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CIRCULAR OF THE STATE COUNCIL FOR APPROVING AND TRANSMITTING THE REPORT SUBMITTED BY THE STATE PLANNING COMMISSION, THE STATE IMPORT AND EXPORT COMMISSION AND OTHER DEPARTMENTS ON IMPROVING ADMINISTRATION OF FOREIGN EXCHANGE CERTIFICATES

    The State Council has approved the "Report on Improving the Administration
of Foreign Exchange Certificates "submitted by the State Planning Commission,
the State Import and Export Commission and other departments and hereby
transmits it to you and requests you to organize the departments concerned for
the earnest implementation thereof.

    The work to issue foreign exchange certificates (hereinafter referred to
as FECs) has been fruitful and has been done with good intention. But owing to
lack of experience, errors and shortcoming have surfaced and new problems have
arisen. The State Council has therefore enjoined the departments concerned to
form a special group which shall undertake serious investigations and study,
widely solicit opinions, carry out repeated comparisons and analyses, and
explore ways to improve it or work out a better solution. As this work is very
complicated, its good performance or otherwise will have a direct effect on
the reputation of the country domestically and internationally. It must
therefore be treated seriously and cautiously. Therefore, before any new
solutions are available, the existing measures with respect to FECs shall
continue to be implemented. All the provinces, municipalities directly under
the Central Government, and autonomous regions must strengthen leadership over
the work and all departments concerned must give full cooperation. Great
efforts should be exerted to do a good job of the issuance of FECs, the
withdrawal of FECs from circulation, the circulation of FECs, and the
administration of FECs, as well as of the ideological education so that the
adverse effects of the unfavorable factors will be minimized.
REPORTS ON IMPROVING THE ADMINISTRATION OF FOREIGN EXCHANGE CERTIFICATES

    With a view to eliminating the circulation of foreign currencies in the
domestic market, preventing the illegal procurement of foreign exchange and
purchase of goods in short supply, and facilitating the calculation of the
percentage of foreign exchange retained by units which earn foreign exchange,
foreign exchange certificates denominated in Renminbi (hereinafter  referred
to as FECs) have been issued since April 1, 1980. As the exchange of foreign
currencies and the administration thereof is very complicated and the existing
measures have been implemented for one year and two months, in order to solve
the problem properly and satisfactorily, it is imperative to undertake
investigation and study and, on the basis of this, have it widely discussed
and repeatedly compared and analysed, so as to work out better solutions to be
submitted to the State Council for examination and approval. We are of the
opinion - and this is also the opinion shared by other departments as well as
by the four provinces or municipalities directly under the Central Government,
namely Beijing, Shanghai, Guangdong, and Fujian - that before any new and
better solutions are found, it is necessary to reaffirm the legality and
solemnity of FECs and, in the light of the existing measures, improve the
administration, stop up the loopholes, overcome the problems that have arisen
obviously as a result of poor follow-up work, and do everything possible to
minimize the adverse effects of the unfavourable factors in the circulation of
FECs. We would, therefore, like to recommend the following measures:

    1. Improving the administration with respect to FECs. We would suggest
that the people's governments of the various provinces, municipalities
directly under the Central Government, and autonomous regions should make a
serious inspection over the work with respect to the issue of FECs, set up an
institutional framework for the regular inspection thereof, and enjoin the
relevant departments under their jurisdiction to exercise administration, to
discover problems and to deal with them promptly, in strict accordance with
the prescribed measures, i.e. , "The Interim Measures of the Bank of China
for the Administration of FECs" and other relevant provisions.

    2. Ensuring the equivalence in value of FECs to Renminbi in terms of
prices. In supplying commodities to foreigners, all units that are designated
to accept FECs, such as friendship stores, foreign trade centers, and stores
at hotels, restaurants, dining-hall, airports, train stations, and wharves,
shall price their goods according to the prices approved by the departments
for the control of commodity prices. The price thus set for a particular
item shall in principle be in line with the prevailing retail prices on the
market. Prices shall be fixed in accordance with the qualities of the goods,
i.e., higher prices for superer qualities and the same price for the same
quality. It is not allowed to reduce the sales prices without authorization
just for the purpose of obtaining more FECs. In the two provinces of Guangdong
and Fujian, which are adjacent to Hong Kong and Macao, if it is really
necessary to price some particular goods at levels lower than the prevailing
prices on the retail market, the difference in price shall not exceed 20
percent (which shall be expressed by adding on the side of the price tags the
remark "A temporary 20 percent discount"). At present in the two provinces of
Guangdong and Fujian, with respect to some goods supplied to foreigners, if
the difference in prices is relatively too great and the range of the
varieties involved is too wide, it is imperative to conduct reexamination and
exercise strict control thereon and the measure shall be subject to the
approval of the respective provincial people's governments for their
enforcement, so as to improve the administration thereof. Stricter control
shall be exercised in other regions and the practice of having two different
prices, shall, in principle, not be permitted. Friendship stores, foreign
trade centers, foreign vessels supplying companies, and Overseas Chinese
stores should co-ordinate their business operations and do a good job of their
work in accordance with their respective business objectives. At the same
time, it is imperative to increase Customs duties for dutiable luggage and
articles carried into China by entry passengers and for some imported goods,
by adjusting the import duty rates of such articles as TV sets and recorders
so that their prices after duty shall only be slightly lower than their sales
prices in the domestic markets (the difference between them shall not exceed
20 percent.), thus ensuring the enforcement of the principle of one price, so
that profiteering in FECs will no longer be so attractive. The specific plan
for the adjustments shall be worked out by the General Administration of
Customs in conjunction with the State Import & Export Commission, the Ministry
of Finance, the Ministry of Foreign Trade, and the Office for Overseas Chinese
Affairs upon careful studies and shall be submitted to the State Council for
approval before they are issued and effected.

    3. Improving the system to withdraw FECs from circulation. People's Banks
and Agricultural Banks in various localities shall assit the Bank of China in
handling the business operations in withdrawing FECs from circulation. All
units that have receipts in FECs shall apply to the Bank of China in their
localities or the People's Banks or Agricultural Banks nearby for verifying
the quota of reserves in FECs to be used as small change to customers. With
the exception of this, the amount that exceeds the quota shall be treated in
the same way as cash in Renminbi and turned in to the bank on the very day of
receipt so that it will be withdrawn from circulation or deposited, and it is
not allowed to retain it or spend it. No units that are not designated to
accept FECs shall be granted any percentage of retained foreign exchange.
Individuals who possess FECs shall go to the bank to have them changed to
Renminbi and shall not be permitted to use FECs for shopping. The Bank of
China should enlarge its personnel and set up more branches for foreign
currency exchange. It may also entrust the People's Banks, Agricultural Banks
or units which meet the required conditions for accepting FECs to set up
agencies for such exchange to convenience foreign guests and overseas
Chinese. The specific rules for the implementation of the above shall be
formulated and promulgated by the People's Bank of China, the Bank of China
and the State Administration for Foreign Exchange Control.

    4. Limiting the scope of the use of FECs. All units that are or are not
designated to accept FECs shall act in strict accordance with the regulatory
system for the administration of FECs. Production departments and commercial
departments shall regard it as one of their important tasks to supply goods to
departments that are responsible for supplying goods to customers from abroad,
and ensure that their demands are most possibly satisfied. With respect to
commodities supplied by the supplier departments to those departments that are
responsible for supplying commodities to customers from abroad except those
commodities that are handled by foreign trade departments for export purposes
are payable by FECs, no commodities for domestic sales may be priced or
settled in FECs. No transactions in FECs or the exchange thereof, or the
payment in FECs for purchase of goods between units or departments shall be
permitted. The settlement of payment for goods priced in FECs shall be
effected through the banks. With respect to goods for domestic sales and yet
are priced in FECs, the banks shall refuse to handle the transfer of accounts
or the settlement related to the transactions thereof.

    5. Controlling the range of categories of people who may use FECs. FECs
may only be used by foreign guests, overseas Chinese, and compatriots from
Hong Kong, Macao and Taiwan who have entered the mainland of China and by
domestic residents (including seamen working on ocean-going vessels) holding a
bank certificate. Departments supplying commodities to tourists should
exercise strict control over the people to whom the commodities are supplied.
Staff members in these departments shall be strictly prohibited from taking
advantage of their positions or jobs to illegally exchange Renminbi for FECs.
Domestic residents shall be strictly prohibited from illegitimately buying up
commodities (The stipulation that, just on the strength of a letter of
introduction from the unit where one works, one may buy commodities from
stores or special counters of stores that are designated to accept FECs shall
be abolished.). With respect to certain commodities that are in short supply,
a limited quantity of purchase should be prescribed.If anyone is found to have
illegitimately bought up commodities that are in short supply, investigations
shall be made into the supply source(s) of and the persons involved shall be
dealt with in light of the seriousness of the case. (The penalties may, for
example, include compulsory exchange of FECs for Renminbi, imposition of a
fine, or confiscation of the illegitimately purchased commodities.)

    6. Improving the administration of the market. We would suggest that
administrative department for industry and commerce at all levels shall, in
full co-operation with such relevant departments as the public security
bureaus, the departments for control of commodity prices, the Customs and the
branch offices of the State Administration for foreign Exchange Control,
inspect regularly the supply prices of the stores and how FECs are being used,
resolutely ban black marketeering for FECs, and crack down on profiteering in
FECs. Offenders shall be given economic and legal sanctions (such as imposing
a fine on them, confiscating their illegal gains, suspending their
qualification to retain a certain amount of foreign exchange, or deducting a
percentage from their retained foreign exchange).

    It is proposed that the six measures mentioned above be effective as of
July 15, 1981. If they are practicable we would request your approval and
transmission thereof to all the localities and relevant departments for study
and implementation.