Decree No. 532 of the State Council ofthe People’s Republic of China

The Regulations on Foreign Exchange System of the People’sRepublic of China, reviewed and passed in the 20^th executivemeeting of the State Council on August 1, 2008 , are hereby released and shall come into forcesimultaneously.

                            WenJiabao             

Premier of the People’s Republic of China

August 5, 2008           

Regulations on Foreign ExchangeSystem of the People’s Republic of China

(Issued in the Decree No. 193 of the State Council on January 29,1996, amended in accordance with the Decision of the State Council to Revisethe Regulations on Foreign Exchange System of the People’s Republic of Chinaon January 14, 1997, and revised and passed in the 20^th executivemeeting of the State Council on August 1, 2008.)

Chapter I General Provisions

 

Article 1 Theseregulations are formulated with a view to improving foreign exchangeadministration, maintaining an equilibrium in thebalance of payments and promoting sound economic development.

Article 2The foreign exchange administration department of the State Council and itslocal offices (hereinafter referred to collectively as “the exchangeadministration agencies”) shall exercise foreign exchange administration inaccordance with laws and regulations and assume the responsibility for theimplementation of these regulations.

Article 3 Foreign exchange, as referred to in theseregulations, includes the followingmeans of payments and assets denominated in foreign currency for internationalsettlement:

(1) cash inforeign currency, including banknotes and coins;

(2) documents orinstruments payable in foreign currency, including, among others, negotiableinstruments, bank deposits, bank cards;

(3) securitiesdenominated in foreign currency, including, among others, bonds and stocks;

(4) Special Drawing Rights,

(5) other assetsdenominated in foreign currency.

Article 4These regulations shall govern all activities in relation to receipts andpayments in foreign exchange or foreign exchange operations of domesticentities and domestic individuals, and, receipts and payments in foreignexchange or foreign exchange operations of foreign entities and foreignindividuals in the People’s Republic of China.

Article 5International payment and transfer in foreign exchange for current accounttransactions shall not be subject to government restrictions.

Article 6The government undertakes a reporting system for balance of paymentsstatistics.

The foreign exchange administrationdepartment of the State Council shall take the responsibility for compiling andmonitoring balance of payments statistics, and publish these statistics on aregular basis.

Article 7Financial institutions conducting foreign exchange operations shall conductbusiness operations through foreign exchange accounts opened for their clientsin accordance with the regulations enacted by the foreign exchangeadministration department of the State Council.

Financial institutions duly authorizedfor foreign exchange operations shall report their clients’ foreign exchangereceipts and payments, and changes in foreign exchange accounts opened fortheir clients to the exchange administration agencies in accordance with lawsand regulations.

Article 8Foreign currency is prohibited from circulation and shall not be quoted forpricing or settlement in the territory of the People's Republic of China unless otherwise regulated by the government.

Article 9Foreign exchange receipts of domestic entities and domestic individuals may berepatriated into or placed outside of the People’s Republic of China. Theforeign exchange administration department of the State Council shall determinethe conditions, time limits and other factors of repatriation or overseasplacement on the basis of the balance of payments situation and the need forforeign exchange administration.

Article 10The foreign exchange administration department of the State Council shall hold,manage and operate foreign exchange reserves in accordance with laws andregulations, and follow the principles of safety, liquidity and profitability.

Article 11 In case of occurrence, or possible occurrence, of seriousdisequilibrium in the balance of payments or a severe crisis of the nationaleconomy, the government may adopt safeguards, controls or other necessarymeasures.

Chapter IIForeign Exchange Administration on Current Account Transactions

Article 12 Receipts and payments in foreign exchange for current accounttransactions shall have bona fide and legitimate transaction backgrounds.Financial institutions duly authorized for foreign exchange purchase and saleoperations shall exercise due diligence in checking the authenticity oftransaction documents and their consistency with the receipts and payments inforeign exchange in accordance with the regulations issued by the foreignexchange administration department of the State Council.

The foreign exchange administrationagencies have the right to supervise and conduct inspections under theaforesaid regulation.

Article 13Foreign exchange receipts for current account transactions may be retained orsold to financial institutions duly authorized for foreign exchange sale andpurchase operations in accordance with the relevant regulations of thegovernment.

Article 14Foreign exchange payments for current account transactions may be made withforeign exchange owned by the payer, or with the foreign exchange purchasedfrom financial institutions duly authorized for foreign exchange sale andpurchase operations with the presence of such valid documents as specified bythe foreign exchange administration department of the State Council.

Article 15The foreign exchange administration department of the State Council shalldetermine the limits and reporting requirements of foreign currency allowed tobe carried into or out of the People’s Republicof China.

 

Chapter IIIForeign Exchange Administration on Capital Account Transactions

Article 16Direct investments within territory of the People’s Republic of China by foreignentities and foreign individuals shall be registered with the foreign exchangeadministration agencies after being approved by the relevant authorities.

Issuance and transactions of securitiesor derivatives in the People’s Republic of China by foreign entities orforeign individuals shall be made in accordance with the regulations governingmarket entry, and be registered in accordance with the regulations made by theforeign exchange administration department of the State Council.

Article 17Overseas direct investment and overseas issuance or transactions of securitiesor derivatives by domestic entities and domestic individuals shall beregistered in accordance with the regulations made by the foreign exchangeadministration department of the State Council. Where prior approval of, orregistration with, the relevant authorities is required in pursuance of theregulations of the government, the approval or registration procedures shall becompleted prior to the foreign exchange registration.

Article 18The government undertakes quota management on external debt. External borrowingshall be undertaken in accordance with relevant regulations of the governmentand shall be registered with the foreign exchange administration agencies.

The foreign exchange administrationdepartment of the State Council shall take the responsibility for compiling andmonitoring external debt statistics and publish these statistics on a regularbasis.

Article 19In the case of offering an external guarantee, an application shall be made tothe foreign exchange administration agencies. The foreign exchangeadministration agencies may either approve or reject the application takinginto account the applicant’s assets and liabilities, and other relevantfactors. Where the scope of business operations of domestic entities requiresapproval from the relevant authorities in accordance with the regulations ofthe government, such approval shall be obtained before making the applicationto the foreign exchange administration agencies. After signing an externalguarantee contract, the applicant shall register the external guarantee withthe exchange administration agencies.

The external guarantee offered for onlendloans with the permission of the State Council, and with a view to utilizingloans provided by foreign governments or international financial organizationsis not subject to the aforesaid regulation.

 

Article 20Banking institutions may issue overseas commercial lendings directly within thescope of their approved business operations. Other domestic entities shall makean application to the foreign exchange administration agencies in the case ofissuing overseas commercial lendings. The foreign exchange administrationsagencies may either approve or reject the application taking into account theapplicant’s assets and liabilities, and other relevant factors. Where thescope of business operations of domestic entities requires approval of relevantauthorities in accordance with the regulations of the government, such approvalshall be obtained before making the application to the foreign exchangeadministration agencies.

Overseas commercial lendings shall beregistered in accordance with the regulations made by the foreign exchangeadministration department of the State Council.

 

Article 21Receipts in foreign exchange for capital account transactions may be retainedor sold to financial institutions duly authorized for foreign exchange sale andpurchase operations with the approval of the foreign exchange administrationagencies, unless no approval is required in accordance with the regulations ofthe government.

Article 22Payments in foreign exchange for capital account transactions shall be madewith the foreign exchange owned by the payer, or with the foreign exchangepurchased from financial institutions duly authorized for foreign exchange saleand purchase operations upon presentation of valid documents specified by theforeign exchange administration department of the State Council. Where approvalof the foreign exchange administration agencies is required in pursuance of theregulations of the government, the approval shall be obtained prior to thepayment in foreign exchange.

Foreign investor’s Renminbi income in alegally terminated foreign invested enterprise which has completed liquidationprocedures and fulfilled tax obligations in accordance with the relevantregulations of the government may be converted into foreign currency throughfinancial institutions duly authorized for foreign exchange sale and purchaseoperations and remitted out of the People’s Republic of China.

Article 23 Foreign exchange or convertedRenminbi receipts for capital account transactions shall be used for thepurpose approved by the foreign exchange administration agencies in accordancewith the relevant regulations of the government. The foreign exchangeadministration agencies have the right to conduct supervision and inspection ofthe use of foreign exchange or converted Renminbi receipts and changes ofrelevant accounts.

 

Chapter IVForeign Exchange Administration on Operations of Financial Institutions

Article 24Financial institutions shall have the approval of the foreign exchangeadministration agencies for the operation or termination of foreign exchangesale and purchase business. Financial institutions shall have the approval ofthe foreign exchange administration agencies or the financial supervisoryauthorities according to their division of supervisory responsibilities for theoperation or termination of other foreign exchange business.

Article 25The foreign exchange administration agencies undertake comprehensive positionmanagement in respect to the foreign exchange operations of financialinstitutions. Detailed measures shall be formulated by the foreign exchangeadministration department of the State Council.

Article 26Currency conversion of financial institution’s capital, profit and mismatchedassets denominated in domestic and foreign currencies shall have the approvalof the foreign exchange administration agencies.

  

Chapter VRenminbi Exchange Rate and Administration on Foreign Exchange Market

Article 27The Renminbi exchange rate is in a managed floating regime based on marketsupply and demand.

Article 28Financial institutions duly authorized for foreign exchange sale and purchaseoperations, and other entities which have complied with such conditions asspecified by the foreign exchange administration department of the StateCouncil, may participate in trading of foreign exchange in the inter-bankforeign exchange market in accordance with the regulations issued by theforeign exchange administration department of the State Council.

Article 29Trading of foreign exchange in the market shall comply with the principles oftransparency, equality, fairness, honesty and credibility.

Article 30The trading currencies and formats in the foreign exchange market shallbe specified by the foreign exchange administration department of the StateCouncil.

Article 31The foreign exchange administration department of the State Council shallsupervise and manage domestic foreign exchange markets in accordance with lawsand regulations.

Article 32 The foreign exchange administration department of the State Councilmay, on the basis of the changes in the foreign exchange market and monetarypolicy, smooth excessive fluctuations in the foreign exchange market inaccordance with laws and regulations.

 

Chapter VI Supervision andManagement

Article 33The foreign exchange administration agencies shall carry out theirresponsibilities in accordance with laws and regulations and have the power totake the following measures:

(1) Make on-the-spot inspection of financialinstitutions conducting foreign exchange operations;

(2) Enter intosuspected places of illegal foreign exchange activities, conduct investigationand obtain evidence;

(3) Question the entities or individualswho have receipts or payments in foreign exchange or conduct foreign exchangeoperations and ask for explanation of matters directly relevant to the illegalforeign exchange activities under investigation;

(4) Examine and copy materials such astransaction documents directly relevant to the illegal foreign exchangeactivities under investigation;

(5) Examine and copy financial andaccounting records and other relevant documents of the party involved in orentities and individuals directly relevant to the illegal foreign exchangeactivities under investigation; documents and records which could potentiallybe transferred, concealed or destroyed may be seized;

(6) Examine accounts, other thanindividual savings accounts, of the party involved in, or entities andindividuals directly relevant to, the illegal foreign exchange activities underinvestigation, subject to the permission of the foreign exchange administrationdepartment of the State Council or the foreign exchange administration agenciesat the provincial level;

(7) In the case that there is evidence oftransfer or concealment of the money or other assets in question, orconcealment, forgery or damage of important evidence, or there is evidence thatit is possible for these to happen, make an application to a People’s Court tofreeze or seize the said money, assets or evidence.

Relevant entities and individuals shallco-operate with the foreign exchange administration agencies in the supervisionand inspection, give honest explanations to relevant matters and providerelevant documents and other information. They shall not refuse to co-operatewith, obstruct or conceal things from the supervision and inspection.

Article 34 The foreign exchange administration agencies shall conductsupervision, inspection or investigation in accordance with laws andregulations. The supervision, inspection or investigation shall be carried outby no less than two officers, and the officers shall present identificationdocuments before inspection or investigation. Otherwise, the entities orindividuals subject to supervision, inspection or investigation have the rightto refuse.

Article 35Domestic entities conducting foreign exchange operations shall submit financialand accounting statements, statistics and other documents as specified by theforeign exchange administration department of the State Council.

Article 36The financial institutions duly authorized for foreign exchange operationsshall, upon detection, report illegal foreign exchange activities to theforeign exchange administration agencies in a timely manner.

Article 37The foreign exchange administration department of the State Council may obtainthe information necessary for taking the responsibility of foreign exchange administrationfrom relevant government agencies and institutions of the State Council.Relevant government agencies and institutions shall provide the saidinformation.

The foreign exchange administrationdepartment of the State Council shall keep relevant government agencies andinstitutions informed of the work on foreign exchange administration.

Article 38Any entity or individual has the right to report any activity in violation offoreign exchange regulations.

The foreign exchange administrationagencies shall keep the reporter confidential, and reward the reporter andother entities or individuals who have helped in investigating and penalizingthe activity in violation of foreign exchange regulations.

 

Chapter VII Legal Responsibilities

Article 39To penalize foreign exchange evasion schemes, such as transferring foreignexchange abroad in violation of the regulations or transferring domesticcapital abroad by fraudulent means, the foreign exchange administrationagencies shall order the foreign exchange in question to be repatriated andimpose a penalty not exceeding thirty percent of the amount involved in theevasion scheme; in the case of serious violations, the penalty imposed will bein the range of more than thirty percent and less than one hundred percent ofthe amount involved in the evasion scheme; in the case of criminal offence, acriminal prosecution shall proceed.

Article 40To penalize illegal foreign exchange arbitrage in violation of the regulations,such as paying or receiving in foreign exchange for expenses which shall bepaid or received in Renminbi or purchasing foreign exchange from financialinstitutions duly authorized for foreign exchange sale and purchase operationswith fake or invalid transaction documents, the exchange administrationagencies shall order the funds involved in the illegal arbitrage to beconverted back and impose a penalty not exceeding thirty percent of the amountinvolved in the illegal arbitrage; in the case of serious violations, thepenalty imposed will be in the range of more than thirty percent and less thanone hundred percent of the amount involved in the illegal arbitrage; in thecase of criminal offence, a criminal prosecution shall proceed.

Article 41To penalize the foreign exchange inward remittance in violation of theregulations, the foreign exchange administration agencies shall order redressand impose a penalty not exceeding thirty percent of the amount in question; inthe case of serious violations, the penalty imposed will be in the range ofmore than thirty percent and less than one hundred percent of the amount inquestion.

To penalize the illegal foreign exchangesales, the exchange administration agencies shall order the foreign exchangeillegally surrendered to be converted back and impose a penalty not exceedingthirty percent of the amount in question.

 

Article 42 To penalize the carrying of foreign currency into or out of thePeople’s Republic of China in violation of the regulations, the exchangeadministration agencies shall issue a warning, and may impose a penalty notexceeding twenty percent of the amount in question. If existing laws andregulations stipulate that cases of similar nature are in the jurisdiction ofthe Customs authority, those laws and regulations shall prevail.

Article 43To penalize any activity in violation of the regulations governing externaldebt such as undertaking external borrowing, overseas bond issuance or externalguarantee without permission, the foreign exchange administration agenciesshall issue a warning and impose a penalty not exceeding thirty percent of theamount in question.

 

Article 44To penalize the change of designated use of foreign exchange or convertedRenminbi receipts without permission in violation of the regulations, theexchange administration agencies shall order redress, confiscate the illegalgains and impose a penalty not exceeding thirty percent of the amount inquestion; in the case of serious violations, the penalty imposed will be in therange of more than thirty percent and less than one hundred percent of theamount in question.

To penalize the illegal use of foreignexchange, such as the use of foreign exchange in the People’s Republic ofChina for pricing or settlement and the transfer of foreign exchange inviolation of the Regulations, the foreign exchange administrationagencies shall order redress, issue a warning, and may impose a penalty notexceeding thirty percent of the amount in question.

Article 45To penalize the unauthorized trading, disguised trading, illegal buying orselling, and the illegal brokerage trading of a relatively large amount offoreign exchange, the exchange administration agencies shall issue a warning,confiscate the illegal gains and impose a penalty not exceeding thirty percentof the amount in question; in the case of serious violations, the penaltyimposed will be in the range of more than thirty percent and less than onehundred percent of the amount in question; in the case of criminal offence, acriminal prosecution shall proceed.

Article 46To penalize the unauthorize