for foreign exchange settlement and foreign exchange sale, it shall respectively treat foreign exchange settlement and sale for the clients, foreign exchange settlement and sale for self-purpose, sale of exceeding foreign exchange settlement and sale position within the system, as well as sale of exceeding foreign exchange settlement and sale position in the market, and carry out accounting treatment under the accounting item for foreign exchange settlement and that for foreign exchange sale separately. A solely foreign-funded bank that fails to meet the aforesaid requirements by the end of the preparatory work of restructuring shall comply with the requirements within two years as of its opening as approved by China Banking Regulatory Commission.

5.

Management on surplus quotas for short-term external debts and overseas guarantee

A restructured solely foreign-funded bank shall inherit the original foreign bank branch's quotas for short-term external debts and the quotas for offering financing guarantee for Chinese-invested enterprises outside the territory of China, and shall apply for archival filing to the State Administration of Foreign Exchange and the foreign exchange branch of the place where it is located. The registration of creditor's rights, debts and overseas guarantees handled by the original foreign bank branch shall be altered to be under the name of the solely foreign-funded bank accordingly. The bank shall apply for handling the registration alteration of overseas debts to the State Administration of Foreign Exchange once and for all. With respect to the registration alteration of overseas guarantee and domestic foreign exchange loans, the guarantor or the creditor bank shall apply for handling the alteration to the foreign exchange branch of the place where it is located once and for all.

Where an bank outside the territory of China sets up an solely foreign-funded bank and a book-keeping bank within the territory of China simultaneously, the surplus quotas that is for short-term external debts and for providing financing guarantee for Chinese-invested enterprises outside the territory of China may be used by both the solely foreign-funded bank and the book-keeping bank, and the solely foreign-funded bank shall assume the management duties accordingly.

When going through the registration alteration or filing of all the aforesaid businesses, an applicant shall submit a application in written form, document as approved for the opening thereof by China Banking Regulatory Commission, the related documents as approved for its qualification for carrying out such business by the State Administration for Foreign Exchange and other documents as required by the State Administration for Foreign Exchange. All foreign exchange branches shall simplify the procedures for approving the registration alteration.

As of the receipt of this Circular, all foreign exchange branches shall transmit it to the sub-bureaus and foreign-funded banks within their respective jurisdictions. In case of any problem in the implementation of this Circular, please timely feed it back to the State Administration of Foreign Exchange.

Tel:

Department of Balance of Payments: 010гн68402464, 68402311;

Fax: 010гн68402315, 68402303

Capital Account Management Department: 010гн68402247, 68402348;

Fax: 010гн68402208, 68402349

The State Administration of Foreign Exchange

March 20, 2007