To press ahead with the foreign exchange administration reform, promote trade and investment facilitation, support the growth of the real economy and guard against the risks arising from cross-border capital flows, the State Administration of Foreign Exchange (SAFE) recently issued the Circular of the State Administration of Foreign Exchange on Further Promoting Trade and Investment Facilitation and Improving Authenticity Review (Huifa No. 7 [2016], "Circular").

The Circular sets out 9 measures in 4 aspects:

First, expanding inflows and increasing supply of foreign exchange. The lower limits of positions of banks in the settlement and sales of foreign exchange will be extended. The more the negative positions banks hold, the easier it will be for banks to collect and supply foreign exchange to enhance the self-adjustment capability of foreign exchange markets and provide better financial services for the real economy to guard against exchange rate risks. Policies for the administration of foreign exchange settlement for the external debt of Chinese and foreign-funded enterprises will be unified, with the external debt of Chinese non-financial institutions to be subject to foreign exchange settlement in accordance with the provisions on external debt administration for foreign-funded enterprises. The foreign exchange receipts by Class-A enterprises from trading (other than foreign exchange refunds and offshore entrepot transactions) will temporarily not be recorded in the accounts pending verification for receipts from exports, but will be directly recorded in the foreign exchange accounts under the current account or settled. Procedures for receipts and settlements of foreign exchange by companies will be simplified to reduce the cost of funds for doing so.

Second, intensifying document reviews and standardizing management. The requirements on document reviews for offshore entrepot transactions for trade in goods will be specified, with the receipt and payment of the same offshore entrepot transaction to be processed by the same outlet of the bank in the same currency (foreign currency or RMB). The receipts and payments for offshore entrepot transactions will be suspended for Class-B enterprises subject to foreign exchange administration for trade in goods. The outward remittance administration will be standardized for foreign exchange profits from direct investments. The requirements on document reviews for handling outward remittances of the profit equivalent to more than USD 50,000 (exclusive) by banks for domestic institutions will be specified. The measures for the administration of risk reminder notifications will be standardized for trade in goods. Risk reminders will be sent to companies with unusual receipts and payments of foreign exchange for trade in goods.

Third, products will be diversified to hedge exchange rate risks. Banks will be allowed to handle the net delivery of forward transactions for foreign exchange settlement for institutional customers to satisfy their needs to hold foreign currency assets while guarding against exchange rate risks.

Fourth, regulations will be streamlined and rules of punishments will be specified. The Circular of the State Administration of Foreign Exchange on Relevant Issues Concerning Strengthening Administration of Inflows of Foreign Exchange Funds (Huifa No. 20 [2013]) will be abolished. It is specified that any companies violating the Circular will be punished in accordance with the Regulations on Foreign Exchange Administration.

The Circular shall take effect as of the date of promulgation.