Laws of the People's Republic of China

The State Administration of Foreign Exchange

Circular of the State Administration of Foreign Exchange (SAFE) on Reforming the Administrative Mode of Sales of Foreign Exchange Equity Capital by Enterprises with Foreign Investment

HuiFa [2002] No.59

June 17, 2002

Branches and administration offices of the SAFE in all provinces, autonomous regions, and municipalities directly under the Central Government, and branches of the SAFE in Shenzhen, Dalian, Qingdao, Xiamen and Ningbo:

In order to further improve the environment of foreign investment, enhance the supervisory efficiency of sales of foreign exchange equity capital of enterprises with foreign investment, and facilitate the treasury management of enterprises with foreign investment, the SAFE has decided to reform the administrative mode of sales of foreign exchange equity capital of enterprises with foreign investment throughout the country on the basis of the experimental experience. To ensure the smooth implementation of this reform, a circular on relevant issues is given hereunder:

1.

The administrative reform of sales of foreign exchange equity capital of enterprises with foreign investment refers to replacing the administrative mode of case-by-case approval by branches or administration offices of the SAFE (hereinafter referred to as SAFE offices) and of banks going through relevant formalities upon the approval certificate of SAFE offices, with immediate verification and handling by authorized banks. In other words, SAFE offices authorize qualified banks to approve the sales of foreign exchange equity capital of enterprises with foreign investment. Authorized banks are responsible for verification, statistical monitor and reporting within the limits of their authority. SAFE offices exercise indirect supervision through authorized banks on the sales of foreign exchange equity capital of enterprises with foreign investment.

2.

Foreign exchange equity capital of enterprises with foreign investment refers to foreign exchange deposits in enterprises with foreign investment' paid-in legal capital accounts whose balance ceiling have been set by SAFE offices. Sales of foreign exchange deposited in other capital accounts shall still be verified and approved by SAFE offices concerned.

3.

A bank satisfying the following requirements may apply for the authorization at the SAFE office in its locality:

(1)

Having the business license of foreign exchange sales and purchases, and having no significant illegal records in foreign exchange sales and purchases for capital account transactions in the latest three years;

(2)

Having perfect controlling measures on the administration of balance ceiling of paid-in legal capital accounts of enterprises with foreign investment;

(3)

Having perfect internal control system for the administration of sales of foreign exchange equity capital by enterprises with foreign investment;

(4)

Having a sound system of statistical monitoring and early warning to ensure that the data of sales of foreign exchange equity capital and abnormal cases can be timely reported to the SAFE office concerned.

4.

When applying for the authorization, the bank shall submit the following documents to the SAFE office concerned:

(1)

A written application (including a statement on its foreign exchange business under capital account and compliance with legal provisions in the latest three years);

(2)

License of Financial Business (photocopy);

(3)

Internal control system of crediting equity capital inflow into account and of purchase of foreign exchange. The internal control system shall include the following contents:

a.

Operational procedures for crediting equity capital inflow and purchase of foreign exchange;

b.

Measures for controlling the balance ceiling of paid-in legal capital account;

c.

System of cross-check and graded examination over crediting equity capital inflow and purchase of foreign exchange;

d.

Statistical reporting system of crediting equity capital inflow and purchase of foreign exchange;

(4)

Curricula vitae of the persons to do that business;

(5)

Other documents required by the SAFE office.

5.

SAFE offices are in charge of examining and approving banks' application for authorization under their jurisdiction. They shall examine such application item by item to see whether the applicant satisfies all the requirements, authorize qualified banks to examine and approve sales of foreign exchange equity capital by enterprises with foreign investment, and publish a name list of authorized banks periodically.

6.

Authorized banks shall go through the formalities of crediting equity capital inflows and sales of foreign exchange equity capital for normal expenditures of investment projects in strict accordance with relevant regulations of foreign exchange administration and the Operational Procedures on Sales of Foreign Exchange Equity Capital (see Attachment 1). Credited foreign exchange inflows shall be derived from the categories of income prescribed by the SAFE office. Accumulative credits cannot exceed the balance ceiling of the paid-in legal capital account set by the SAFE office. Renminbi from the sales of foreign exchange equity capital can only be used for normal productive and operational cost of investment projects.

7.

Where the SAFE office has introduced the Management Information System of Foreign Exchange Accounts (the MIS), authorized banks shall transmit the original data of credits and sales to the SAFE office on the next working day. Where the SAFE office has not introduced the MIS, authorized banks shall submit to the SAFE office the Statistical Statement on Sales of Foreign Exchange Equity Capital by Enterprises with Foreign Investment (see Attachment 2) within the first 5 working days of every month. Authorized banks shall fax the Statement of Large-sum Sales of Foreign Exchange Equity Capital by Enterprises with Foreign Investment (see Attachment 3) to the local SAFE office on the next working day for a single sale of more than US$1 million or accumulative sales of more than US$1 million by an enterprise in a single day. Any abnormal case related to the business in question shall be reported to the local SAFE office in time.

8.

SAFE offices shall strengthen the supervision over authorized banks, urge them to report data, statements and other materials on time, analyze the statistical data carefully, make spot checks over authorized banks occasionally, investigate abnormal cases and report them to the upper level without delay, and correct or deal with actions against rules in time. All SAFE offices shall make one or two on-the-spot inspection biannually on authorized banks to have full knowledge of the sales of equity capital by enterprises with foreign investment, and check the compliance with legal provisions and the execution of internal control system of authorized banks. All SAFE branches and exchange administration offices shall submit to the SAFE a report on sales of foreign exchange equity capital by enterprises with foreign investment and a Quarterly Statement of Sales of Foreign Exchange Equity Capital by Enterprises with Foreign Investment (see Attachment 4) within the first 15 working days of each quarter.

9.

If an authorized bank fails to fulfill its duties in the examination of sales of foreign exchange equity capital by enterprises with foreign investment and related statistics and reporting as required, or has made serious mistakes in controlling the balance ceiling of the paid-in legal capital account, the SAFE office may suspend its qualification for three months in addition to giving it penalty in accordance with relevant foreign exchange regulations. If the bank has corrected the mistakes in these three months, the SAFE office may resume its authorization. If the illegal practice is especially serious, or the bank fails to correct its mistakes in these three months, the SAFE office may deprive the bank of its qualification.

10.

To ensure the smooth implementation of the reform, all SAFE offices shall make the following preparations:

(1)

Formulate a Detailed Rules on Examination by Authorized Banks over Sales of Foreign Exchange Equity Capital by enterprises with foreign investment in the light of the local conditions, and organize their implementation after reporting to the SAFE for record.

(2)

Organize propaganda and training on the reform and policies on foreign exchange administration related to foreign investment.

(3)

Make a thorough check on the paid-in legal capital accounts of enterprises with foreign investment while authorizing the banks to see whether the banks have opened paid-in legal capital accounts without authorization, credited more foreign exchange inflows beyond the balance ceiling of the account prescribed by the SAFE office, or bought foreign exchange equity capital without authorization. Problems found in the check shall be dealt with according to relevant laws and regulations.

(4)

Check and confirm the basic business data reported by the banks proposed to be authorized. Firstly, check the account numbers and balance ceilings of the accounts by comparing one by one with the data in the approval certificates of the SAFE office and the information system of foreign exchange administration for enterprises with foreign investment. Secondly, check the accumulative credits and debits and breakdowns (i.e., accumulative credits: remittance from overseas, transfers from domestic accounts; accumulative debits: remittance to overseas, transfers to domestic accounts, sales) of each account dating from the opening of the account to the proposed date of authorization. These data are regarded as the initial data of the paid-in legal capital accounts. After the authorization, these data will be the base for future changes in the paid-in legal capital accounts.

11.

This circular shall enter into force as of July 1, 2002. Any problems encountered during the implementation shall be reported to the Capital Account Management Department of the SAFE.

Attachment:

1.Operational Procedures on Sales of Foreign Exchange Equity Capital by Enterprises with Foreign Investment

2.Statistical Statement on Sales of Foreign Exchange Equity Capital by Enterprises with Foreign Investment (omitted)

3.Statement of Large-sum Sales of Foreign Exchange Equity Capital by Enterprises with Foreign Investment (omitted)

4.Quarterly Statement of Sales of Foreign Exchange Equity Capital by Enterprises with Foreign Investment (omitted)

Attachment 1:Operational Procedures on Sales of Foreign Exchange Equity Capital by Enterprises with Foreign Investmenthtm/e01409.htm

กก