On October 30, 2008, the State Administration of Foreign Exchange (SAFE) issued the Circular on the Implementation of Registration Administration of Enterprises’ Creditors’ Rights against Foreign Parties under the Item of Trade in Goods,the Circular), which came into force on November 15, 2008. The Circular aims to establish and strengthen the system of statistical monitoring of Chinese enterprises’ creditors’ rights against foreign parties, to regulate cross-border capital flow under the item of trade in goods, and to promote the balance of payments.  

According to the Circular, the enterprises’ creditors’ rights against foreign parties under trade in goods include the enterprises’ advance payments for imports and deferred receivables of the enterprises’ exports. All these rights are subject to registration with SAFE. The Circular defines “advance payment” to mean a payment in foreign exchange that is contracted to be made preceding the contracted date of import, or that is actually made on a date preceding the date of actual import customs declaration. The term “deferred receivable” refers to the proceeds in foreign exchange that are contracted to be received on a date later than the contracted date of export, or that are actually received on a date more than 90 days later than the actual date of export customs declaration.  

Enterprises may register their creditors’ rights against foreign parties either on SAFE’s Web site, or at SAFE’s local branches. Under the Circular, an enterprise that fails to properly handle the registration of an advance payment, or deals with the registration by providing a falsified contract, will be punished in accordance with the PRC Regulation on Foreign Exchange Administration. If an import contract entered into after November 15, 2008 provides for an advance payment, the enterprise must register the contract with SAFE within 15 workdays from the effective date of the contract. In addition, the enterprise must register the advance payment in foreign exchange within 15 workdays from the day that the payment is actually made.  

If an advance payment occurs without having been stipulated in a contract, the enterprise must register at the same time the contract on the advance payment and the payment in foreign exchange within 15 workdays from the actual occurrence of the advance payment.  

Where a return of foreign exchange occurs after the goods under the registered advance payment item are declared for import (or filed for import), or when the goods are not imported, the enterprise must apply to cancel the registration of the advance payment within 15 workdays from the issuance date of the goods’ import declaration form (or the customs archival filing list), or the date on which the return of foreign exchange occurred.  

SAFE will verify the enterprises’ advance payment amount on the basis of the payment in foreign exchange for the enterprises’ imports of the previous period, and the situation of the registration and deregistration of their advance payments. As a general principle, except for enterprises importing large-scale, complete-set equipments, the advance payment amount of an enterprise may not exceed 10 percent of its import payment in foreign exchange of the previous 12 months.  

If the advance payment amount of an enterprise does not meet its needs, the enterprise may apply to the local SAFE branch for an adjustment of its advance payment amount. Banks must handle enterprises’ purchases and payments in foreign exchange in connection with their advance payments based on the relevant advance payment registration information verified by SAFE.

The Circular applies to both foreign trade proprietorships, and enterprises in bonded areas under customs supervision.