Foreign Exchange Control

in the Peoples Republic

of China
On 1 December 1996, the Peoples Republic of China (PRC) introduced a foreign exchange
control system under which the Chinese currency, Renminbi (RMB), is conditionally
convertible for current accounts, but strict administrative measures are still in place for capital
accounts. The PRC Foreign Exchange Administrative Rules (the Rules) were promulgated on
29 January, 1996, and were amended on 14 January, 1997, and 5 August, 2008, by the State
Council. The Rules and various circulars issued by the State Administration of Foreign
Exchange (SAFE) have formed the prevailing legal basis for foreign exchange administration
in the PRC.

Basic Principles

The PRC foreign exchange system is by SAFE. The same applies to the
governed by the following basic principles: remittance of foreign currency into
the PRC.
1. RMB, the Chinese currency, is not
fully convertible into foreign currency. 3. Foreign currency is generally not
allowed to circulate or to be used in
2. All payments in foreign currency from lieu of RMB in the settlement of
the PRC to any destination abroad are accounts within the PRC.
in some form controlled or supervised

Foreign Currency Bank Accounts

The opening of foreign currency bank The capital account can only be used for
accounts is subject to the control of SAFE. the purposes of capital contribution and
A Foreign Invested Entity (FIE) can only expenditure from the capital account. The
open a foreign currency account after injected capital cannot exceed the pre-
having obtained a foreign exchange approved ceiling, being the total
registration certificate from SAFE. Foreign registered capital of the FIE.
currency bank accounts must have
designated purposes and can only be used
for specific purposes. There are four types
of formal foreign currency accounts

current account;
capital account;
foreign loan account; and
foreign loan repayment account.

2 | Foreign exchange control in the Peoples Republic of China

Current Account Items
And Capital Account Items

Current Account Items

payment confirmation letters related to the
foreign currency payments need to be
Receipts and payments of foreign currency provided to the handling bank before the
under current account items need to be remittance can be made.
based on real and legitimate transactions.
Financial institutions authorized to conduct Capital Account Items
foreign exchange business are statutorily
required to review the documents relevant
to the underlying transactions and check
Unlike current account transactions, capital
consistency with the foreign exchange
account transactions are highly restricted.
receipts or payments. Normally, no SAFE
Capital account transactions normally must
approval is necessary for current account
either be approved or registered with SAFE.
transactions. An FIE can either use its own
Foreign debts are required to be registered
foreign currency or purchase such foreign
with SAFE and are subject to a quota which
currency from the authorized bank for
limits the maximum amount of foreign debt to
foreign currency payments under current
be taken on by an FIE to the difference
account items.
between the total investment amount and the
registered capital of the FIE. Also, guarantees
Since 14 July, 2008, according to the
made to an overseas party need to be
Circular Hui Fa [2008] No. 29, all receipts of
approved by SAFE and the relevant contract
foreign currency (including advance on
must be registered with SAFE.
sales ) arising from the trade of goods must
first be paid into the so-called to-be-
Foreign currency received under the capital
inspected-account of the enterprise. It is account items can be retained or sold to
possible to transfer the foreign currency out authorized banks upon the approval from
of the to-be-inspected account or convert SAFE. Conversion of capital funds into RMB
the amount into RMB only after the validity should be examined by designated banks and
of the underlying transaction has been conversion of foreign debt into RMB should be
checked by the handling bank via an online approved by SAFE. Outward remittance under
system. capital account items normally has to be
approved by SAFE.
For payments in foreign currency under
current account items other than trade of
goods (such as service fees, rentals,
royalties, dividends), the control of foreign
currency payments is closely linked to tax
payments. In most cases certain tax

For further information and assistance, please contact

Dr Ulrike Glck CMS, China

Managing Partner, Head of Corporate 2801 Plaza 66, Tower 2
Practice Area Group 1266 Nanjing Road West
E ulrike.glueck@cmslegal.cn Shanghai 200040, China

Charlie Sun T + 86 21 6289 6363

Senior Associate, Head of Tax Practice Area Group F + 86 21 6289 0731
E charlie.sun@cmslegal.cn

This information is provided for general information purposes only and does not constitute legal or professional advice. Copyright by CMS,
China.

3 | Foreign exchange control in the Peoples Republic of China

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