Forex rules to affect non-residents
By Zhang Dingmin (China Daily)
Updated: 2004-02-25 09:00

In an effort to fight money laundering and better manage currency transactions, China has new foreign exchange regulations that will take effect in March.

The new regulations, which will affect individual non-residents, were published by the State Administration of Foreign Exchange (SAFE) on February 24.

Individual non-residents are foreigners, residents of Hong Kong and Macao special administrative regions and Taiwan, as well as individuals who hold a Chinese passport but have won permanent staying rights outside China.

Foreign exchange, or forex, transactions by non-residents have been growing continuously since China entered the World Trade Organization more than two years ago. That has prompted the new and separate regulations for this particular group which has marked differences from Chinese residents in terms of forex-related behaviour, a SAFE spokesperson said.

The regulation also aims to prevent money laundering and other illegal cash movements, while ensuring that legal uses of forex by non-residents - such as shopping, travel and purchase of real estate and B shares - is protected, the spokesperson said.

The administration found irregularities among non-resident individuals last year during an inspection into forex operations of designated banks, he said.

Analysts said the new regulations will help in the fight against money laundering and illegal inflow of funds based on the speculative appreciation of the renminbi.

In the years following the Asian financial crisis, Chinese people and corporations favoured foreign currencies over the renminbi. Many tried to keep their forex assets abroad - which is forbidden by Chinese law - in fear that the local currency may depreciate.

The trend saw a sharp reversal in 2002, when people started to convert their forex holdings back into renminbi after international pressures grew on China to let the yuan appreciate on the back of its growing economic clout.

But along with those holdings came speculative funds, heightening regulators' alert on short-term capital inflows that are seen as potentially disruptive to financial stability.

"Now the supervision is tighter, and the inflow (of illegal funds) will be more difficult," said Wang Yuanhong, a senior analyst with the State Information Centre.

Under the new rules, non-resident individuals can hold, deposit or sell to banks the forex they bring from abroad. However, non-residents will have to show their ID when opening a forex account and other documents when depositing more than US$5,000 a day.

In selling their forex to banks, something forex regulators are watching closely as it can potentially lead to greater upward pressure on the renminbi, non-residents need approval by local forex regulators when their monthly sale surpasses US$50,000.

They are required to bring their ID and other documents and fill out forms when selling more than US$5,000 in a single transaction.

The purpose of all the new measures is to collect data on forex receipts and payments of non-resident individuals, help banks verify transactions and assist regulators in forex management.

The new regulations are not expected to have a negative impact on the normal use of forex by non-residents, the spokesperson said.

Close