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Foreign Exchange Administration

· INSIGHTS

In China, the Chinese currency renminbi (RMB) is freely convertible under the current account and is still under certain management under the capital account. The “current account” refers to items that occur frequently in economic transactions between a country and its foreign nation counterparts, including foreign trade income and expenses, non-trade transactions, and unrequited transfer. The “capital account” refers to the increase or decrease of assets and liabilities arising from the export and import of capital in the balance of payments. It reflects changes in the claims and debts between a country and its foreign nation counterparts expressed in terms of currency, including the transfer of physical or financial assets between residents and non-residents. It mainly consists of three categories: direct investment, securities investment, and cross-border lending.

China is in the process of gradually opening up its capital accounts. The number of convertible items is gradually increasing, as is the degree of convertibility. Specifically, direct investment has been opened up and cross-border securities investment channels expanded significantly, while macroprudential management has been exercised for foreign debts. There are only a few items under cross-border securities investment and personal capital accounts that have not been fully opened.

The State Administration of Foreign Exchange (SAFE) and local administrations of foreign exchange are responsible for foreign exchange supervision and control. In accordance with the relevant regulations, China implements the management of foreign exchange registration for foreign investors' domestic direct investment (DDI). Organizations and individuals involved in DDI activities must apply for foreign exchange registration before engaging in such transactions. Starting from June 2015, foreign-invested enterprises are entitled to complete foreign exchange registration with banks in their place of registration at its option.

The use of capital and renminbi funds obtained through the foreign exchange settlements of foreign-invested enterprises shall follow the principles of authenticity and self-use within the scope of business. It shall also comply with foreign exchange regulations. Foreign investors are entitled to freely conduct inward and outward remittance of their investments in RMB or foreign exchange when it comes to their contribution of capital, profits, and capital gains within the territory of China.

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