China Further Standardizes Cross-border RMB Settlement Operations

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Aug. 4 – Roughly two years after China launched its pilot program for using RMB settlements during cross-border trading transactions and overseas investments, the People’s Bank of China (PBC) released a new circular on June 3 to clarify agent banks’ authority limits and operational details for both enterprises and banks.

The “Circular to Clarify Issues Related to Cross-border RMB Settlement Business (yinfa [2011] No.145)” stated the following clarifications:

  • Banks can handle cross-border RMB settlements for cross-border trades, other ordinary items, overseas direct investments and foreign loans through their mainland agents, RMB business clearing banks in Hong Kong and Macau, or RMB bank settlement accounts set up by foreign institutions in China. All the banks involved in the business shall upload complete RMB cross-border payment and receipt information to the PBC’s RMB Cross-border Payment Management Information System (RCPMIS).
  • The RMB accounts banks set up for foreign banks based on bilateral local currency settlement agreements between China and other countries shall be converted to RMB trade current accounts within the next three months. Accounts that are not converted within the provided time limit will not be able to be used for cross border RMB settlements.
  • Domestic importers are not allowed to convert RMB directly into foreign currencies offshore (Hong Kong inclusive) for importation settlement. Domestic banks are not allowed to offer settlement services in such case, either.
  • External RMB liabilities, banks’ RMB guarantee letters, and foreign institutions’ RMB bank settlement account balances are not included in the State Administration of Foreign Exchange’s current external debt management.
  • Entrepot trades can be settled with RMB, but relevant domestic clearing banks shall inspect the trade authenticity when dealing with such settlements.
  • Banks can handle refund/indemnity payment/receipt businesses for enterprises after reviewing necessary paperwork, but the refund or indemnity shall not exceed the amount of the original payment.
  • Enterprises shall provide related information, such as the customs declaration form number and declared amount, to banks if they use foreign currency when declaring to relevant customs departments but use RMB when settling the transactions.
  • When signing an RMB settlement agent contract with a domestic agent bank, the involved foreign bank shall at least commit to the following obligations:
    a. The involved foreign bank can only provide RMB buying or selling services to trade programs where a domestic enterprise is the payer or payee;
    b. The involved foreign bank can only provide RMB buying or selling services to an enterprise with authentic needs for trade payments within the coming three months;
    c. An enterprise that has sold or bought RMB from a bank overseas shall complete the related trade payments through the same bank;
    d. The involved foreign bank shall track the capital flows of its clients who have bought or sold RMB, and strengthen reviews on large transactions.
  • RMB settlements for foreign direct investments is still under experimentation and currently foreign investors cannot use RMB settlement for investments into “restricted areas.” Foreign investors who want to use their legally obtained RMB to conduct other direct investments in China shall apply for an approval from the PBC.

While the practice of cross-border RMB settlements is a major step to push the Chinese local currency for further internationalization, Circular No.145 will function as an important guideline not only to standardize day-to-day operations, but also to prevent the inflow of speculative capital and the abuse of the new policy.

Dezan Shira & Associates is a boutique professional services firm providing foreign direct investment business advisory, tax, accounting, payroll and due diligence services for multinational clients in China, Hong Kong, Vietnam and India. For more information on cross-border settlements, please email info@dezshira.com, visit www.dezshira.com, or download the firm’s brochure here.

This article is also available on Dezan Shira & Associates’ online business resource library. To view the article, and other regulatory updates, please click here.

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