The new SAFE regulations
By Salina Leong
To improve foreign exchange administration of foreign-invested enterprises and to facilitate the handling and verification of foreign currency capital, the State Administration of Foreign Exchange (SAFE) have recently issued a new notice. The new regulations aim to prevent hot money from flooding into China to establish foreign-funded enterprises and to allow regulators to closely monitor and control foreign capital movement.
The Notice can be summarized as follows:
- Capital verification should be performed on paid-up capital before its conversion into RMB. The total amount of paid-up capital in forex that can be converted into RMB should not exceed the accumulated paid-up capital which has been verified by a local CPA .
- Usage of the converted RMB capital should be within the allowable business scope approved by the relevant Chinese authorities. The amount can not be used for equity investment unless specifically prescribed in the relevant regulations.
- FIEs are required to provide detailed documentation to support the application for converting forex of over USD 50,000 into RMB. Given stringent documentation requirements, finance personnel should make sure that the valid documents are available to justify the conversion to meet the working capital needs of the company and to achieve efficient cash-flow management.
- SAFE will strengthen its supervision on the banks’ processing of FIEs’ applications for converting paid-up capital into RMB and tighten up its on-going inspections on the usage of such converted RMB capital. Penalty will be levied on FIEs should they be found to have 1) changed the usage of the RMB capital without proper approval or 2) used the RMB capital for repayment of un-used RMB loans.
Salina Leong, JLJ Group
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December 5th, 2008 at 11:45 am
Dear Salina ,
Please contact me by @mail ,
Thanks and Best Regards ,
Tom
December 5th, 2008 at 4:15 pm
We found about this the hard way…Why can’t the banks or the SAFE send direct notices to the FIEs?? After all we are also stakeholders in all this?
Money were wired into our account for urgent purchases as part of the investment capital, for us to find out that it needs to be “verified” before we are able to change it into RMB…
December 8th, 2008 at 7:52 am
Yes it is very painful that the SAFE didnt send new regulation to all FIEs, only when your accountant been there then you get the information, this is why when i got information i always give the update to our clients or put on our company monthly newsletter to send out.
If you want to exchange the foreign currency into RMB then you have to give the proven, show what the amount of money use for, the government is trying to prevent the ‘hot money’
December 8th, 2008 at 7:53 am
Dear Tom
I dont have your email account, you can reach me via: salina.leong@jljgroup.com
Looking forward to hearing from you, thanks
Salina
December 9th, 2008 at 1:06 pm
A correction: capital verification has always been an essential part of the procedures for receiving investment. Moreover if a company wants to invest beyond its approved registered capital, it needs to increase its registered capital first - this has always been the case.
On the other hand, the new SAFE Regulations do give the authorities more scope to investigate whether forex coming into China is put to legal use. This seems reasonable - even though the extra formalities could be a pain.
December 31st, 2008 at 7:25 am
It’s ture these regulations add more cost to companies, but this is China. Now it’s time china take care of itself after her foreign exchange reserve exceeds to 2 million billion dollar. Many factors push these regulations come out, including political, economy etc.
I’m interested in refrom fo RMB exchange rate. You can add my msn if you fell interested in that too.