China has gradually eased restrictions on international payments and receipts for both current and capital accounts.

Before its economic reform and opening up to the world in 1978, the Chinese economy was controlled by the government through internal policies and regulations, which included all incoming and outgoing foreign currencies. Enterprises in China seeking to buy and sell foreign currencies from state-owned banks to foreign trade were required to apply for a foreign currency quota with the Chinese government.

However, the increase in foreign trade in the past two decades has led the State Administration of Foreign Exchange (SAFE) to impose fewer restrictions on international payments and receipts for both current and capital accounts.

Here are two milestone changes in China’s foreign exchange evolution.

1. Foreign exchange policy

On 1 September 2013, SAFE issued a foreign exchange policy to increase the foreign exchange payment threshold from USD $30,000 to USD $50,000 for service and trade transactions. Prior to that, all businesses with oversea payments for service and trade amounting to over USD $30,000 were required to prepare tax payment records to file with the tax bureau.

2. International payment contracts

On 9 July 2013 the State Administration of Taxation and SAFE announced that companies would only need to file their contract registration with the tax bureau. All contracts for international payments were to be registered with the tax bureau within 30 days of the contract signing date.

The above changes were based on an analysis by SAFE in 2012, which indicated that the number of international payments and receipt transactions over USD $50,000 were over 85% of total transactions. The increase in the threshold makes it simpler and more practical for Chinese companies to complete international trades.

Changes to responsibility for foreign exchange on services and trade transactions

According to the Circular on Further Simplifying and Improving the Direct Investment-related Foreign Exchange Administration Policies [2015] No. 13, the main responsibility of reviewing, checking and auditing the foreign exchange application, and its supporting documents for services and trade transactions, has been transferred to the banks since 1 June 2015. Therefore, the application process is much shorter as a company’s bank is more familiar with the operation of the company and can check the application faster.

Although the newly-updated processes can be time consuming for many businesses, understanding how international payments work in China can help companies with their everyday decision-making.