CHINA FOREIGN INVESTMENTS POLICIES AND PREFERENCES
Finance and Foreign Exchange Management

Currently in China the finance organization is in a pattern that state-owned commercial banks remaining dominate and diverse financial organizations developing side by side. The government is enforcing a system of individual administrations on individual industries such as banks, securities, insurance and trusting. The state is enforcing its financial supervision on the financial market through the monetary controlling measures of the Central Bank. RMB exchange rates are based on a fluctuation rate system that goes with market demand and supply, is unified and put under control. Strict management is still enforced upon RMB free exchange under current account and foreign exchange under capital account. A system of exchange, settlement and sales shall be observed in foreign exchange payment and a system of canceling after verification in payment of import and export.

Foreign Exchange Registration

Foreign invested enterprises shall take a copy of the Certificate of Approval of Foreign Invested Company and that of the Business License, within 30 days after the issue of the Business License, to the foreign exchange administration to take the Foreign Exchange Recording of Foreign Invested Enterprises and fill the Form of Basic Information of the Foreign Invested Enterprise, with which to open account in the designated bank for foreign exchange. To open an account in a different place or abroad, an approval should be acquired from local foreign exchange administration first.

The System of Exchange, Settlement and Sales of the Bank

The income of foreign exchange of an enterprise should open an account in the designated foreign exchange bank or sell to it; and the payment in foreign exchange by the enterprise should, with valid proof or approval of the foreign exchange administration, be paid with by its foreign exchange account or transacted in the designated foreign exchanged bank. All cases of purchase and sales of foreign exchange without authorization, purchase and sales of foreign exchange in a disguised form or purchase and sales of foreign exchange for speculative purposes, are illegal.

Free Exchange of RMB under current account

Institutions within the Chinese territory (including foreign invested enterprises), when in need of foreign exchange under current account, shall buy foreign exchange with RMB from designated bank for foreign exchange or pay with their foreign exchange accounts. Advance payment and commissions, when exceed certain proportion or amount, can get converted into foreign currencies at designated banks upon approval of the authenticity by the administration.

Government's Management of Balance of Payment of Foreign Exchanges Under Capital Account

foreign exchange income under current account must be transferred back except for stipulations of the State Council otherwise; foreign exchange income under capital account shall be kept at foreign exchange account opened with designed banks; approval of the foreign exchange administration is required if it is sold to designated banks; Purchase or payment of foreign exchange under capital account shall, with the approval of administration of foreign exchange, get converted into foreign currencies at designated banks upon presentation of the approval.

Foreign Debt Management

The Chinese Government adopts the system of registration upon foreign debt. Foreign invested enterprises can directly foreign capital form banks or enterprises outside the Chinese territory, but the accumulated medium and long-term debt from abroad shall not exceed the difference between the total investment and registered capital as stipulated in the contract or agreement. Enterprises should, after signing the contract of loan, keep the record in the administration periodically or record-by-record. The enterprises can use the foreign capital after approval and give feedback to the administration when actually used. All payment of the loan or the interest should get the approval of the administration (except for the bank).

Report of Foreign Exchange Balance

The report is in a term of a half-year. The first half-year report with remarks should be submitted before July 10th of the year and the second half-year report before March 10th of the next year.

Year-End Financial Report

The Year-End Financial Report of the previous year shall be submitted to relevant departments before March 31 and an Audit Report from public accountant registered in the People’s Republic of China shall be attached.

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