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SAFE Launches Reform on Management of Forex Capital Settlement

China’s State Administration of Foreign Exchange (SAFE) has recently issued a circular on the reform of the management in settlement of foreign exchange capital of foreign-invested enterprises (FIE) which will take effect on 1 June 2015.

The circular sets forth the following reforms: First, implementing the discretionary settlement of foreign exchange capital for FIEs, so that companies can freely choose the timing of capital settlement. Second, clarifying that the use of capital and settlement of funds by FIEs shall comply with the relevant provisions of foreign exchange management, and implementing a negative list approach in managing the use of capital. Third, facilitating FIEs to carry out domestic equity investments with funds settled from the foreign exchange capital. Fourth, further standardising the account management of settlement funds, banks should check the authenticity of transactions in accordance with the three principles of business development. Fifth, clarifying and simplifying foreign exchange settlement account and use of funds management of other direct investments. Sixth, strengthening the on-going and ex post management by SAFE, further strengthening ex post supervision and punishment for violations.

The circular contains important initiatives of SAFE to implement the State Council requirements to promote the replicable experience of the Shanghai pilot free trade zone, effectively changing the foreign exchange management principles and methods. Enterprises are given the autonomy and the right to choose on the settlement of foreign exchange capital, which can make use of policy leeway to mitigate the risk of exchange rate fluctuations, helping to reduce costs, further promoting trade and investment facilitation and effectively serving the development of the real economy.

Content provided by Picture: HKTDC Research
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