On December 31, in the last few hours of 2016, the State Administration for Foreign Exchange (“SAFE”) announced on its official website stricter administration on foreign exchange purchases by Chinese individuals.
While the allowance for individuals’ foreign exchange is still USD 50,000, from January 1, 2017, when applying to purchase foreign currency, individuals will have to fill in and sign a letter of commitment stating the purpose of the purchase, the time frame to use the foreign currency and the destination country.
Regarding purpose, the announcement emphasizes that investment is not allowed in real property, securities, life insurance or insurance with rebates in foreign countries. The Administrative Measures for Individual Foreign Exchange and its implementing rules already prohibited these purposes, limiting individuals’ outbound investment to approved channels (e.g., QDII or qualified domestic institutional investor). The announcement also prohibits lending personal allowances to and borrowing from others.
This step further restricts outbound investment, after the joint announcement by the NDRC, the MOFCOM, SAFE and the People’s Bank of China (“PBOC”) on November 28 and December 6, 2016, under which they will:
- verify the authenticity of certain outbound investment projects under relevant provisions;
- pay close attention to projects in real property, hotels, studios, entertainment, sports clubs and other areas where they have identified “irrational” tendencies in overseas investment; and
- control the risk relating to major projects, such as “non-main industry investments,” “limited partnerships,” "significant investment by small-scale investors" and "investment by investors recently set up."
SAFE forwarded guiding opinions to its local branches, indicating that commercial banks need to report to SAFE payments for outbound investments related to projects exceeding USD 5 million (instead of the previous USD 50 million threshold). In these cases, the four announcing authorities will review these projects for authenticity and compliance.
Additionally, on December 28, 2016, the PBOC issued the revised Administrative Measures for Financial Institutions’ Reports on Large-Value and Suspicious Transactions and, from July 1, 2017, banks must report to the PBOC any cash-related transactions reaching RMB 50,000 or USD 10,000, individually or accumulatively, respectively (replacing the current threshold of RMB 200,000 or USD 10,000).