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Discussion on the Legal Problems of Foreign Exchange Control
Nowadays, in the sluggish global economic situation, China is an ideal place for investment. Hence, the foreign operators of hot money rack their brains to invest hot money into China, and then reap the benefits. The repatriation of hot money, on the one hand, leads to the high pressure of the rise of RMB, on the other hand, disturbs the order of Chinese financial market. In order to evade various maladies of the repatriation of hot money, Chinese state department has established series of rules and try hard to curb foreign hot money. The Foreign Exchange Control Regulations of the People’s Republic of China, which has been amended and passed by the State Council on August 1, 2008, is the typical representative.
The regulations stipulate the administration of two legal forms for foreign exchange in and out of China, the administration of foreign exchange business in financial institution, RMB exchange rate, the administration of foreign exchange markets, foreign exchange control agencies how to regulate and inspect and its legal liability. This paper mainly discusses the administration of two legal forms for foreign exchange in and out of China.
There are only two legal forms for foreign exchange in and out of China; one is the transaction between domestic enterprises or individuals and foreign enterprises or foreign individuals. That is domestic enterprises or individuals export products to foreign enterprises, or domestic enterprises or individuals import products from foreign enterprises. Another is foreign enterprises or foreign individuals invest in China directly.
The first aforementioned form is called current accounts; the second form is called capital accounts. Chinese state has four regulations on foreign exchange control over current accounts. Article 1 The foreign exchange receipts and payments under current accounts shall be based on accurate and legitimate transactions. Financial institutions engaged in the settlement and sale of foreign exchange shall conduct proper inspection of the accuracy of dealing documents and its conformity with the foreign exchange receipts and payments according to the provisions of the administration of foreign exchange under the State Council. Foreign exchange control agencies are entitled to regulate and inspect. Article 2 The foreign exchange incomes under current accounts may be retained or sold to financial institutions engaged in the settlement and sale of foreign exchange in accordance with relevant provisions. Article 3 The foreign exchange disbursements under current accounts shall be, against valid documents, paid with self-owned foreign exchange or foreign exchange brought from financial institutions engaged in the settlement and sale of foreign exchange in accordance with provisions on the administration of the sale and purchase of foreign exchange by the administration of foreign exchange under the State Council. Article 4 The quota for carrying and declaring foreign currencies in and out of China shall be subject to the provisions of the administration of foreign exchange under the State Council. Chinese state has eight regulations on foreign exchange control over capital accounts. Article 16 Overseas organs and individuals that directly invest in China shall go through registration formalities at foreign exchange control agencies after have been approved by relevant competent departments. Article 1 Overseas organs and individuals that conduct the issuance and transaction of securities or derivatives shall observe provisions concerning market access of the state, and go through registration formalities according to provisions of the administration of foreign exchange under the State Council. Article 2 Domestic organs and individuals that engaged in overseas direct investment or the issuance and transaction of securities and derivatives abroad shall go through registration formalities in accordance with provisions of the administration of foreign exchange under the State Council. With respect to those that the approval or filing of relevant competent departments are required by the state, approval or filing formalities shall be gone through prior to the foreign exchange registration. Article 3 The state carries out the scale administration of foreign loans. Entities or individuals that borrow foreign loans shall observe relevant provisions of the state and go through registration formalities at foreign exchange control agencies. The administration of foreign exchange under the State Council shall be responsible for the statistics and monitoring of foreign loans across the country and promulgate status of foreign loans regularly.Article 4 Entities or individuals that offer external guarantees shall apply to foreign exchange control agencies and the latter shall make decisions on whether granting an approval or not according to the assets and liabilities of the applicants. Where the business scope is required to be approved by relevant competent departments by the state, applicants shall go through approval formalities before their applications to foreign exchange control agencies. The provisions in the above paragraph are not applicable to those that offer external guarantees, approved by the State Council, for onlending loans extended by foreign governments or international financial institutions. Article 5 Financial institutions in banking industry may offer foreign direct commercial loans within the approved business scopes. Other domestic institutions that offer foreign commercial loans shall apply to foreign exchange control agencies, which shall make decisions on whether granting an approval or not according to the assets and liabilities of the applicants. Where the business scope is required to be approved by relevant competent departments by the state, applicants shall go through approval formalities before their applications to foreign exchange control agencies. Those that offer foreign commercial loans shall go through registration formalities according to provisions of the administration of foreign exchange under the State Council. Article 6 Where the foreign exchange incomes under capital accounts are to be retained or sold to financial institutions engaged in the settlement and sale of foreign exchange, approvals of foreign exchange control agencies are required, except as otherwise by the state. Article 7 The foreign exchange disbursements under capital accounts shall be, against valid documents, paid with self-owned foreign exchange or foreign exchange brought from financial institutions engaged in the settlement and sale of foreign exchange in accordance with provisions on the administration of the sale and purchase of foreign exchange by the administration of foreign exchange under the State Council. With respect to those that are required to be approved by foreign exchange control agencies by the state, approval formalities shall be gone through before foreign exchange disbursements. The currency denominated in RMB that belongs to foreign parties in a foreign-invested enterprise that terminated according to law may, after the liquidation and taxation of the enterprise in accordance with relevant provisions of the state, be used to buy foreign exchange from financial institutions engaged in the settlement and sale of foreign exchange and remitted abroad. Article 8 The foreign exchange under capital accounts and the foreign exchange settlement funds shall be used according to the purposes approved by relevant competent departments and foreign exchange control agencies. Foreign exchange control agencies are entitled to monitor and inspect the use of the foreign exchange under capital accounts and foreign exchange settlements funds as well as the changes of accounts.
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