Jan. 5 – Due to the significant transformation undergone in Chinese economy, the State Council of the People’s Republic of China issued the new “Regulations on the Administration of Foreign Exchange of China” effective August 1, 2008. Under these new regulations, more emphasis is placed on the administration of inflow and outflow of foreign exchange.

To facilitate implementation of the aforementioned Forex regulations, the State Administration of Foreign Exchange (SAFE) recently issued a supplemental circular, Huifa [2008] No. 60, introducing a new mechanism to track the inflow of foreign exchange through trade account items into China.

1. Legal entities, including wholly foreign-owned enterprises (WFOEs) and representative offices (ROs), that previously only had an RMB Basic Account in China are now required to open a specific Foreign Currency (FCY) Settlement Account for collecting proceeds and the conversion of such forex income into RMB. For entities that only have small or sporadic forex inflow and outflow, forex collections and payments can be proceed through the banks’ miscellaneous conversion account on behalf of these entities.
2. Based on dialogue with SAFE and the Industrial and Commercial Bank of China (ICBC), the criteria of small or sporadic forex inflow and outflow is as follows:
   • The total amount of forex inflow and outflow is less than US$100 per time
   • No more than twice per year
3. The formalities and procedures of opening a special FCY Settlement Account for entities are listed as below:
   • Approval from SAFE to open an FCY Settlement Account (for RO and branch offices only). Since a bank will not open an FCY Settlement Account without SAFE’s approval, entities need to prepare the following documents for SAFE:
     • Application letter
     • Business license (original and copy)
     • Forex IC card
     • Enterprise Code Certificate (original and copy)
     • Other documents required by SAFE
   • Documents are to be given to the bank only after SAFE approval. To inquire about the need documentation for the bank, please inquire with the official in-charge for the designated bank.
   • Please note: Based on our discussions with SAFE officials, wholly foreign-owned enterprises do not need to get prior approval from SAFE. The foreign company can directly submit an application to the designated bank to open an FCY Settlement Account.
4. Based on unofficial talks with ICBC officials, a new internal control mechanism system will be firstly established between the SAFE, banks and other Chinese government authorities such as the Ministry of Commerce, the State Administration of Industry and Commerce, tax and customs by in the coming months. The entities will be required to open FCY Settlement Account very soon after this system is in service. It is expected that more detailed implementation guidelines or circulars may be issued by SAFE and designated banks to cater for actual practices next month.

To ensure that incoming foreign currency is deposited in the correct bank account and to avoid an extended wait at SAFE and the bank when opening up an FCY Settlement Account after the deadline is announced, we suggest that all WFOEs and ROs prepare and apply to SAFE and bank now. For detailed information, contact SAFE and your corporate bank. For assistance with these procedures, please contact info@dezshira.com or visit www.dezshira.com to obtain contact information for the Dezan Shira & Associates office in your region.