FX AND REPATRIATION
China Adds FX Requirements
January 23, 2009
Christopher Bjorke

China is expanding its system of monitoring foreign exchange flows by creating foreign currency accounts, required by all legal entities in the country.

Under new regulations by the State Administration of Foreign Exchange (SAFE), organizations, including wholly foreign owned enterprises and representative offices, now must open foreign currency settlement (FCY) accounts for non-renminbi collections and conversions into RMB.

“It doesn’t directly replace any other system. It’s an additional administrative requirement,” according to Chris Devonshire-Ellis, senior partner with Dezan Shira & Associates, which published guidance on the new rules. “The rationale behind the new regulations is to increase the efficient level of monitoring, supervision, statistics, and governance for cross-border capital movement in China.”

Deveonshire-Ellis said that the new requirements do not represent a tightening of FX regulations in China, but were instituted to allow authorities a better view of the foreign currency inflows and outflows.

“SAFE is setting up a system now so that all the information related to all business accounts will be automatically known to SAFE to allow SAFE timely updates on forex capital inflows and outflows,” he said. “I don’t believe it represents a tightening of forex transactions, just a better mechanism of monitoring it.”

Following China’s fast-changing economic fortunes over the past year, the country’s foreign exchange concerns have moved from fears of overinvestment by foreign capital to worries about capital flight.

According to Dezan Shira’s advisory, wholly foreign-owned enterprises already operating in China can open FCY accounts without prior approval by SAFE. Branch and representative offices must submit an application to SAFE before a bank can provide an account.

Organizations with FX transactions of less than $100 and no more often than twice a year are exempt from the regulations.

According to Devoshire-Ellis, the new regulations will not create much additional red tape for organizations beyond opening a new FCY account.

“It is a minor increase in administration,” he said.

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