Laws of the People's Republic of China

REGULATIONS OF FINANCIAL INSTITUTIONS ON SPOT
AND FORWARD FOREIGN CURRENCY TRANSACTIONS
ON BEHALF OF CLIENTS

  (Approved by the State Council on December 13, 1987)
(Issued by the State Administration of Exchange
Control on March 5, 1988)

(Because the government no longer trades currency on these
"spot markets," this law no longer remain in effect) 

 

SUBJECT: FINANCE & BANKING

ISSUING-DEPT: STATE ADMINISTRATION OF EXCHANGE CONTROL

ISSUE-DATE: 03/05/1988

IMPLEMENT-DATE: 03/05/1988

LENGTH: 1087 words

TEXT:

[Article 1] This set of Regulations is formulated to minimize the risks caused by exchange rate fluctuations, help stabilize the cost of import and export business (including the foreign-related economic activities), and practice spot and forward foreign currency transactions.

[Article 2] The Bank of China is allowed to accept entrustment of departments, organizations, enterprises, institutions and other units (hereinafter referred to as clients) inside China to act as their agent for spot and forward foreign currency transactions.

Other financial institutions must have the approval of the State Administration of Exchange (SAEC) in order to practice the above-mentioned business.

[Article 3] The foreign currency transactions mentioned in this set of Regulations refer to the buying and selling of those currencies that are convertible.

[Article 4] Clients must have the SAEC approval or the approval of a SAEC sub-bureau when they want to entrust the Bank of China or other financial institutions authorized by SAEC (hereinafter referred to as designated financial institutions) to be their agent for spot and forward foreign currency transactions, except the two following cases:

(1) Specialized banks and financial institutions which have been approved to engage in foreign exchange business and foreign investment enterprises may freely buy and sell foreign currencies under the arrangement of spot of forward foreign currency transaction in the international financial market if the foreign currencies belong to them or are raised by them from other sources.

(2) Clients other than the above-mentioned ones may, by presenting their signed foreign trade contracts or other economic agreements, entrust a designated financial institution to be their agent to buy and sell foreign exchange through spot and forward foreign currency transactions. They can sell the foreign exchange which they have borrowed locally or from outside China and the foreign exchange grants which they are permitted to accept provided all these funds have been approved and deposited with a financial institution in China.

[Article 5] All spot and forward foreign currency transactions must be conducted under the principle of voluntary participation.

[Article 6] Designated financial institutions should engage in spot and forward foreign currency transactions for their clients according to their signed foreign trade contracts or other economic agreements. This does not apply to those specialized financial institutions which have been approved to engage in foreign exchange business and foreign investment enterprises.

[Article 7] Designated financial instituions may accept margin (mortgage used to guarantee fulfillment of contracts) from their clients to carry out spot or forward foreign currency transactions. Margin may either be in the form of a foreign exchange quota or foreign exchange cash deposit.

Those who mortgage their foreign exchange quota for a foreign currency transaction must provide at the same time a letter of guarantee issued by the bank at which they have opened an account pledging fulfillment of their contracts with an equivalent amount of money which is denominated in the renminbi currency.

The US dollar is the only accepted currency for those who want to pay the cash deposit for the transaction by converting their foreign exchange quota into cash.

[Article 8] In order to conduct forward foreign currency transaction, a client should, in accordance with Article 6, submit a formal application together with the duplicates of its foreign trade contract or economic agreement to the local exchange control department. Subject to examination and approval, the client may entrust a designated financial institution to carry out forward foreign currency purchase by presenting the approval certificate issued by the local exchange control department.

[Article 9] Clients who want to pay their deposit for the margin by converting their foreign exchange quota into cash shall have their Foreign Exchange Quota Payment Notice signed and stamped by the exchange control department. The said notice should specify the issuance date and the amount deducted from the foreign exchange quota. Clients from the same city of the exchange quota department are required to convert their foreign exchange quota into US dollars and deposit the money into the "Special Account for Margin" of a designated financial institution within three days from the issuance date of notice (the time allowed for the conversion for out-of-city clients is seven working days).

The exchange control departments shall transfer the amount of foreign exchange quota which the clients have mortgaged for their spot or forward foreign currency transactions from the clients' accounts into the foreign exchange quota account of a designated financial institution.

Only foreign exchange quota is accepted as mortgage for those clients who want to do option business through a designated financial institution. However, they may use cash converted from their quota to pay for the option premium at the conclusion of the transaction.

[Article 10] A designated financial insitution which handles spot and forward foreign currency transactions for its clients shall settle the accounts with its clients through the "Special Account for Margin" if the clients pay the deposit for their forward foreign currency transactions by converting their foreign excange quota into cash in advance. However, the designated financial institution shall settle the accounts through the "Deposited Margin Account" if the clients pay the deposit for forward foreign currency transactions from their own case.

[Article 11] If the date to pay for the imports is later than the settlement date of a certain foreign currency transaction, the designated financial institution shall redeposit the available money into the "Special Account for Margin" temporarily if the client of the said transaction paid the deposit by converting its foreign exchange quota into cash. The designated financial institution shall redeposit the available money into the "Deposited Margin Account" if the client paid the deposit from its own cash.

[Article 12] The authority to interpret the present Regulations resides in the State Administration of Exchange Control.

[Article 13] The present Regulations enter into force as from the date of promulgation.