Navigating regulations is one of the biggest challenges for foreign companies doing business in China. When it comes to foreign exchange transactions, regulations can vary based on business type, payment term or method, and are subject to change by the regulator. Therefore, it is prudent for companies to understand the landscape and have local resources they can call on for assistance.
In China, foreign exchange business is still under government supervision. However, the Chinese government does not impose restrictions for cross-border payments under goods and services trade. SAFE (State Administration of Foreign Exchange) is the main regulatory body that issues regulations and supervises the foreign exchange transactions.
Banks in China are required to continuously enhance their internal management policies and their operational procedures for conducting their foreign exchange business in accordance with the regulations and the banks’ internal policies (know your customer, know your business, due diligence, anti–money laundering, anti–terrorist financing, anti–tax evasion, etc.).
In order to conduct foreign exchange goods trade, companies need to:
SAFE launched a nationwide online monitoring system for foreign exchange (FX) transactions related to goods trade in 2012. All banks and enterprises that conduct foreign exchange goods trade are connected to this system, which links to China Customs. Thus, SAFE monitors the company’s logistic flow (goods import/export information on the China Customs) as well as the funds flows of FX payments.
SAFE implements categorized administration on companies that conduct foreign exchange goods trade based on the onsite/offsite inspection findings and the status of the company’s compliance with the regulations. SAFE categorizes each company as Category A, B or C:
When there is, or may be, a serious discrepancy in the balance of payments, SAFE may directly categorize enterprises under special monitoring for unusual or suspicious signs in scale and structure of funds flow and logistic flow as C Companies.
SAFE implements dynamic adjustments based on the results. The validity period of the result for categories A, B and C is one year.
Each bank will conduct each company’s transactions based on the Category assigned by SAFE:
The bank will also mark the company in the system (similar to the “black list”) if the company:
The mark is available for all the banks in China for 2 years.
The mark is another item which will be checked by the banks besides the List and the category of the company when the banks conduct the cross-border business.
Grace Zhu is responsible for PNC’s business in mainland China and Hong Kong.
She has more than 25 years’ experience in the banking industry in Shanghai, including check clearing, payments, cash management, trade finance and loans business. Prior to joining PNC Bank, Zhu served other major U.S. and international banks.
Zhu holds a bachelor’s degree in finance and taxation from Shanghai University of Finance & Economics and a master’s degree in business administration from the joint program of Shanghai University of Finance & Economics and Webster University.
Established in 2008, PNC's Shanghai Representative Office (SRO) is available as a resource to PNC clients who are doing business with China or in China. The SRO can provide assistance and guidance on:
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