China’s State Administration of Foreign Exchange (Safe) has announced the implementation of a reform of the administrative approach to settlement of foreign exchange (FX) capital by foreign-invested enterprises (FIEs). The announcement was made on 11 June but is effective from 1 June.
It allows FIEs to choose the timing for the settlement of FX capital on a voluntary basis. The reform was announced in a circular and is a national roll-out of a pilot programme tested in several regions.
The circular specified the following stipulations:
- FIEs can settle 100 per cent of their foreign exchange capital voluntarily.
- RMB funds from the voluntary settlement of FX capital of FIEs to be included in accounts for FX settlement and pending payment
- There are several restrictions on the use of FIEs' capital and RMB funds from their settlement, including as use for payment beyond the business scope, for securities investments, for the extension of RMB entrusted loans, repayments of inter-enterprise borrowings.
- Except for transfers in the original currency owing to equity investments, it is acceptable for FIEs with investment as their main business to directly settle the FX capital into RMB.
- FIEs are required to provide relevant documents when applying for payments with RMB funds from the settlement of capital (including direct payments with foreign exchange capital).
For more detail on the stipulations of the reform, see SAFE's circular here.
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