Shanghai Finance


Implementation Regulations concerning Foreign Exchange Administration to Support the Construction of the China (Shanghai) Pilot Free Trade Zone


Chapter I  General Provision

  Article 1 - To support the construction of the China (Shanghai) Pilot Free Trade Zone ("Pilot FTZ"), and implement "The Framework Plan for the China (Shanghai) Pilot Free Trade Zone" (GuoFa[2013]No.38) and "Opinions of People's Bank of China to Support China (Shanghai) Pilot Free Trade Zone in Financial Sector"(YinFa[2013]No.244, hereinafter as "Opinions"), the following implementation regulations are hereby set.

  Article 2 - Pilot FTZ banks (which include banks registered in the Pilot FTZ and other banks in Shanghai that conduct banking business relating to the Pilot FTZ, the same below), domestic and overseas enterprises, non-banking financial institutions and individuals (hereinafter collectively as "Pilot FTZ principals") shall apply these implementation regulations.

  Article 3 - The Shanghai Branch of the State Administration of Foreign Exchange (hereinafter as "foreign exchange bureau") will be in charge of supervision and administration of Pilot FTZ-related foreign currency account opening, funds transfer, purchase and sale of foreign exchange, as well as relevant data statistics of RMB and foreign currency, etc.

  Article 4 - Pilot FTZ principals should fulfil data reporting and submission obligations in respect of international balance of payment, purchase and sale of foreign exchange, transfer of domestic funds, accounts etc., and ensure its accuracy, timeliness and completeness.

  Article 5 - Pilot FTZ banks shall adhere to KKD principles (i.e. "Know your customer", "Know your business" and "Due diligence") and perform examination of authenticity and compliance of Pilot FTZ-related foreign exchange business according to these implementation regulations, as well as establish sound internal control management system which shall be filed with the foreign exchange bureau.

  Article 6 - The innovated foreign exchange business stipulated in these regulations dealt with by the enterprises, non-banking financial institutions and individuals etc. in the Pilot FTZ, shall be based on genuine and legitimate transaction and processed through accounts. No false agreement shall be used and transactions shall not be made up when dealing with relevant business.

Chapter II  Current Account Transactions

  Article 7 - For transactions under current account items between Pilot FTZ principals and overseas, article 5 of these regulations shall be followed in the relevant purchase/payment or receipt/sale of foreign exchange. If the nature of the funds is unclear, the Pilot FTZ bank shall require the relevant enterprises, non-banking financial institutions and individuals to provide relevant documents.

  Foreign exchange income derived from goods trade by "A ranking" enterprises in the Pilot FTZ does not need to diverted to "to-be-verified" accounts. Where a single outbound payment is above USD 50,000 (or its equivalent) in relation to trade in service, income and current account transfer, the tax filing form shall be submitted according to relevant regulations.

  Article 8 - Qualifying enterprises in the Pilot FTZ may process foreign exchange funds centralized receipt and payment and "netting balance" settlement under current account items, through a Domestic foreign exchange funds master account.

  Article 9 - Financial leasing companies (which are approved by the China Banking Regulatory Commission), foreign invested leasing companies (which are approved by the commercial authorities) as well as domestic-funded finance leasing companies(which are jointly approved by the commercial and tax authorities) in the Pilot FTZ (hereinafter collectively as "finance leasing companies") are permitted to receive rental in foreign currency when undertaking finance lease business with domestic lessees. Special foreign exchange supervision and administration in respect of trade in goods shall be carried out for large-scale finance leasing companies in the Pilot FTZ.

Chapter III  Capital Account Transactions

  Article 10 - The foreign exchange registration and alternation registration under direct investment account items are delegated to banks.

  Article 11 - Foreign invested enterprises in the Pilot FTZ may freely convert its foreign exchange capital into RMB as they wish. The foreign invested enterprise shall open a dedicated RMB deposit account in the bank where it opens a foreign exchange capital account. The RMB deposit account shall be used to deposit the RMB funds converted from foreign exchange capital. Various payments from the RMB deposit account shall be dealt with based on genuine trade or business needs.

  The bank shall refer to the requirements stipulated in the Appendix IV of "Notice of the State Administration of Foreign Exchange (SAFE) on work relating to capital item information system pilot and relevant data reporting and submission"(HuiFa[2012] No. 60) (i.e. "Foreign exchange account data collecting rules (version 1.1)"), when reporting and submitting information regarding opening/closing account, fund receipt/payment and balance of the dedicated RMB deposit accounts; the account nature coding for such dedicated RMB deposit account is 2113, with descriptive name of account nature as "capital items – converted and to be paid". The bank shall refer to the requirements stipulated in the "Notice of the SAFE on work concerning adjusting domestic bank outbound receipt and payment voucher and preparation for relevant information reporting"(HuiFa[2011] No.49), when reporting and submitting the receipt/payment information between the dedicated RMB deposit account and other domestic RMB accounts based on relevant domestic receipt/payment vouchers.

  Article 12 - The foreign exchange capital of the foreign invested enterprise and the RMB funds converted from the capital shall not be used for the following purposes:

  (1) directly or indirectly spent as expenditures beyond business scope or prohibited by laws and regulations;

  (2) directly or indirectly used for security investment, unless otherwise stipulated;

  (3) directly or indirectly used for RMB entrust loan purpose (unless business scope permits), or repaying loans among enterprises (including third party cash advance) or repaying bank RMB loans that are sub-lent to third parties; and

  (4) used for paying expenses relating to purchase of non-self-use properties, except for foreign invested real estate enterprises.

  Article13 - The ceiling amount for an enterprise in the Pilot FTZ to extend foreign exchange loans offshore will be raised to 50% of the enterprise's shareholders equity; if an enterprise needs to apply for a higher ratio due to its actual needs, the foreign exchange bureau shall review and determine on case-by-case basis.

  Article 14 - An enterprise in the Pilot FTZ may sign a guarantee agreement and provide guarantee to overseas parties at its own discretion, without pre-approvals from the foreign exchange bureau.

  When an enterprise in the Pilot FTZ provides guarantee to overseas parties, no restriction shall be imposed in respect of the guarantor and/or guarantee's ratio of net assets, profitability of the guarantee, as well as the shareholding relationship between the guarantor and guarantee.

  When an enterprise in the Pilot FTZ enters into guarantee agreement with overseas parties, it shall, according to relevant regulations, perform guarantee registration formalities and apply for pre-approvals before it fulfills the guarantee (in case the guarantee defaults its relevant contractual obligations); the enterprise shall also comply with the restrictive rules regarding the use scope of funds under guaranty.

  Article 15 - With a payment notice, an enterprise or non-banking institution in the Pilot FTZ may directly apply to the relevant bank for the purchase of foreign exchange and then use the foreign exchange to pay guarantee fees to overseas parties without pre-approvals from the foreign exchange bureau.

  When the bank is arranging the purchase and payment of foreign exchange, it shall verify that relevant regulations from the foreign exchange bureau have been complied with in the guarantee arrangement.

  Article 16 - The transaction-based approval requirement is removed in respect of the receivables arising from finance leasing services provided by a finance leasing company in the Pilot FTZ to overseas parties, and is replaced with a registration administration.

  Article 17 - The following foreign exchange pilot schemes will be integrated: centralized operation and management scheme of foreign exchange by multinational headquarters, domestic foreign currency cash pooling scheme, and foreign exchange reform pilot scheme for international trade settlement center. The special accounts set up under the above schemes (i.e. "Domestic foreign currency cash pooling account" and "International trade settlement center dedicated account") by enterprises in the Pilot FTZ will be integrated into "Domestic foreign exchange funds master account", which will inherit the functions of the existing accounts.

  In addition to the business allowed under article 8 and international trade settlement center business, a centralized management of domestic group members' funds from capital injection, foreign debts, disposal of assets etc. may also be performed through Domestic foreign exchange funds master accounts.

  According to its operation needs, a qualifying enterprise in the Pilot FTZ may open an International foreign exchange funds master account. The flow of funds between the International foreign exchange funds master account and overseas is free of foreign exchange restrictions and controls. Funds may be freely transferred between the entity's Domestic foreign exchange funds master account and International foreign exchange funds master account, subject to a quota prescribed by the foreign exchange bureau.

  The relevant administrative approval requirement shall be changed to filing procedure for various pilot business processed through Domestic foreign exchange funds master accounts and International foreign exchange funds master accounts by qualifying enterprises in the Pilot FTZ.

Chapter IV  Foreign Exchange Market Business

  Article 18 - when banks dealing with commodity derivative transactions for enterprises in the Pilot FTZ, the following rules shall be adhered to when processing concerned purchase/selling of foreign exchange:

  (1) The relevant parties must fulfill requirements in regulations issued by relevant finance supervision and administration departments, including obtaining necessary business qualification in advance, going through necessary procedures for product information reporting etc.; bank branches that run this business must follow bank internal management rules, including obtaining necessary pre-authorization etc.

  (2) The bank or its general head office must qualify as an market maker in the inter-bank foreign exchange market; or alternatively, this bank has been ranked as A class for more than once, and not been ranked below B class, in foreign exchange management examinations in Shanghai during the latest three years.

  (3) Banks shall file with the foreign exchange bureau before they may conduct the business of purchase/sale of foreign exchange in respect of commodity derivative transactions.

  (4) When banks provide service to enterprises in respect of commodity derivatives, they shall verify whether the enterprise has background of genuine commodity trades, follow the proper hedging principle, and honestly disclose information and reveal risk to clients, and let the enterprise bear relevant risk independently.

  (5) In respect of exchange rate exposure or foreign exchange gain/loss resulting from closing positions in overseas by banks under commodity derivative transaction service to enterprises, the bank may arrange the corresponding purchase/selling of foreign exchange, and have it incorporated into the bank's overall closing positions; the foreign exchange bureau shall impose restrictions on the annual accumulated amounts of such foreign exchange purchase/sale.

 (6) Banks shall include the aforementioned purchase/sale of foreign exchange into the bank's statistics, categorizing the transaction under "240/440 other investment" catalogue and mark the transaction party as "Bank itself" for statistics purpose.

  (7) Banks shall regularly report and submit relevant information regarding commodity derivative transactions and relevant purchase/sale of foreign exchange to the foreign exchange bureau.

Chapter V  Supplementary Articles

  Article 19 - The foreign exchange bureau shall perform off-site supervision and monitoring over foreign exchange receipt/payment in goods trade of enterprises in the Pilot FTZ, carry out on-site inspection under any abnormal or suspicious circumstances, and conduct different administrations according to the on-site inspection results respectively.

  Article 20 - The foreign exchange bureau may take relevant temporary measures when serious imbalance arises or may arise in international receipt/payment.

  Article 21 - The foreign exchange bureau may gradually improve innovated business according to the State macro-control policy, position of foreign exchange receipt and payment as well as performance of the innovated business.

  Article 22 - The foreign exchange bureau shall monitor, inspect and investigate Pilot FTZ principals according to relevant laws and regulations. Permissions on innovated business will be suspended for relevant parties if they violate the "Foreign exchange administration rules" or these regulations, and penalties will be imposed accordingly.

  Article 23 - These implementation regulations shall take effect on day of promulgation. Any uncovered issues shall be dealt with according to other existing foreign exchange administration regulations such as foreign exchange administration measures in the areas under special customs supervision etc.

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