• Pilot Reform on Foreign Exchange Control over Cross-Border Trade in Goods
  • September 29, 2011
  • Law Firm: Norton Rose Canada LLP - Montreal Office
  • On 15 September, the State Administration of Foreign Exchange (SAFE), the State Administration of Taxation and the General Administration of Customs jointly issued an announcement to launch a pilot reform measure further relaxing foreign exchange control on ordinary cross-border trade in goods. Detailed guidance on the reform measure was released simultaneously with the announcement.

    Several points worth noting are summarised below:

    • The pilot reform will be implemented from 1 December 2011 in seven provinces or cities of China, namely Jiangsu, Shandong, Hubei, Zhejiang (excluding Ningbo city), Fujian (excluding Xiamen city), Dalian and Qingdao

    • The pilot reform aims to simplify and optimise current foreign exchange control procedures and measures over cross-border trade in goods, and to promote information sharing among banks and different regulatory authorities.

    • Under the pilot reform, Chinese exporters will not need to fulfil export settlement procedures with SAFE after receipt of payment for export of goods on a case by case basis; instead, local SAFEs will supervise overall cross-border trade and payment status and may only investigate or intervene when business activities of any PRC enterprises appear to be suspicious.

    • Local SAFEs are required to categorise all enterprises conducting cross-border trade in the relevant regions into three grades, i.e. “A”, “B” and “C”. Those having the highest level of credit (i.e. falling within the “A” category) will enjoy a large degree of freedom and little regulatory intervention in their cross-border payments. By contrast, enterprises falling under category “B” or “C” (especially the latter) will still be subject to close supervision by SAFE.

    • SAFE will specifically supervise trade finance, entrepot trade, and business activities of enterprises in the bonded areas, and will pay particular attention to enterprises whose cross-border cash flow deviates significantly from their physical import or export of goods or whose import/export prepayment or deferred payment balance has reached a predefined threshold.

    • Following the reform of the import settlement regime introduced last year, regulatory control over ordinary cross-border trade in goods conducted by enterprises with good credit track records will be further relaxed. However, SAFE will maintain its close supervision on areas that may allow “hot money” inflows.