January 5, 2007 - In order to implement the Measures for the Administration of Individual Foreign Exchange and to standardize and facilitate the operation of foreign exchange business by banks and individuals, the State Administration of Foreign Exchange (SAFE) recently formulated the Detailed Rules on Measures for the Administration of Individual Foreign Exchange (hereinafter referred to as the Detailed Rules). A SAFE spokesperson answered questions from reporters on issues of concern in various circles:

Q: What ideas of the Administration Department have been embodied in the formulation of the Detailed Rules?
A: When formulating the Detailed Rules, the following features have been mainly taken into account: first, to encourage foreign exchange held by the common people,to support the reasonable and lawful holding and use of foreign exchange by individuals, to realize balanced management, and to actively promote an equilibrium in the balance of payments; second, to maintain the principles of keeping pace with the times and management innovation so as to constantly adapt to the developments and changes in the market and to facilitate the operations of banks and individuals; third, to abide by the principle of due consideration to both public and private interests, to steadily strengthen and improve management of individual foreign exchange receipts and payments, and to perfect supervision of cross-border capital flows and transactions; fourth, to observe the principle of paying equal attention to being flexible and strict, to exercise effective supervision by relying on modern measures, and to implement practical policy and supervision adjustments.

Q: It is stipulated in the recently promulgated Measures for the Administration of Individual Foreign Exchange that management of an annual quota shall be applicable to individual foreign exchange sales and domestic individual foreign exchange purchases, and it is specified in the Detailed Rules that the respective annual quota shall be USD 50,000. What are the main policy considerations behind this requirement?

A: Management of an annual quota is an important aspect of the adjustment in the individual foreign exchange administration policy. The related formalities and vouchers for foreign exchange sales and purchases within the quota will be drastically simplified and facilitated, and examination of the authenticity of transactions exceeding the quota shall be strengthened. The Detailed Rules specify that the annual quota for individual foreign exchange purchases be drastically raised from USD 20,000 to USD 50,000, which can better serve the demands of domestic individuals for foreign exchange and the holding of foreign exchange by the common people. At the same time, the application of management of an annual quota on sales of foreign exchange for both domestic and foreign individuals changes the past administration mode of easy in and difficult out,and embodies the principle of balanced management of capital inflows and outflows. The annual quota of USD 50,000 for individual foreign exchange sales will basically satisfy the normal demands for individual foreign exchange sales and will contribute to controlling illegal capital inflows across the border through individual channels.
To prevent acts of avoiding administration, such as repeated purchases of foreign exchange and foreign exchange sales in installments, and to ensure the effectiveness of the management of an annual quota, the SAFE has established a management information system connecting banks with the SAFE for individual sales and purchases of foreign exchange. Via this system, banks shall deal with the business of individual foreign exchange sales and purchases and verify the authenticity of the materials provided by individuals. In addition, this system provides a unified and standard operating platform for the banks to deal with such business, thus it is conducive to fair competition among banks, while individual foreign exchange sales and purchases will not be limited by regions or banks and the conduct of relevant business will become more convenient.

Q: It is specified in the Detailed Rules that an individual engaging in foreign trade activities may open a foreign exchange settlement account. What additional conveniences will this policy bring to individual foreign trade?
A: To embody the principle of giving full conveniences to business-based foreign exchange receipts and payments under the individual trade account, the Detailed Rules specify that individual trade businessmen and private businessmen may open foreign exchange settlement accounts, which shall be administrated as institutional accounts and may be used for foreign exchange sales and receipts and payments for imports and exports by direct trading or through agents. Unlike individual foreign exchange savings accounts and foreign exchange items under the capital account, the purchases and sales of foreign exchange under the foreign exchange settlement accounts are not subject to the limits of the annual quota, and the business shall be conducted with valid trading documents regardless of the amount. In addition, capital transfers for individual foreign exchange savings accounts shall only be conducted between accounts of the same nature held by the individual or his/her direct relatives, and any transfers of foreign exchange items under the capital account shall be subject to examination and verification. However, after opening a foreign exchange settlement account, private businessmen may carry out capital transfers with their entrusted agent enterprises which are not limited to the account openers. These regulations, while providing full support and conveniences to individual foreign trade, are beneficial to the statistics and monitoring of foreign exchange receipts and payments under individual trade and may promote the healthy and orderly development of individual trade activities.

Q: While offering sufficient facilities to business-based foreign exchange activities under the current account, how is the concept of supervision reflected in the Detailed Rules for strengthening the authenticity of verification for non-business-based foreign exchange activities under the current account, such as individual donations and family maintenance remittances?
A: Management of foreign exchange receipts and payments under individual current accounts according to their business-based and non-business-based nature is an important content of the adjustment in the individual foreign exchange administration policy at this time. The general principle in the administration of non-business-based foreign exchange receipts and payments under the individual current account is to exercise, on the basis of the convertibility of the items under the current account, management of an annual quota on purchases and sales of foreign exchange. Within the total annual quota, individuals can directly handle the formalities in the banks with their valid identity documents. There are specific requirements of authenticity and validity for foreign exchange receipts and payments beyond the quota for one-sided transfer items with concentrated foreign exchange inflows, such as individual donations, family maintenance remittances, and inheritances. Acceptance by individuals of overseas donations shall satisfy the relevant regulations of the State, and sales of foreign exchange shall be carried out only after notarized donation agreements or contracts are provided. Foreign exchange sales for family maintenance remittances can be carried out only after relevant certificates are provided, such as direct relative relationship certificates or notarized supporting relationship certificates, and relevant income certificates of the overseas payers such as bank deposit certificates and tax payment certificates for individual income. Foreign exchange sales for inheritances can be carried out only after presenting the relevant certificates such as legal documents or notarial deeds regarding the inheritance.

Q: How do the Detailed Rules specifically regulate foreign exchange receipts and payments under the individual capital accounts?
A: The following principles of administration on individual capital accounts are embodied in the Detailed Rules: first, in line with the overall requirement of the convertibility progress, the restrictions on foreign exchange transactions under individual capital accounts shall be lifted in an orderly, gradual, and in a controlled manner; second, an equilibrium in the balance of payments shall be promoted and individuals shall be supported to lawfully and reasonably participate in direct investments and investments in financial products such as securities, and current portfolio investments shall be dealt with through qualified domestic or foreign institutional investors; third, formalities shall be simplified, procedures standardized, transactions facilitated, and the transparency of supervision improved; fourth, transactions which have a substantial impact on the equilibrium in the balance of payments and the stability of the exchange rates shall be watched and the opening-up will be cautious to effectively guard against risks.

Q: In the past, individual foreign exchange accounts were divided into note accounts and exchange accounts.  It is now stipulated in the Detailed Rules that individuals may open foreign exchange savings accounts. Does this mean there will no longer be a distinction between note accounts and exchange accounts?
A: This question can be understood in two ways. On the one hand, from the perspective of foreign exchange administration, individuals may open foreign exchange savings accounts in banks with valid identity documents for non-business-based individual foreign exchange receipts and payments, and there will not be any different foreign exchange administration policies for note accounts and exchange accounts, and unified supervision standards shall be applied for capital deposits, foreign exchange sales, outward remittances, domestic transfers, and cash withdrawals. On the other hand, from the perspective of bank operations, since the operational costs for foreign cash and spot exchange differ, the banks may differentiate depositors into cash depositors and exchange depositors, and adopt different charging standards or buying and selling rates for them; this pertains to the business operations of the banks themselves.

Q: In various places in the Detailed Rules there are still many special supervisory requirements for the deposit, withdrawal, and remittance of foreign cash. What are the considerations behind these requirements?
A: According to the related stipulations to oppose money laundering and the requirements to combat illegal foreign exchange transactions, the Detailed Rules further strengthen administration over the trading of foreign cash, which mainly includes: in cases where an individual deposits his/her foreign cash into his/her foreign exchange savings account, with a cumulative daily amount or equivalent exceeding USD 5,000, he/she shall handle it at a bank with relevant documents; in cases where an individual withdraws foreign cash with a cumulative daily amount or an equivalent exceeding USD 10,000, he/she shall file related documents in advance with the SAFE; in cases where an individual carries foreign cash abroad with a cumulative daily amount in excess of an amount equivalent to USD 10,000, he/she shall additionally provide relevant declaration forms signed and sealed by the customs or his/her bank forms for the withdrawal of the foreign cash from the original deposit bank. Because foreign currency pricing, settlement, and circulation are forbidden within the territory of the PRC, legitimate foreign cash resources and uses mainly include cross-border foreign exchange inward and outward remittances, domestic foreign currency transfers and withdrawals, as well as carrying foreign cash for persons entering and exiting the territory, which comply with the relevant provisions. From the perspective of international experience, the strengthening of administration of cash transactions is a principle commonly adopted by the supervision departments of the various countries, and it shall also be a key area of foreign exchange supervision in China .