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China eases restrictions on the currency control system

May 22, 2015 Article 1 min read
Authors:
Lou Longo
On March 30, 2015, the Chinese State Administration of Foreign Exchange (SAFE) eased its restrictions on the currency controls system. This means an increase in the flexibility of Foreign Invested Enterprise (FIE) currency management in China, with an aim to allow companies to settle their foreign exchange capital and to hedge currency risks. Briefly, the reform includes the following updates:
  • Companies can execute their foreign currency registration with a qualified bank in the area where the business is incorporated. It is no longer required to register with the local SAFE bureau before injecting capital through a bank.
  • Starting June 1, 2015, SAFE will extend the relaxed restrictions of currency controls under Chinese capital accounts, which will allow FIEs to convert up to 100 percent of their registered capital from a foreign currency into Chinese Yuan Renminbi (RMB).
  • Under the new announcement, SAFE will also remove several administrative procedures to simplify the overall process of financial and investment activities in China. For example, it will cancel the annual inspection on FIEs’ foreign exchange transactions; however, FIEs will be required to submit an annual report of their foreign exchange transactions to SAFE by September 30 each year.
This new policy encourages foreign investors to reconsider the currency held in their Chinese capital bank accounts, which can now be used to hedge fluctuations in the Chinese currency market. These significant changes will also expedite the timeline to complete a Chinese subsidiary incorporation and accelerate the process to inject or amend the registered capital or equity for FIEs. Additionally, these changes will also help smooth the process of repatriating an FIE’s dividend or reinvestment of earnings, domestically or overseas.

This is a good time for FIEs in China to evaluate their current cash position with their local financial consultant to understand how this new policy could affect their international cash flow management. Please contact Henry Xue at henry.xue@plantemoran.com or Lou Longo at 312-602-3676 or lou.longo@plantemoran.com for more information on the following:
  1. General understanding of registered capital, capital accounts, and capital injection requirements in China
  2. Foreign currency management strategies in China
  3. The filing and processes of foreign currency registration and reinvestment abroad through Chinese bank accounts
  4. The annual inspection of foreign currency used in inbound investments
  5. Guidelines and timeline to submit the annual report on inbound and outbound investments to SAFE after the policy changes

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