SAFE Issues New Regulations to Further Control Foreign Exchange Movement
By Helen Liu
July 25 – Due to RMB appreciation as well as the large amounts of hot money illegally flowing into China, the State Administration of Foreign Exchange has released new regulations to further control the movement of foreign exchange. The regulations, released on July 2, 2008, will seriously affect businesses cash flow in China. To put it simply, companies must now make a profit in China or else the face the danger of not having enough funds to run their business.
The key points of the regulations are summarized below.
Receiving funds from overseas
1. Each company must open a “holding bank account” to receive all funds from overseas. Any transferring of funds out from this account must be approved by the bank.
2. If the funds are for goods which have previously been shipped overseas, the bank will cross check the internet to further confirm whether this amount agrees with export value shown on the export declaration form. For example, if a company exports finished goods worth US$50,000 overseas in January, but receives US$80,000 in March, only the US$50,000 can be converted into RMB, the remaining US$30,000 will be kept in a “holding bank account,” and can’t be used to make any payments. Only when a future shipment’s value can cover the US$30,000 will the money be able to be converted into RMB.
3. If a company receives prepayment from overseas for goods that will be delivered overseas in the following months, the company must go to SAFE to apply for this amount as prepayment in advance. SAFE will ratify the maximum quotas for each company, calculated as following:
The maximum prepayment collection quota = total foreign exchange collection of last year X 5 percent – prepayment which can’t be verified yet.
For example, if the maximum quota as prepayment is US$50,000, but a company receives US$80,000 in March, only US$50,000 can be converted into RMB, the remaining US$30,000 will be kept in a “holding bank account,” and can’t be used to make any payments.
Also the company should report to SAFE which day the goods will be shipped out to cover the prepayment amount. If the actual shipping date is over 90 days as from the estimating date, the company will be fined by SAFE.
Starting from October 1, 2008, companies must report any overseas payment to SAFE with a payment term over 90 days as from the date shown on the import declaration form—no matter the amount—or they will not be allowed to arrange the overseas payment. The accumulated reported overpayment amount in one calendar year can’t exceed 10 percent of total importation amount of the last year.
Helen Liu is a senior manager in the corporate accounting services division of Dezan Shira & Associates. For more information regarding these new regulations, please contact firstname.lastname@example.org. Please contact email@example.com for copies of the new SAFE regulations (in Chinese).