China Capital Controls: Best Practices For Accelerating International Payments

Following the depreciation of Chinese currency RMB and the reduction in China's foreign exchange reserves[1], foreign companies and individuals in China have met hurdles in moving their money out of China, and overseas companies have experienced delays of payments by their Chinese business partners. This article will discuss the recent tightened controls over capital outflows from China to overseas and offer the best practical solutions to accelerate the funds transfer progress.

Mandatory Submission of Application for Individual Purchase of Foreign Exchange

Starting from January 1, 2017, individuals are required to submit the Application for Individual Purchase of Foreign Exchange for whatever amount of foreign exchange that they seek to buy at a bank counter or an online bank. This new requirement comes from the Notice re Improving Individual Foreign Exchange Business Information System-Hui Fa [2016] No. 34 promulgated by the foreign exchange regulatory authority-State Administration of Foreign Exchange ("SAFE") on December 30, 2016.

As background, transactions processed by any amount of foreign exchange in China must be declared[2], and each individual is free to settle foreign exchange with the equivalent of USD 50,000 as well as purchase foreign exchange with the equivalent of USD 50,000 within one year without submitting supporting documents of the transaction.[3] However, under the new requirement, an individual could no longer easily purchase foreign exchange only with an ID card but would need to submit this additional Application for Individual Purchase of Foreign Exchange which identifies the purpose of the funds.

In addition, an individual is subject to more obligations under the Application for Individual Purchase of Foreign Exchange. Buying overseas real estate with individual foreign exchange is prohibited[4] and borrowing other people's annual quota to split the purchase of foreign exchange is not allowed[5]. A violation of this rule will subject the individual to being listed on the SAFE's "watch list" which restricts this person from using his annual quota to purchase foreign exchange in the year when he is included in the "watch list" and the two consecutive years thereafter; in the interim, an anti-money laundering investigation will be initiated against this person.

Ways to Expedite Processing of Cross-border Payment Approvals

For cross-border payment exceeding the annual quota of USD 50,000 by an individual and any...