Shanghai Exchange Publication  No.26
To all designated foreign exchange banks in Shanghai:To support the development of China (Shanghai) Pilot Free Trade Zone (the "PFTZ"), Anchorpromote further opening-up, and implement the Framework Plan for the China (Shanghai) Pilot Free Trade Zone (State Publication  No. 38) and the Opinions of the People's Bank of China on Financial Sector Support for the China (Shanghai) Pilot Free Trade Zone (Bank Publication  No.244), as approved by the State Administration of Foreign Exchange, the Shanghai Branch of the State Administration of Foreign Exchange (referred to hereafter as “SAFE Shanghai”) shall, based on the principles of serving the real economy, deepening reforms of foreign exchange management, effectively preventing the risks, and "one item at a time", adopt the following measures for foreign exchange management.
I. Deepening Reforms of Foreign Exchange Management to Facilitate Trade-related Investment
1. The procedures for evaluating the documents of foreign-exchange-related transactions (including receipt, settlement, purchasing and payment) under current accounts have been simplified. Banks shall handle these transactions in accordance with the principles of “knowing your clients, knowing your business, and due diligence.
2. The procedures for foreign exchange registration under FDI have been simplified, through expanding registration channels and applying the voluntary foreign exchange settlement policy to foreign-funded corporations in handling their foreign exchange capital. Foreign-funded corporations are allowed to open a RMB deposit account which is directly linked with their foreign exchange account for RMB generated in the settlement. The corporations may use this account to handle various payments in accordance with the real transaction principle.
3. Foreign debt management has been relaxed. The approval for providing guarantee to offshore institutions and the payment of guarantee fees for offshore debt is no longer required. The upper limit for the offshore foreign exchange loans has been raised from 30% to 50% of the owner’s equity, and credit registration under FDI is now covered by the registration management system of the offshore foreign exchange loans. The approval for outbound/overseas financial leasing is no longer needed, and rental payments in foreign currencies are allowed for domestic leasing business.
4. The pilot management system has been improved for centralized foreign exchange management for the headquarters of multi-national companies, for foreign exchange capital pool and for foreign exchange in the international trade settlement center; the qualifications for corporations entitled to the pilot policies have been lowered; and the approval procedures and account management have been simplified.
5. The management of foreign exchange settlement and sales operations has been improved; and support has been given to banks in launching the over-the-counter commodity derivative trading service for clients in the PFTZ.
II. Enhancing Statistical Monitoring and Early Warning System to Effectively Prevent Risks in Foreign Exchange Payments/Receipts
6. The obligation of reporting and submitting foreign exchange management information shall be strictly performed. Banks and companies shall, in accordance with the foreign exchange management rules, report in a timely and precise manner to SAFE Shanghai such information as the statistical declaration of the international balance of payments, domestic fund transfers, and foreign exchange settlement and sales. They shall also report on any abnormal or suspicious situations, and adopt measures to prevent abnormal cross-border cash flows.
7. Off-site supervision and on-site inspection have been intensified. SAFE Shanghai shall increase the monitoring of cross-border capital flows, improve the early warning system for foreign exchange payments/receipts, and send out risk warnings of any abnormal or suspicious situations to banks and corporations concerned. On-site inspection shall be conducted in accordance with the law. Categorized management shall be implemented, and violations shall be punished. Where necessary, policies may be adjusted, and provisional regulatory measures may be adopted.
This Notice shall enter into effect as of the date of issue. On the next stage, SAFE Shanghai shall review the foreign exchange management in the PFTZ in a timely manner and develop policies to further promote facilitation in investment, financing and foreign exchange services, in order to support the PFTZ-based business operation to better supplement national strategies for the PFTZ.
Annex: Detailed Rules for the Implementation of Foreign Exchange Administration to Support the Development of China (Shanghai) Pilot Free Trade Zone
The Shanghai Branch of the State Administration for Foreign Exchange
February 28, 2014
Detailed Rules for the Implementation of Foreign Exchange Administration to Support the Development of China (Shanghai) Pilot Free Trade Zone
Chapter I General Provisions
Article 1 These Detailed Rules are formulated in accordance with the Notice of the State Council on Issuing the Framework Plan for the China (Shanghai) Pilot Free Trade Zone (State Publication  No. 38) and the Opinions of the People’s Bank of China on Financial Sector Support for the China (Shanghai) Pilot Free Trade Zone (Bank Publication  No. 244, referred to hereafter as the “Opinions”), to support the development of China (Shanghai) Pilot Free Trade Zone (the “PFTZ”).
Article 2 These Detailed Rules shall apply to PFTZ-based banks (including banks registered in the PFTZ and banks in Shanghai providing services within the PFTZ. Same below), domestic and overseas enterprises, non-banking financial institutions, individuals (collectively referred to hereafter as the “PFTZ-based entities”) .
Article 3 The Shanghai Branch of the State Administration of Foreign Exchange (referred to hereafter as “SAFE Shanghai”) is responsible for the oversight and administration of matters in opening foreign currency account, transfer of funds, settlement and purchase of foreign exchange and data and statistics of RMB and foreign currencies.
Article 4 PFTZ-based entities shall fulfill their obligations in fully and accurately reporting data on international balance of payments, settlement and purchase of foreign exchange, domestic transfer of funds and accounts in a timely manner in accordance with the current requirements on foreign exchange management.
Article 5 PFTZ-based banks shall abide by the principle of “knowing your clients, knowing your business and due diligence” to conduct the review in the authenticity and compliance of foreign exchange transactions in the PFTZ, formulate complete internal management system and submit a report to SAFE Shanghai.
Article 6 PFTZ-based enterprises, non-banking financial institutions and individuals shall deal with innovative foreign exchange transactions through accounts on an authentic and legal basis. No fake contracts or transactions are allowed.
Chapter II Current Account Transactions
Article 7 The foreign-exchange-related transactions (including receipt, settlement, purchasing and payment) under the current account between PFTZ-based and overseas entities shall be handled in accordance with Article 5 in theses Detailed Rules. For the capital whose nature is unclear, relevant documents shall be provided by PFTZ-based banks in accordance with requirements of enterprises, non-banking institutions and individuals.
Foreign currency earnings from goods transactions by enterprises of Category A within the PFTZ do not need to be credited into accounts to be checked. Single external payment of service transactions, earnings and current transfers with the equivalent of over USD 50,000 shall submit taxation filing forms in accordance with rules.
Article 8 Qualified PFTZ-based entities may handle centralized receipt, payment, transfer and netting settlement of foreign exchange funds under the current account through domestic foreign exchange master account.
Article 9 Financial leasing companies in the PFTZ, both foreign-funded and Chinese-funded (referred to hereafter as “financial leasing companies”) are allowed to receive rental payments in foreign currencies for domestic leasing business. Goods transactions by major financial leasing companies are inspected and managed with special codes.
Chapter III Capital Account Transactions
Article 10 Foreign exchange registration and modification of registration under direct investment shall be made with banks.
Article 11 The voluntary foreign exchange settlement policy shall be applied to foreign-invested corporations in the PFTZ in handling their foreign exchange capital. Foreign-invested corporations shall open corresponding RMB special deposit accounts in the deposit bank of foreign exchange capital account. All types of payment procedures shall be conducted on the principle of authentic transactions through RMB special deposit accounts where RMB funds arising from capital for foreign exchange settlement are deposited.
Banks shall report information on the opening and closing of RMB special deposit accounts, and the information on the deposit and payment and balance of these accounts in accordance with the requirements of Foreign Exchange Account Data Collecting Rules (Version 1.1), Annex 4 of the Notice of the State Administration of Foreign Exchange on the Pilot Program of the Capital Account Information System and the Relevant Data Submission (Exchange Publication  No. 60). The type code of RMB special deposit account is 2113 and its type name is “capital account – settlement and transfer to be paid”. Banks shall, through domestic deposit and payment voucher, report information on the deposit and payment between RMB special deposit accounts and other domestic RMB accounts in accordance with the requirements of Notice of the State Administration of Foreign Exchange on Making Proper Adjustments of the Preparatory Work of Submitting Foreign-related Receipt and Payment Vouchers and Relevant Information of Domestic Banks (Exchange Publication  No. 49)
Article 12 The capital of foreign-invested companies and RMB funds arising from their settlement and transfer shall not be used for:
1．Expenditure beyond the scope of business operations or banned by national laws and regulations directly or indirectly;
2．Portfolio investment directly or indirectly unless otherwise ruled;
3．Issuance of entrusted loans in RMB (except those within the operation scope), repayment of loans between enterprises (including advances by third parties) and repayment of bank loans in RMB sub-loaned to the third party directly or indirectly; or
4．Payment of related expenses arising from purchase of non-self-use real estate property except by foreign-invested real estate enterprises.
Article 13 The administration of offshore foreign exchange loans provided by enterprises in the PFTZ shall be relaxed. The quota for an enterprise in the PFTZ to extend such loans shall be raised to 50% of the enterprise’s shareholders’ equity. The SAFE Shanghai shall deal with, through group discussions, the situations where it is necessary to exceed the said quota.
Article 14 The enterprises in the PFTZ shall, when providing external guarantees, enter into guarantee contracts without the need of applying to the SAFE Shanghai for prior administrative approval.
The external guarantees offered by enterprises in the PFTZ shall not be subject to the restrictions on the proportion of net assets between the guarantor and the guarantee, the profitability of the guarantee, or the correlation between the two parties’ equities.
The enterprises in the PFTZ shall, when entering into external guarantee contracts, conduct the guarantee registration and the compliance verification pursuant to relevant provisions, and comply with the restrictions on the use of guarantee funds.
Article 15 The enterprises and non-bank financial institutions in the PFTZ shall pay guarantee fees to overseas parties without verification and approval, and shall directly purchase the foreign exchange at a bank with the guarantee fee payment notice.
The bank shall, when processing the payments of foreign exchange, confirm that the related guarantee business are in line with the relevant provisions of the SAFE Shanghai.
Article 16 The requirement for the overseas credit services provided by the finance leasing companies in the PFTZ to be verified and approved on a transaction-by-transaction basis shall be replaced by a registration management system.
Article 17 The integrated pilot management system has been adopted for the centralized management of foreign currency by headquarters of multi-national companies, as well as foreign currency cash pool and international trade settlement center. The domestic account of the foreign currency cash pool and the special account of the international trade settlement center opened by an enterprise in the PFTZ shall be renamed as the Domestic Foreign Exchange Funds Master Account (“Domestic Account”) and the functions thereof shall be incorporated into the Domestic Account.
The Domestic Account shall, in addition to the services as described in Article 8 and the international trade settlement center business, provide centralized management of the capital funds, foreign debts and the liquidated assets of domestic member entities.
An eligible enterprise in the PFTZ may also set up an International Foreign Exchange Funds Master Account (“International Account”) where operations require. The flow of funds between the International Account and overseas is free of foreign exchange restrictions and controls. Funds may be freely transferred between the Domestic Account and International Account of the enterprise within the specified limit.
The requirements on the administrative verification and approval of all pilot operations launched by an eligible enterprise in the PFTZ through its Domestic Account and International Account shall be replaced by a record-filing procedure.
Chapter IV Foreign Exchange Market Business
Article 18 A bank shall conduct foreign exchange settlements for the commodity derivative transactions of the enterprises in the PFTZ, in line with the following provisions:
1．The bank shall comply with the provisions of relevant departments of financial regulation, including obtaining necessary prior business permits and observing necessary registration procedures. The bank branch providing such services shall comply with the internal administrative provisions of the bank, including obtaining necessary prior authorization.
2．The bank or its headquarters shall be qualified as the marker of the interbank foreign exchange market; or the bank has been rated Level-A for more than 1 time and has never been rated under Level-B in the evaluations of compliance of requirements on foreign exchange control in recent 3 years.
3．The bank shall conduct pre-registration with its Shanghai branch for the provision of foreign exchange settlements of the commodity derivative transactions.
4．When processing a commodity derivative transaction for an enterprise, the bank shall verify whether the enterprise has real experiences in conducting such transactions and whether it leverages proper hedging methods, and shall truthfully disclose risk information to the enterprise and let it take charge.
5．In case of the exchange rate exposure and foreign exchange gains and losses caused by overseas settlements of the commodity derivative transactions processed by the bank, the enterprise shall purchase the foreign exchange with the bank, which shall be included into the bank’s closing of the positions formed through the foreign exchange purchases and sales. The SAFE Shanghai shall administrate the annual volume of the foreign exchange settlements provided by the bank.
6．The bank shall record the aforementioned settlements in its foreign exchange settlement statement, under the item of “240/440 other investments”; the trading party shall be noted as “the bank itself”.
7．The bank shall report the commodity derivative transactions and the related foreign exchange settlements to the SAFE Shanghai on a regular basis.
Chapter V Supplementary Provisions
Article 19 The SAFE Shanghai shall conduct off-site monitoring over the foreign exchange balance of the trade in goods of the enterprises in the PFTZ, carry out on-site inspections on abnormal or suspicious situations, and adopt a categorized management approach based on the results of on-site inspections.
Article 20 In case that any disequilibrium of the international balance occurs or may occur, the SAFE Shanghai may carry out applicable interim regulations.
Article 21 The SAFE Shanghai may, in accordance with the national macro-control policies, the foreign exchange balance and the development of innovative business, gradually improve the innovative business.
Article 22 The SAFE Shanghai shall supervise and inspect the entities in the PFTZ in accordance with relevant laws and regulations. Any violations of the Regulations of the People’s Republic of China on Foreign Exchange Administration and these provisions shall result in suspension of innovative business and punishment in accordance with that Regulations and other relevant provisions.
Article 23 These Detailed Rules shall come into force as of the day of issue. Situations not mentioned herein shall be handled in accordance with the Administrative Measures for Foreign Exchange in Special Customs Supervision Zones and other current provisions on foreign exchange administration.
The Shanghai Branch of the State Administration for Foreign Exchange
February 28, 2014