Policy Talking Points on Foreign Exchange Policies
In an effort to gain a better understanding of the state of China’s foreign exchange management policies and the pilot projects for cross-border foreign exchange payment licenses, Debra Lodge, Managing Director Global Markets, Head of RMB Business Development North America interviewed Mu Zhiqian a former consultant to the State Administration of Foreign Exchange. That discussion follows in question and answer form.
Q: In 2016 and 2017, the foreign exchange administration emphasized stabilizing expectations, which refers to exchange rates and interest rates but also includes changes in the institutional environment. Many market players, particularly multinational corporations, are feeling considerable pressure from what they perceive as frequent changes in China's foreign exchange policies. What comments do you have on this?
A: Over the past two years, in the face of changes in the foreign exchange situation, foreign exchange authorities have not taken any new measures related to cross-border receipts and the exchange of foreign currencies. However, according to the Regulations of the People’s Republic of China on the Management of Foreign Exchange and relevant provisions against money laundering, banks are required to abide by current foreign exchange control regulations. They need to earnestly fulfill their social responsibility and maintain self-discipline, strengthen their verification and compliance efforts. Market entities are required to deepen their knowledge, enhance their theoretical understanding of and their sensitivity to market developments as well as comprehend the regulations and policies along with the changes of domestic and international trends and conditions.
Q: Some enterprises say that they have been unable to move investment funds offshore. Does this contradict the goals of the "Belt and Road" initiative, which seeks to promote outbound investment in infrastructure?
A: It is not contradictory at all. The "Belt and Road" initiative is one of China's strategic programs and it is part of an inevitable trend. In the past, China mainly exported goods, but now it is an exporter of capital. Overseas direct investment not only refers to foreign exchange capital, but also includes capacity, namely, in manufacturing as well as railways and hydropower infrastructure construction. Some people may say that certain enterprises have been unable to move investment funds offshore. This scenario only applies to those enterprises which are engaged in the following business: overseas real estate investment, hotels, studios, and entertainment as well as sports clubs. Those industries are given different treatment. The policy is restrictive, rather than discriminatory.
Q: Will the remittance of profits obtained by foreign-invested enterprises in China face restrictions? How can the remittance of profits of foreign-invested enterprises be assured?
A: China has achieved convertibility of the currency on the current account. The profits of foreign-invested enterprises come under that category. For legitimate and routine international payments and transfers, including external payments on the trade in goods and services, dividends and bonuses, these can be processed on behalf of enterprises and individuals without any restrictions as long as there are tax records, audited financial statements, supporting documentation and for enterprises - a valid resolution of the board of directors. At present, the People’s Bank of China and the State Administration of Foreign Exchange have reiterated the above principles on numerous occasions through the news media. Difficulties that arise in the remittance of normal profits of foreign-funded enterprises can be promptly reported to the central bank and SAFE.
Q: What is your view of the current status of free trade zones? Foreign exchange administrative policies seem to have been short on innovation and breakthroughs regarding free trade zones in 2017. Would you agree?