Foreign Exchange FAQ's

What are the changes introduced in October 2002 for Bonded Zones and foreign exchange requirements?

Bonded zones have been treated as preferrential areas for foreign exchange conversion and repatriation since their inception. However, throughout the 1998 Asian Financial Crisis, the Chinese government tightened regulations in these areas to avoid illegal outflows of foreign exchange.

However, with the improved business environment, the government has relaxed these restrictions, implementing sweeping changes aimed at foreign exchange registration, annual inspection, foreign exchange accounts, settlement and sale of foreign exchange, foreign exchange revenues and expenditures and other similar issues in bonded areas.

These changes will come into effect on October 1, 2002 and will include the following 3 major changes:

1. Unification of FOREX registration certificates - Previously foreign invested enterprises (FIE) and Chinese-invested enterprises (CIE) were issued with different types of FOREX registration certificates.
   
   This system, it was found, did not promote effective tracking of FOREX transactions by the FOREX administration authority or the banks. As a result, the new changes will introduce a uniform registration certificate for both FIEs and CIEs called the "Bonded Zone Foreign Exchange Registration Certificate".
   
   
2. Relaxation of controls over the purchase of FOREX - In 1998 SAFE established strict controls over the purchase of FOREX in bonded zones so as to safeguard against an outflow of FOREX in light of the Asian financial crisis.
   
   In light of improvements in the current business environment, SAFE has adopted measures which allow for FOREX purchases under three conditions:

   
   - Enterprises engaged in the processing or goods distribution are able to use RMB revenues derived from selling goods on the domestic market to purchase FOREX;

   - Enterprises in the bonded zones may purchase FOREX with their RMB paid-up-capital;

   - Shareholders of FIEs may expatriate FOREX with their earned profits, dividends and bonuses.
   

3. Lifting of restrictions regarding with whom FOREX accounts can be opened with in bonded zones - Enterprises will now be allowed to open FOREX accounts outside of the bonded zones subject to approval from the foreign exchange administration authority. Previously, enterprises were only allowed to establish FOREX accounts with financial institutions within the bonded zones. This had allowed for greater control over FOREX supply and safeguarded against any illegal capital outflows.

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