Chapter

PEOPLE’S REPUBLIC OF CHINA

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
September 2004
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(Position as of May 31, 2004)
Status Under IMF Articles of Agreement
Article VIIIDate of acceptance: December 1, 1996.
Exchange Arrangement
CurrencyThe currency of the People’s Republic of China is the Chinese renminbi. The currency unit is the yuan.
Exchange rate structure ClassificationUnitary.
Conventional pegged arrangementThe exchange rate of the renminbi is determined in the interbank foreign exchange market. The State Administration of Foreign Exchange (SAFE) of the People’s Bank of China (PBC) announces a basic rate for the renminbi against the Hong Kong dollar, the U.S. dollar, the euro, and the yen, based on the weighted average exchange rate that prevailed in foreign exchange transactions on the previous day. In the interbank foreign exchange market, daily changes in the value of the renminbi against the U.S. dollar are limited to 0.3% on either side of the basic rate, as announced by the PBC. The daily movement of the renminbi against the Hong Kong dollar and the yen is limited to 1% on either side of the basic rate (daily movements beyond this limit must be reported).

The U.S. dollar spot exchange bid-offer rate between designated foreign exchange banks and their customers may not exceed 0.17% of the basic rate, and those for Hong Kong dollars, yen, and euros may not exceed 1% of the basic rate; under specific circumstances, these limits may be exceeded, subject to SAFE notification. Banks may set limits on the fluctuations of other currencies on their own, but the bid-offer spread may not exceed 0.5%. The selling rate for cash and the spot exchange rate must be the same for all currencies. The spot buying rate for Hong Kong dollars, Macau patacas (from March 10, 2003), and U.S. dollars may not exceed 0.75% of the mid-rate for the spot exchange bid-offer rate, and the spot buying rate for euros and yen must not exceed 1% of the mid-rate for the spot exchange bid-offer rate. The buying rate for other currencies in cash may not exceed 2.5% of the mid-rate for the spot exchange bid-offer rate.
Exchange taxNo.
Exchange subsidyNo.
Forward exchange marketForward exchange operations by the Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, and China Construction Bank are allowed with respect to current transactions, repayment of foreign exchange loans obtained abroad and registered with the SAFE, and other foreign exchange receipts and payments approved by the SAFE with a maximum maturity of 365 days.
Arrangements for Payments and Receipts
Prescription of currency requirementsThe currencies used in transactions are determined by the respective contracts. Effective October 1, 2003, specially designated border trading companies that carry out trade with neighboring countries may settle bills and clear remittances using the currency of the neighboring country, in addition to yuan and any convertible currencies.
Controls on the use of domestic currency
For current transactions and paymentsThe renminbi may be converted only for trading and tourism purposes. On November 19, 2003, the PBC and the Hong Kong Monetary Authority (HKMA) announced that the PBC would provide clearing arrangements for banks in Hong Kong SAR that provide personal renminbi deposits, exchange services, bank cards, and remittance services. Effective

January 18, 2004, mainland residents may use personal renminbi-denominated bank cards issued by mainland banks to pay for tourism expenses in Hong Kong SAR and for withdrawing small sums in Hong Kong. Effective February 25, 2004, participating Hong Kong banks may open renminbi-denominated accounts, accept renminbi deposits, provide exchange services between renminbi and Hong Kong dollars, and effect renminbi remittances for resident individuals and designated commercial customers in Hong Kong SAR.
Use of foreign exchange among residentsThe use of foreign exchange for pricing or settlement of transactions among residents is prohibited.
Payments arrangementsNo.
Administration of controlThe SAFE is responsible for foreign exchange administration, under the direction of the PBC.
International security restrictions
In accordance with IMF Executive Board Decision No. 144-(52/51)Measures have been taken to freeze the accounts and assets of listed individuals, groups, and organizations associated with terrorism. These measures were taken in accordance with the relevant UN Security Council resolutions.
In accordance with UN sanctionsYes.
Payments arrearsNo.
Controls on trade in gold (coins and/or bullion)Gold is subject to a system of centralized purchase and distribution. Mining companies must sell their gold to the PBC, and companies that use gold must buy it from the PBC.
Controls on domestic ownership and/or tradeApproval is required for enterprises to produce, process, or engage in the production, processing, sale, or resale of gold products. Possession of gold or silver by individuals is subject to state controls. No organization or individual may appraise or use gold or silver. Private trading is prohibited.
Controls on external tradeImports of gold require PBC approval. Gold may be imported by individuals for reasonable personal use only. Exports are subject to quota controls.
Controls on exports and imports of banknotes
On exports
Domestic currencyThe exportation of domestic currency is limited to Y 6,000.
Foreign currencyResidents and nonresidents are allowed to take their personal, legitimately held foreign currencies abroad, as follows: (1) except in special cases, residents may take foreign currencies in cash form up to US$10,000 or its equivalent abroad; (2) amounts exceeding US$10,000 may be taken abroad in the form of traveler’s checks or other payment certificates; (3) residents taking foreign currencies up to US$2,000 abroad do not need to apply for a License for Carrying Foreign Currencies Abroad (LCFCA) (on October 1, 2003, this was increased to US$5,000). For amounts exceeding US$5,000 (previously, US$2,000) but less than US$10,000 (previously, US$4,000), a bank-issued LCFCA is required, and for amounts exceeding US$10,000, the authenticity of the transaction must be verified by the SAFE after an LCFCA has been obtained; and (4) nonresidents taking foreign currencies up to US$5,000 abroad do not need an LCFCA, but for amounts exceeding US$5,000 but less than US$10,000, a bank-issued LCFCA is required, and for amounts of more than US$10,000, the authenticity of the transaction must be verified by the SAFE after an LCFCA has been obtained.
On imports
Domestic currencyResidents and nonresidents may import up to Y 6,000.
Foreign currencyResidents and nonresidents importing more than the equivalents of US$2,000 and US$5,000, respectively, must declare the amounts to customs. Effective October 1, 2003, the former limit was increased to US$5,000.
Resident Accounts
Foreign exchange accounts permittedAll domestic and foreign-funded enterprises approved by the governmental department concerned and that have foreign operating rights, or that have foreign exchange earnings from current transactions, may open current foreign exchange accounts. Foreign exchange funds in these accounts may be used for current account payments and authorized capital payments with the approval of the SAFE. Specified capital foreign exchange accounts may be used as a depository for capital account receipts. Natural persons may open foreign currency savings accounts with authorized banks. On September 1, 2003, the SAFE allowed domestic companies to retain foreign currency revenue from overseas contracted projects, overseas shipping and commissions and international bidding projects in foreign exchange accounts. Previously, up to 20% of their foreign exchange revenues (based on the previous year’s foreign exchange earnings) could be retained in temporary foreign exchange accounts.
Held domesticallyThese accounts are permitted, but approval is required.
Held abroadThese accounts are permitted, but approval is required.
Accounts in domestic currency held abroadn.a.
Accounts in domestic currency convertible into foreign currencyAgencies requiring foreign exchange may convert domestic currency into foreign currency at authorized banks by presenting valid proof and commercial documents when external payments are made.
Nonresident Accounts
Foreign exchange accounts permittedNonresident individuals staying in China for a short time may open foreign currency savings accounts.
Domestic currency accountsYes.
Convertible into foreign currencyYes.
Blocked accountsNo.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for imports
Advance payment requirementsFor advance payments, importers must present to the bank an import contract and other relevant documents regarding the settlement of payment obligations, including invoices and letters of guarantee. Effective October 23, 2003, the minimum amount for which guarantees are needed for purchases of foreign exchange from a foreign exchange dealer for advance import payments is the equivalent of US$200,000 (previously, US$30,000).
Advance import depositsThe regulations governing advance payment requirements apply.
Documentation requirements for release of foreign exchange for importsDocumentary evidence (including import contracts, import exchange payment verification forms, customs declarations, invoices, and shipping documents) is required for importers to purchase foreign exchange or to make payments from a foreign exchange account. If the imported product is subject to quota or other controls, an import permit must also be provided. If the product is subject to automatic registration, a completed automatic registration license must also be provided.
Import licenses and other nontariff measures
Positive listTo engage in foreign trade, all enterprises must obtain approval from the Foreign Trade Administration and register with the Administration for Industry and Commerce.
Negative listImports of all secondhand garments, poisons, narcotic drugs, foodstuffs, medicines, animals, and plants that are inconsistent with Chinese regulations are restricted or prohibited. In addition, the importation of the following items is prohibited: weapons; ammunition and explosives; manuscripts; printed and recorded materials; and films that are deemed to be detrimental to Chinese political, economic, cultural, or moral interests.
Open general licensesYes.
Licenses with quotasYes.
Other nontariff measuresAn agreement is in effect for agricultural cooperation with the United States, which sets resolutions on the quarantine of wheat, citrus fruit, and meat between the two countries.
Import taxes and/or tariffsThere are four categories of import tariffs: the MFN tariff rate, the treaty tariff rate, the preferential tariff rate, and the ordinary tariff rate. The MFN rate applies to imports from WTO member countries or from countries or regions that have established an MFN agreement with China. The treaty tariff rate applies to imports from parties that have concluded a regional trade agreement with a preferential tariff clause. The preferential tariff rate applies to imports from countries or regions that have signed a special preferential tariff agreement with China. The ordinary tariff rate applies to all other imports.
State import monopolyThe following products are subject to state trading: wheat, maize, rice, crude and refined oil, vegetable oil, cotton, and tobacco and tobacco products. Imports of acrylic fibers, natural rubber, plywood, steel products, and wool are subject to designated trading.
Exports and Export Proceeds
Repatriation requirementsYes.
Surrender requirementsEffective May 1, 2004, all enterprises authorized to conduct current account transactions may retain foreign exchange equivalent to 30% or 50% (previously, 20%) of their current account foreign exchange earnings in the previous year; enterprises that had no current foreign exchange income may retain up to the equivalent of US$100,000; the remaining amounts must be surrendered to authorized banks.

Also effective this date, qualifying enterprises are defined as those that are authorized by a competent department on the basis of having registered foreign operating rights, current foreign exchange income, or foreign exchange income for a designated purpose, such as donations, aid, or international postal remittances. Previously, these were defined as (1) those that have annual export foreign exchange earnings in excess of the equivalent of US$2 million and foreign exchange expenditures in excess of US$200,000; (2) foreign trading companies whose annual export-import volume exceeds US$30 million, whose capital exceeds Y 10 million, whose export foreign exchange receipt rates are at least 95%, and whose document presentation rates are at least 80%; and (3) production-type enterprises authorized to engage in export-import operations whose annual export-import volume and capital exceed US$10 million and Y 30 million, respectively.
Financing requirementsNo.
Documentation requirementsNo.
Export licenses
With quotasProduct quotas are allocated through a bidding system.
Export taxesExport duties are levied on 36 products.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersNontrade payments by foreign-funded enterprises (FFEs) and domestic-funded enterprises (DFEs) are subject to the same provisions. Resident individuals are subject to different regulations. Effective March 6, 2003, where not otherwise regulated, transactions up to the equivalent of US$50,000 may be effected by designated foreign exchange banks; transactions up to US$500,000 require authorization by a local foreign exchange bureau; and those exceeding US$500,000 require SAFE authorization. In the case of multinational corporations, effective July 30, 2003, invisible transfers are performed directly on the basis of documentation at designated foreign exchange banks.
Trade-related payments
Quantitative limitsThe payment of commissions for export business is allowed in accordance with export contracts and commission contracts. Prior approval of the SAFE is required for contracts with an unstated commission exceeding 2% of the contract amount and a stated commission exceeding 5% of the contract amount and with commissions exceeding the equivalent of US$10,000. All commissions under these limits may be settled directly through a bank.
Indicative limits/bona fide testProof of transaction is required for all trade-related payments. SAFE approval is required for amounts exceeding the prescribed limits for commissions. Traders may pay directly at authorized banks by presenting valid proof and commercial bills.
Investment-related payments
Indicative limits/bona fide testYes.
Payments for travelThe foreign exchange requirements for governmental departments, public service units, and enterprises are provided according to the limits prescribed by the MOF. There are no restrictions on payments for travel of staff of FFEs.

For residents traveling abroad as members of a tour group, overseas group fees may be contracted and remitted abroad by touring agencies but cash needs are to be purchased by the individuals.
Prior approvalVerification and approval of the SAFE are required for amounts exceeding the specified limits.
Quantitative limitsTravel by staff of other institutions is subject to the following limits: (1) if travel is for six months or less, the limit is the equivalent of US$3,000; (2) if travel is for a period exceeding six months, the limit is US$5,000. Amounts exceeding these limits are allowed, pending retroactive approval upon their return to China.

For border travel, the limit is the equivalent of US$100 a person a day, up to a maximum of US$500 a person a trip.
Indicative limits/bona fide testYes.
Personal payments
Quantitative limitsResidents may purchase foreign exchange up to the equivalent of US$3,000 for payments of medicines and medical equipment abroad; for larger amounts, they must submit appropriate documentation to the SAFE for verification.

Effective October 1, 2003, persons paying for their own studies abroad, regardless of level, are allowed a one-time purchase of foreign exchange of up to the equivalent of US$20,000. Previously, the one-time purchase was permitted only for studies at the college level or higher. Larger amounts require SAFE verification.
Indicative limits/bona fide testYes.
Foreign workers’ wages
Indicative limits/bona fide testProof of earnings and tax clearance are required.
Other payments
Indicative limits/bona fide testFor transfers in payment of subscriptions and membership fees, a proof of transaction is required.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsYes.
Surrender requirementsForeign grants and financial aid received by domestic establishments, and foreign exchange earmarked for external payments as prescribed by aid contracts, may be maintained with the approval of the SAFE. Foreign embassies and consulates, representative offices of international organizations, affiliates of foreign juridical persons, resident persons, and foreign expatriates may retain their foreign exchange. Corporate enterprises may retain foreign exchange earnings from current account transactions, provided the retained amount does not exceed the maximum limit allowed by the SAFE. Balances, if any, must be sold to authorized banks. The purchase and sale of foreign exchange by corporate enterprises are included in the banking surrender system.

Effective April 1, 2004, surrender of foreign exchange by individual residents exceeding the equivalent of US$50,000 (previously, US$20,000) requires submission of documentation to the local SAFE for verification.
Restrictions on use of fundsYes.
Capital Transactions
Controls on capital transactionsYes.
Controls on capital and money market instruments
On capital market securities
Shares or other securities of a participating nature
Purchase locally by nonresidentsQualified foreign institutional investors (QFIIs) may invest domestically in A shares, subject to the following restrictions: (1) a QFII must have minimum experience in the industry (5 years for fund manager; 30 years for insurance companies) and the equivalent of at least US$10 billion in assets under management in the latest financial year and must be clear of any major irregularities in its home market over the past three years; (2) a QFII that is a bank must have assets that rank it among the top 100 internationally in the latest financial year; (3) a QFII that is an insurance or a securities company must have minimum paid-up capital of the equivalent of US$1 billion; and (4) ownership of any Chinese company listed on the Shanghai or Shenzhen stock exchange by a QFII may not exceed 10%, and the total shares owned by QFIIs in a single Chinese company may not exceed 20%. QFIIs must set up special renminbi accounts with domestic banks and use the services of domestic securities companies.. Closed-end QFIIs may only remit capital after three years, in installments of no more than 20% of the total each time, at intervals of one month or more. Other QFIIs may only remit capital after one year, in installments of no more than 20% of the total, and at intervals of three months or longer.



The face value of B shares is denominated in U.S. dollars or Hong Kong dollars. These shares are listed on the Chinese Securities Exchange and may be bought by foreign and domestic investors. Domestic investors may purchase B shares with new or existing foreign currency deposits.
Sale or issue locally by nonresidentsThese transactions are limited to B shares.
Purchase abroad by residentsOverseas listed domestic companies may repurchase the shares of their company that were issued abroad, with prior approval from the China Securities Regulatory Commission (CSRC), SAFE verification of the source of the funds, and authorization from the SAFE for remittance abroad.
Sale or issue abroad by residentsPrior approval by the CSRC is required for overseas listed domestic companies (OLDCs) and China-held foreign listed companies (CHFLCs; i.e., companies registered and listed abroad and controlled by Chinese shareholders) to sell shares abroad. Proceeds of OLDCs must be repatriated within 30 days and either kept in the OLDCs foreign exchange accounts or converted into renminbi (with SAFE approval). These proceeds may be retained abroad only with SAFE approval.



After deducting any related charges, foreign exchange funds earned by the domestic equity holding units of OLDCs and CHFLCs through sales of listed shares, assets, or liquidity of the company must be repatriated within 30 days of receipt. After repatriation, the foreign exchange must be surrendered, following SAFE approval.
Bonds or other debt securities
Purchase locally by nonresidentsThese transactions are not permitted.
Sale or issue locally by nonresidentsThese transactions are not permitted.
Purchase abroad by residentsBanks authorized by the China Banking Regulatory Commission (CBRC) may purchase foreign bonds but must use their own foreign exchange funds and are not permitted to purchase foreign exchange for this purpose.
Sale or issue abroad by residentsFollowing authorization by the State Development Planning Commission and the SAFE, applications for these transactions are to be submitted to the State Council for Examination for approval. Foreign exchange earnings from bond flotation must be repatriated.
On money market instruments
Purchase locally by nonresidentsNonresidents are not allowed to purchase money market instruments.
Sale or issue locally by nonresidentsNonresidents are not allowed to sell or issue money market instruments.
Purchase abroad by residentsThe regulations governing bonds or other debt securities apply.
Sale or issue abroad by residentsThese transactions are subject to SAFE approval.
On collective investment securitiesThe regulations governing money market instruments apply.
Controls on derivatives and other instruments
Purchase locally by nonresidentsThese transactions are not allowed.
Sale or issue locally by nonresidentsThese transactions are not allowed.
Purchase abroad by residentsOnly financial institutions that are approved by the CBRC and carry out foreign exchange trading operations for their own account or on behalf of customers may purchase and sell derivative instruments without prior SAFE approval. The purpose of such purchases or sales may be for hedging of risk only. Speculative trading is not permitted. Nonfinancial institutions may engage in such activities through financial institutions as part of approved operations without prior approval. Prior SAFE approval must be obtained if these transactions are required to be made with foreign institutions. Trading may be done directly with foreign institutions for derivatives transactions under the provisions of the debt of FFEs without approval; however, debt provision modification procedures and the corresponding external debt modification registration formalities must be completed after the fact.
Sale or issue abroad by residentsThe regulations governing purchases apply.
Controls on credit operationsPurchases of foreign exchange for advance repayment of foreign debt require SAFE authorization. Purchases of foreign exchange to make advance repayments of loans require SAFE authorization. Purchases of foreign exchange to make advance repayments of loans must conform to the following guidelines: (1) debt examination, approval, and registration requirements must be satisfied in accordance with regulations; (2) the loan contract must contain an advance repayment clause and both the creditor and the debtor must agree to the advance repayment; (3) the debtor must submit an application to purchase foreign exchange for an advance foreign debt repayment; and (4) owned foreign exchange must be used first, and foreign exchange may be purchased only when all owned foreign exchange is exhausted.
Commercial credits
By residents to nonresidentsFinancial institutions authorized by the CBRC may lend to overseas institutions or contract overseas credits.
To residents from nonresidentsMedium- and long-term international commercial borrowing by Chinese institutions must be incorporated in the state plan for the use of foreign capital and undergo transaction-based examination. Financial institutions permitted to engage in foreign borrowing may conduct short-term foreign borrowing with maturities of one year or less within the balance approved by the SAFE. Specific transaction-based approval is not required. All foreign borrowing must be registered with the SAFE.



Forward LCs with a maturity of more than 90 days but less than one year are included in the category of short-term credits, while those exceeding one year are included in medium-and long-term international commercial loans.

FFEs may borrow from nonresidents without obtaining approval but must register the borrowing with the SAFE.

If the guidelines for purchases of foreign exchange to make advance repayments for loans are satisfied, the debtor may submit an application to the SAFE for the purchase. Renminbi credits extended by banks to domestic institutions may be used only for productive purposes and may not be used to purchase foreign exchange for debt-service payments. When designated domestic Chinese foreign exchange banks provide renminbi loans to FFEs, they may accept credit guarantees from foreign banks and foreign institutions or foreign exchange collateral from the FFEs.
Financial creditsThe regulations governing commercial credits apply.
Guarantees, sureties, and financial backup facilities
By residents to nonresidentsPrior SAFE approval is required for financing guarantees provided by domestic Chinese banks and all guarantees provided by other institutions (with the exception of foreign-funded domestic financial institutions and wholly foreign-owned enterprises). Prior approval is not required for bank-provided foreign nonfinancing guarantees, although external guarantee registration must be completed for all foreign guarantees. Specific transaction-based approval by the SAFE is required when a guarantee is exercised.
To residents from nonresidentsFFEs may accept guarantees from foreign institutions.
Controls on direct investmentA three-tier classification system is in effect, defining activities in which foreign exchange investment is encouraged, restricted, or banned.
Outward direct investmentOutward direct investment is permitted only after examination of the source of the foreign exchange funds, approval of the authorities concerned with foreign direct investment, and completion of offshore investment foreign exchange registration. Foreign direct investment that does not involve foreign exchange purchases or outward foreign exchange remittance does not require examination of the source of the foreign exchange funds. Foreign exchange for strategic foreign investment, processing of customer-supplied materials, and foreign aid projects is guaranteed, and priority is given to foreign investment activities, such as export promotion, scientific research and development, market development, and natural resource development. Effective November 1, 2003, in some provinces and regions, the limit on outward investment is the equivalent of US$3 million (previously, US$1 million).
Inward direct investmentNonresidents are free to invest in China as long as they meet requirements under Sino-foreign joint-venture laws and other relevant regulations, and are approved by the Ministry of Commerce. There is no restriction on the inward remittance of funds as far as exchange control is concerned. For environmental and security reasons, inward direct investment in some industries is prohibited.
Controls on liquidation of direct investmentPrior approval from the original review and approval department is required for liquidation. SAFE verification is required to purchase foreign exchange to remit funds belonging to foreign investors after liquidation.
Controls on real estate transactionsThe regulations governing direct investment apply.
Purchase abroad by residentsYes.
Purchase locally by nonresidentsYes.
Sale locally by nonresidentsWith SAFE approval, foreign exchange may be purchased for remittance abroad using renminbi obtained by nonresidents from the sale of commercial real estate purchased originally with foreign exchange. Foreign exchange may not be purchased using renminbi obtained from the sale of commercial real estate purchased originally using renminbi.
Controls on personal capital transactions
Loans
By residents to nonresidentsYes.
To residents from nonresidentsYes.
Gifts, endowments, inheritances, and legacies
By residents to nonresidentsIn case a resident’s directly related family member abroad encounters illness, death, or unexpected disaster, the resident is allowed to purchase and remit abroad up to US$1,000 or its equivalent, once the resident has valid, notarized proof of the emergency or proof from the Chinese embassy or consulate; an application from the patient’s local agency (work unit) or prescription from the hospital; the relevant documents from the resident’s work unit (if without a work unit, from the local subdistrict office or the people’s government department above the town level); and supporting documents related to foreign exchange payments. As for other foreign exchange purchases, amounts of up to US$500 or its equivalent may be provided by the bank. For a one-time purchase of foreign exchange for private purposes of an amount exceeding the stipulated standard and up to US$50,000, application to the local SAFE office against specific documented proof is required; after verification by the local SAFE office, the foreign exchange needed may be purchased from the bank and remitted or taken abroad. When a one-time purchase exceeds the stipulated standard or US$50,000, the transaction must be reported to the SAFE by the local SAFE office for verification before the bank provides the foreign exchange.



Remittances from a resident’s domestic foreign currency account for payments for gifts, donations, inheritances, or legacies, for a one-time amount of less than US$10,000 or its equivalent, may be made directly through a bank. For amounts of more than US$10,000 but less than US$50,000, application to the local SAFE office is required with stipulated documented proof, and, after verification by the local SAFE office, remittances may be made through a bank. For amounts of more than US$50,000, the transaction must be reported to the SAFE by the local SAFE office for verification before the bank may remit the foreign exchange.



Transfers of a resident’s domestic foreign currency cash or deposits from a resident’s foreign currency cash account for payments of gifts, donations, inheritances, or legacies, for a one-time amount of less than US$2,000 or its equivalent, may be made directly by a bank. For amounts of more than US$2,000 but less than US$10,000, application to the local SAFE office is required, with specific documented proof and corresponding customs declaration documents, before remittances may be made by a bank. For amounts exceeding US$10,000, the transaction must be reported to the SAFE by the local SAFE office for verification before the bank may remit the foreign exchange.
To residents from nonresidentsIf the foreign currency income from donations or legacies needs to be paid in foreign currency cash or converted into renminbi and if the one-time amount is less than US$10,000 or its equivalent, payments may be made directly by banks. When the amount paid from a foreign exchange accounts exceeds US$10,000 but not US$200,000 or if the amount converted exceeds US$10,000 but not US$50,000, relevant documentary proof must be provided to the banks. For inherited foreign currency, the required documentation includes proof of identification and authenticity, a notarized statement, and proof of tax clearance abroad. For household use of foreign currency, proof of identification, authenticity, and kinship are required. For foreign currency donations, proof of identification and authenticity and a donation agreement are needed. Banks may make the payments after verifying the documentary proof and recording the transaction. When the amount paid from a foreign exchange account exceeds the equivalent of US$200,000 or the conversion amount exceeds US$50,000, application to the local SAFE office is required with documentary proof, and after verification of authenticity by the local SAFE office, payments may be made through banks. For amounts exceeding US$200,000, application to the local SAFE office is required with documentary proof, and the transaction must be reported to the SAFE by the local SAFE office for verification before the bank may remit the foreign exchange.
Transfer of assets
Transfer abroad by emigrantsRoutine foreign exchange revenues, including retirement and pension funds, may be remitted abroad. Funds falling under capital items, such as proceeds from selling residential property, may not be converted into foreign exchange for remittance abroad; rent income, however, may be converted for remittance abroad.
Provisions specific to commercial banks and other credit institutionsThe limits and restrictions stated below are set by the HKMA for prudential reasons only. On November 19, 2003, a memorandum of understanding between the HKMA and the CBRC to share supervisory information on banks operating in mainland China and Hong Kong SAR and to ensure that parent banks maintain effective control over their cross-border branches and subsidiaries came into effect. Effective January 1, 2004, under the Closer Economic Partnership Arrangement: (1) the asset requirement for Hong Kong SAR-incorporated banks to open branches in mainland China was reduced to US$6 billion from US$20 billion; (2) the authorities lifted the requirement for setting up a representative office in mainland China before a Hong Kong SAR bank establishes a joint-venture bank or joint-venture finance company in mainland China; and (3) for mainland China branches of Hong Kong SAR banks to apply to conduct renminbi business, the minimum number of years of business operations in mainland China required of the banks was reduced to two years from three years.
Borrowing abroadThe regulations governing commercial credits apply.
Maintenance of accounts abroadRegistration with the SAFE is required for domestic banks to open foreign exchange accounts abroad. Domestic nonbank financial institutions and nonfinancial enterprises require prior approval by the SAFE.
Lending to nonresidents (financial or commercial credits)The regulations governing commercial credits apply.
Lending locally in foreign exchangeLending is subject mainly to review of qualifications by the PBC and to asset-liability ratio requirements. Borrowers must register the transaction ex post with the SAFE and must obtain a permit from the SAFE to repay the principal. Effective January 1, 2003, SAFE registration and SAFE permission to repay the principal are not required for residents to borrow foreign exchange from domestic Chinese financial institutions. However, creditors must submit the regular loan registration to the SAFE and report the principal and interest repayment status.
Purchase of locally issued securities denominated in foreign exchange



Differential treatment of deposit accounts in foreign exchange
Securities denominated in foreign currency are not currently issued.
Reserve requirementsDifferent reserve requirements apply to deposits in renminbi and in foreign currency. A reserve requirement of 6% applies to renminbi deposits of Chinese-funded banks and foreign-funded banks. A reserve requirement of 2% applies to foreign exchange deposits of Chinese-funded banks. Different reserve requirements apply to foreign exchange deposits of foreign-funded banks—for deposits with maturities of less than three months, the requirement is 5%; for deposits with maturities of three months or more, the requirement is 3%. Required and excess reserves on renminbi deposits are remunerated at an annual rate of 2.07%. Reserves on foreign currency are not remunerated.
Liquid asset requirementsThe ratio of all liquid foreign exchange capital to all liquid foreign exchange liabilities may not be less than 60%.
Credit controlsThe ratio of the credit balance for a single borrower to a bank’s net capital may not exceed 10%.
Investment regulationsBank equity investment should not exceed the difference between bank capital and mandatory paid-in capital. Nonbank financial institutions’ total equity investment (excluding trust accounts) should not exceed the difference between their capital and mandatory paid-in capital.
Abroad by banksInvestment in foreign securities other than equities on foreign securities markets by banks is subject to quarterly approval by the PBC.
In banks by nonresidentsPBC approval is required.
Open foreign exchange position limitsFor financial institutions trading foreign exchange on their own behalf, the daily total amount traded (total open foreign exchange position) should not exceed 20% of the foreign exchange working capital. As authorized by the highest level of management, financial institutions trading foreign exchange on their own behalf may retain a small amount of overnight open position, but this should not exceed 1% of the foreign exchange working capital or foreign exchange operating funds.
On resident assets and liabilitiesYes.
On nonresident assets and liabilitiesYes.
Provisions specific to institutional investorsNo.
Other controls imposed by securities lawsNo.
Changes During 2003
Exchange arrangementMarch 10. Banks’ spot buying rates for Macau patacas could not exceed 0.75% of the spot mid-rate.
Arrangements for payments and receiptsOctober 1. Specially designated border trading companies that carry out trade with neighboring countries were allowed to settle bills and clear remittances using the currency of the neighboring country, in addition to yuan or any convertible currencies.



October 1. The maximum amount of foreign exchange that residents may export without an LCFCA was increased to the equivalent of US$5,000 from US$2,000, and the limit at which SAFE verification is required was increased to US$10,000 from US$4,000.



October 1. The maximum amount of foreign currency that residents may import without declaration was increased to the equivalent of US$5,000 from US$2,000.



November 19. The PBC and the HKMA announced that the PBC would provide clearing arrangements in renminbi for banks in Hong Kong SAR that provide personal renminbi deposits, exchange services, bank cards, and remittance services.
Resident accountsSeptember 1. The SAFE allowed domestic companies to retain foreign currency revenue from overseas contracted projects, overseas shipping and commissions, and international bidding projects in foreign exchange accounts. Previously, up to 20% of their foreign exchange revenues (based on the previous year’s foreign exchange earnings) could be retained in temporary foreign exchange accounts.
Imports and import paymentsOctober 23. The minimum amount for which guarantees are needed for purchases of foreign exchange for advance import payments was increased to the equivalent of US$200,000 from US$30,000.
Payments for invisible transactions and current transfersMarch 6. A new classification of payments came into effect whereby transactions up to the equivalent of US$50,000 may be effected by designated foreign exchange banks, transactions up to US$500,000 require authorization by a local foreign exchange bureau, and those exceeding US$500,000 require SAFE authorization.



July 30. Multinational corporations were allowed to effect transfers for invisibles at designated foreign exchange banks, subject to documentary requirements.



October 1. All persons paying for their own studies abroad were allowed a one-time purchase of up to the equivalent of US$20,000. Previously, this was limited to persons pursuing degrees at the college level or higher.
Capital transactions
Controls on direct investmentNovember 1. In some provinces and regions, the limit on outward investment was increased to the equivalent of US$3 million from US$1 million.
Provisions specific to commercial banks and other credit institutionsJanuary 1. Registration with and permission from the SAFE to repay the principal were no longer required for residents to borrow foreign exchange from domestic Chinese financial institutions.



November 19. A memorandum of understanding between the HKMA and the CBRC to share supervisory information on banks operating in mainland China and Hong Kong SAR and to ensure that parent banks maintain effective control over their cross-border branches and subsidiaries came into effect.
Changes During 2004
Arrangements for payments and receiptsJanuary 18. Mainland residents were permitted to use renminbi-denominated bank cards to pay for tourism-related expenses in Hong Kong SAR.



February 25. Participating banks in Hong Kong SAR were allowed to open renminbi-denominated accounts, accept renminbi deposits, provide exchange services between renminbi and Hong Kong dollars, and effect renminbi remittances for residents and designated commercial customers in Hong Kong SAR.
Exports and export proceedsMay 1. Qualifying enterprises were allowed to retain the equivalent of 30% or 50% of the previous current account foreign exchange income (previously, 20%).



May 1. The definition of qualifying enterprises was modified to include enterprises with specifically allowed foreign exchange business. Previously, the list included enterprises with specific foreign exchange volume or capital amounts.
Proceeds from invisible transactions and current transfersApril 1. The amount at which documentary evidence is required in order to surrender foreign exchange was increased to the equivalent of US$50,000 from US$20,000.
Capital transactions
Provisions specific to commercial banks and other credit institutionsJanuary 1. Under the Closer Economic Partnership Arrangement, (1) the asset requirement for Hong Kong SAR-incorporated banks to open branches in mainland China was reduced to US$6 billion from US$20 billion; (2) the requirement for setting up a representative office in mainland China before a Hong Kong SAR bank establishes a joint-venture bank or joint-venture finance company in mainland China was lifted; and (3) for mainland China branches of Hong Kong SAR banks to apply to conduct renminbi business, the minimum number of years of business operations on the mainland required of the banks was reduced to two years from three years.

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