On June 9, 2016, the State Administration of Foreign Exchange (“SAFE”) issued Notice Hui Fa [2016] No. 16 on reforming and standardizing the administrative provisions on capital account foreign exchange settlement.

This is the second time this year that new rules have been introduced in this area, following Notice on Further Promoting Trade and Investment Facilitation and Improving Authenticity Review, issued on April 26, 2016, and allowing Chinese- funded enterprises nationwide that are non-financial institutions to enjoy the same treatment in respect of foreign currency debt settlement as foreign-invested enterprises (“FIEs”), i.e., unifying administration.

The new Notice emphasizes unification, stating that all domestic enterprises (including Chinese-funded enterprises and foreign-invested enterprises, but excluding financial institutions) can settle their foreign currency debt at their own discretion.

In addition, any settlement in the capital account (e.g., registered capital contribution and foreign currency debt) can be handled at the bank according to the actual needs of all domestic institutions, FIEs included, and SAFE has temporarily capped the settlement ratio at 100%. However, these settlements under the capital account cannot be used for the following purposes:

  • Direct or indirect expenditure beyond the business scope or expenditure prohibited under Chinese laws and regulations.
  • Direct or indirect securities investment or investment and wealth management of products other than principal-guaranteed products issued by banks, unless otherwise expressly prescribed.
  • Disbursement of loans to non-affiliated enterprises, except under circumstances expressly allowed by the business scope.
  • Construction or purchase of real estate other than for self-use (unless it is a real estate enterprise).

Finally, the new Notice increases from USD 100,000 to USD 200,000 the threshold of cumulative monthly payment of imprest cash (including foreign currency settlement at the enterprise’s own discretion and payment-based settlement).

This liberalization can be seen as encouragement and facilitation of Chinese enterprise development, investment and operation.

Date of issue: June 9, 2016. Effective date: June 9, 2016