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CIRCULAR OF THE STATE ADMINISTRATION OF FOREIGN EXCHANGE ON RELEVANT ISSUES CONCERNING THE REGISTRATION OF FOREIGN EXCHANGE BY DIRECT FOREIGN INVESTMENT

The State Administration of Foreign Exchange

Circular of the State Administration of Foreign Exchange on Relevant Issues Concerning the Registration of Foreign Exchange by Direct Foreign Investment

HuiFa [2002] No.42

April 30, 2002

The branches and foreign exchange administrative departments of the State Administration of Foreign Exchange (hereafter "SAFE") in all provinces, autonomous regions, municipalities directly under the Central Government, and the braches in Shenzhen, Dalian, Qingdao, Xiamen and Ningbo:

In order to carry out the Circular of the Ministry of Finance and the State Administration of Foreign Exchange on Further Strengthening the Assessment of the Capital of enterprises with foreign investment and Perfecting the System for the Registration of Foreign Exchange and Foreign Capital (CaiKuai [2002] No.1017, hereafter "the Circular"), to improve management and standardize business operations, relevant issues are hereby notified as follows:

I.

Perfecting the system for the registration of foreign exchange and foreign capital so as to be beneficial to standardizing the practicing of certified accountants and to the reasonable and orderly flow of foreign capital. All the branches of the SAFE shall reach a common understanding and pay high attention to it, try every effort to improve the internal control system, and do a good job in the inquiring, verification and registration of the capital assessment of the enterprises with foreign investment. The branches and sub-branches that have a heavy business burden shall arrange for more hands to do it. The internal departments of the foreign exchange administrations shall pay attention to cooperating with each other. At the same time, special attention shall be paid to the assortment in work with the local public fiscal authorities and the certified accountants associations (hereafter referred to as "CAAs"), and, on the basis of the rigid implementation of the present Circular by the CAAs, you should cooperate closely with each other so as to improve the quality of capital assessment of enterprises with foreign investment.

II.

The letters of inquiry concerning the contributions of the foreign investors shall be filled in by the enterprise concerned and be accompanied by an attestation document (in photocopy) and an accountants firm shall be entrusted to make inquiries to the foreign exchange administrations. When inquiring the foreign exchange administrations, the accountants firms shall present a letter of liaison that bears the seal of the firm.

III.

The phrase "to inquire about the authenticity and lawfulness of the above documents" as mentioned in Article 1 , Item 4 of the Circular refers to inquiring whether the relevant accounts of registered capital has been opened upon the approval of the competent foreign exchange administration; whether the verification documents of foreign exchange business under relevant capital items are issued by the competent foreign exchange administrations; whether relevant hardcopy customs declaration forms are in conformity with the corresponding electronic ledgers in the online verification system for import and export declarations of customs and whether foreign exchange has been paid.

IV.

The foreign exchange administration concerned shall, after receiving the letter of inquiring about the capital contribution of the foreign parties and the attached attestation documents, make careful verifications according to the requirements of the operational rules annexed to the present Circular (see Attachment I), give a reply within 5 work days, and place the letter of inquiring about the capital contribution of the foreign parties, attestation documents, photocopy of the reply and other relevant materials concerning the inquiring in archivist files for further reference.

1.

If no error has been found through verification in the issues inquired about, the foreign exchange administration shall grant a number for the registration of foreign capital and foreign exchange (The method for registering the numbers of foreign capital and foreign exchange is: serial number of the certificate for foreign exchange registration is a two-figure sequence number, and the sequence number is the serial number for the number of inquiries made about the enterprise concerned. E.g. if the enterprise inquires for the second time, the serial number shall be 01.) and express the opinion in the letter of reply (for the format of letter of reply, see Attachment II) by selecting a corresponding one from the following opinions:

a)

The registered capital accounted inquired has been opened upon the approval of a branch (or sub-branch) or management department of foreign exchange of our administration;

b)

The verification document for the foreign exchange business under the capital items inquired has been issued by a branch (or sub-branch) or management department of foreign exchange of our administration;

c)

The declaration forms for the import goods inquired are in conformity with the verification system and no foreign exchange has ever been paid.

2.

If any of the issues inquired is found to be inconsistent with the relevant situations, the competent foreign exchange administration may not grant a serial number for the registration of foreign capital and foreign exchange, and shall express the opinion in the letter of reply (for the format of letter of reply, see Attachment III) by selecting a corresponding one from the following opinions:

a)

The documents attached are incomplete (by specifying the titles of the documents);

b)

The documents attached are not in conformity after verification (by specifying the titles of the documents, serial numbers and the points that are not in conformity);

c)

The attached documents are repeatedly used (by specifying the titles and serial numbers of the documents);

d)

The capital contribution is made through a non-registered capital account;

e)

The registered capital account has not be opened upon approval;

f)

Payment has been made for the declaration form for the import goods (by specifying the serial number of the customs declaration);

g)

The serial number of the letter of value appraisal of the commodity is not specified.

V.

The foreign exchange administrations shall keep a record of the incoming letters and replies, and the procedures for receiving the letters shall be strictly followed.

VI.

In the appraisal of the capital contribution of a foreign party concerned who makes its contribution by way of physical materials, if the photocopy of the hardcopy declaration form of the import goods submitted by an entrusted accountant's firm that does not bear the special seal of a designated foreign exchange bank and the foreign exchange administration, the department in charge of the management of capital projects under the foreign exchange administration shall inquire the department in charge of the writing-off of import about whether the content of the declaration form is in consistency with the corresponding electronic ledgers in the "online verification system for import and export declaration forms", and whether foreign exchange has been paid or whether they have been written off. The department in charge of the writing-off of import shall complete the inquiry within two work days.

The department in charge of the writing-off of import accesses the "online verification system for the import and export declaration forms" by using a "Super-financial IC Card". If it is confirmed by retrieving the "online verification system for the import and export declaration forms" that the hardcopy declaration forms is consistent with the corresponding electronic ledgers and foreign exchange has not been paid or written off, the department in charge of import shall settlement the account and write off the electronic ledgers of the declaration forms in the "online verification system for the import and export declaration forms", and provide the electronic ledger of the import declaration form that bears the "business seal of import writing-off supervision" to the department in charge of the management of capital projects.

If the hardcopy import declaration form is inconsistent with the electronic ledgers thereof or if foreign exchange has already been paid or written off, the department in charge of writing off imports shall make a remark and put the seal "business seal of import writing-off supervision" on the printout of the electronic ledgers of the declaration form, and return it back to the department in charge of management of capital projects.

If there is no corresponding electronic ledgers for the hardcopy declaration form in the "online verification system for import and export declaration forms", the department in charge of writing off imports shall make a remark and put the seal "business seal of import writing-off supervision" on the printout of the electronic ledgers of the declaration form, and return it to the department in charge of the management of capital projects.

VII.

With regard to the verification documents for the foreign exchange business under capital projects issued at other places, the foreign exchange administration of the place where the verification is done shall send a photocopy of the verification documents and a letter of inquiry (see Attachment IV) by fax to the foreign exchange administration of the place where they are issued, and the latter shall, after verification, specify the result of verification and put a "business seal for foreign exchange under the capital project" on the letter of inquiry, and send it back by fax within two work days to the foreign exchange administration where the verification is done. In the meanwhile, the foreign exchange administration of the place where the documents are issued shall place the relevant materials in the archivist files for further reference.

VIII.

If, after completing the procedures of inquiring about the capital contribution of foreign parties, an accountant's firm fails to issue a capital appraisal report due to the change of circumstances, it shall inform the foreign exchange administration in written form of the changes, and the foreign exchange administration shall write off the serial number for the registration of foreign capital and foreign exchange.

IX.

Foreign exchange administrations shall establish special computerized or manual ledgers (the computerized ledgers shall have the simple functions of search and gathering information). After confirming that there are no errors in the inquiring document on the basis of verification and giving a reply, they shall record down the contents of the "List of Contributions Made by Foreign Investors" provided in the inquiring letters. The registered amount of foreign capital and foreign exchange shall, after deducting the contribution by way of intangible assets, be more than the total amount specified in the attestation documents of capital contribution by foreign parties, and, in the meanwhile, record down the name of the enterprise, the legal person code, date of contribution, and the serial number for registering foreign capital and foreign exchange. If the serial number for the registration of foreign capital and foreign exchange has already been written off, it should also be marked in the corresponding ledgers.

X.

The foreign exchange administrations shall gather together "Reports of the Registration of Foreign Capital and Foreign Exchange by (MM/YY) of (Name of Place)" on the monthly basis and by hierarchical order (see Attachment V). All the sub-branches shall submit their reports to the branches within the first 5 work days of each month, and the branches (or departments in charge of the management of foreign exchange) submit their reports, after gathering together, to the General Administration within the first 8 work days of each month.

XI.

The provisions concerning the inquiry about the capital appraisal and registration of the enterprises with foreign investment within the export processing zones and the bonded areas as well as the enterprises with foreign investment and those established by non-investment enterprises with foreign investment through reinvestment within the Shanghai Diamond Exchange shall be separately formulated. Before the new provisions are formulated, the original provisions shall be followed, and the accountants firms need not go through the procedures of inquiring about the capital contributions of the foreign parties at the foreign exchange administrations.

XII.

If any foreign exchange administration finds that any accountants' firm fails to follow the inquiry procedures in the issuance of capital appraisal reports or issues false reports, it shall inform the local accountants association, and, before the local accountants association or public fiscal authority makes a decision on how to deal with it, the foreign administration concerned shall not accept any new inquiries from the accountants' firm concerned.

XIII.

If, in the process of handling the inquiries and registrations of capital appraisals of enterprises with foreign investment, any foreign exchange administration finds that any designated bank of foreign exchange or any enterprise with foreign investment violates the provisions of foreign exchange administration, it shall give a punishment according to relevant statutory provisions concerning foreign exchange administration.

XIV.

The present Circular shall enter into force as of May 1, 2002. Should you have any question in the process of implementation, please ask the Department of Capital Projects under the SAFE without delay.

Annexes:

I.Operational Rules for the Verification and Registration of Inquiries

II.Reply to Letters of Inquiry about the Capital Contributions by Foreign Parties (Format I) (omitted)

III.Reply to Letter of Inquiry about the Capital Contributions by Foreign Parties (Format II) (omitted)

IV.Letter of Inquiry about Foreign Exchange Business under Capital Projects in Other Places (Format III) (omitted)

V.Reports of the Registration of Foreign Capital and Foreign Exchange by (MM/YY) of (Name of Place) (Format IV) (omitted)

Attachment I:1Operational Rules for the Verification and Registration of Inquiries about the Contribution and Capital Appraisal of Spot Exchange by Foreign Investors

1. Statutory basis;

2. Materials for verification;

3. Principles of verification;

4. Elements of verification;

5. Range of authorization

6. Points of attention.

Circular of the Ministry of Finance and the State Administration of Foreign Exchange on Further Strengthening the Appraisal of Capital of Enterprises with Foreign Investment and Improving the System for the Registration of Foreign Capital and Foreign Exchange

Circular of the State Administration of Foreign Exchange on the Registration of Foreign Exchange Directly Invested by Foreign Investors

Measures for the Administration of Intraterritorial Foreign Exchange Accounts

Letter of Inquiry about the Capital Contribution of Foreign Investors

Reply to Letters of Inquiry of Banks

Foreign investors shall follow the procedures of making foreign exchange contributions according to the relevant provisions of the State Administration of Foreign Exchange

1.

Whether registered foreign exchange capital listed in the "List of Contributions Made by Foreign Investors" as provided in the Letter of Inquiry about the Contributions Made by Foreign Investors;

2.

Whether the registered capital account has been opened upon the approval of a competent foreign exchange administration;

3.

Whether it is marked "Account for Registered Capital" in the column of "Nature of Account";

4.

If the remitting bank is an intraterritorial bank, whether the transfer of original currency has been approved;

5.

Whether the letter of inquiry of the bank is repeatedly used.

The branches and sub-branches thereof shall handle their businesses according to the principle of territory.

The replies shall be made within 5 work days.

If no error is found upon verification, a serial number shall be granted and the foreign capital and foreign exchange shall be registered.

If errors are found upon verification, no serial number may be granted and the foreign capital and foreign exchange may not be registered.

Due to the reasons of handling charges of the banks, the registered amount of foreign exchange registered capital may be reasonably smaller than the amount listed in the reply to the letters of inquiry issued by the banks concerned.

The foreign exchange administrations need not make any comment in the letter of inquiry

Attachment I:2Operational Rules for the Verification and Registration of Capital Appraisal of Contributions Made by Way of Physical Materials

1. Statutory basis;

2. Verification materials;

3. Principles of verification;

4. Elements of Verification;

5. Range of authorization;

6. Points of attention.

Circular of the Ministry of Finance and the State Administration of Foreign Exchange on Further Strengthening the Appraisal of Capital of Enterprises with Foreign Investment and Improving the System for the Registration of Foreign Capital and Foreign Exchange

Circular of the State Administration of Foreign Exchange on the Registration of Foreign Exchange Directly Invested by Foreign Investors

1.

Letter of Inquiry about the Capital Contribution of Foreign Investors

2.

Declaration form for import goods that does not bear the special seal of a designated bank and that of a competent foreign exchange administration (photocopy)

Foreign investors shall truthfully perform its obligation of making contributions by way of physical materials and observe the relevant procedures for administration

1.

Whether registered capital contributed by physical materials listed in the "List of Contributions Made by Foreign Investors" as provided in the Letter of Inquiry about the Contributions Made by Foreign Investors is smaller than or equal to the amount as provided in the declaration form for the import of goods;

2.

Whether the customs declaration for the import of goods is in conformity with the electronic ledgers in the "online verification system for the customs declarations for the import and export of goods" and if foreign exchange has been paid;

3.

If the foreign investors in a Chinese-foreign equity joint enterprise or Chinese-foreign cooperative enterprise make their contributions by ways of physical materials, whether the serial number of the letter of appraisal of the value of commodities has been given in the column for remarks in the customs declaration for importing and exporting goods as provided in the letter of inquiry

The branches and sub-branches thereof shall handle their businesses according to the principle of territory.

The replies shall be made within 5 work days.

If no error is found upon verification, a serial number shall be granted and the foreign capital and foreign exchange shall be registered.

If errors are found upon verification, no serial number may be granted and the foreign capital and foreign exchange may not be registered.

Due to the reasons of appraising the value of the commodities, the registered amount of capital contribution made by way of physical materials may be reasonably smaller than the amount listed in the customs declaration for importing and exporting goods.

The foreign exchange administrations need not make any comment in the letter of inquiry

Attachment I:3Operational Rules for the Verification and Registration of Verification Documents of Foreign Exchange Business under Capital Projects

1. Statutory basis;

2. Verification materials;

3. Principles of verification;

4. Elements of verification;

5. Range of authorization;

6. Points of attention.

Circular of the Ministry of Finance and the State Administration of Foreign Exchange on Further Strengthening the Appraisal of Capital of Enterprises with Foreign Investment and Improving the System for the Registration of Foreign Capital and Foreign Exchange

Circular of the State Administration of Foreign Exchange on the Registration of Foreign Exchange Directly Invested by Foreign Investors

1.

Letter of Inquiry about the Capital Contribution of Foreign Investors;

2.

Verification Document for Foreign Exchange Business under Capital Projects (photocopy)

Foreign investors shall go through the procedures for the intraterritorial reinvestment by way of RMB and intraterritorial transfer of foreign exchange according to the administrative provisions of the State Administration of Foreign Exchange.

1.

Whether the situations as listed in the "List of Contributions Made by Foreign Investors" as provided in the Letter of Inquiry about the Contributions Made by Foreign Investors are in conformity with the situations listed in the verification documents for the foreign exchange business under capital projects;

2.

Whether the verification documents for the foreign exchange business under capital projects are in conformity with the verification documents kept by the foreign exchange administration;

3.

Whether the verification documents for the foreign exchange business under capital projects are in conformity with the search results of the foreign exchange administration concerned.

The branches and sub-branches thereof shall handle their businesses according to the principle of territory.

1.

The replies shall be made within 5 work days.

2.

If no error is found upon verification, a serial number shall be granted and the foreign capital and foreign exchange shall be registered.

3.

If errors are found upon verification, no serial number may be granted and the foreign capital and foreign exchange may not be registered.

4.

The verification Document for Foreign Exchange Business under Capital Projects which is regarded as the attestation document is still effective even exceeding 15 workdays. The (sub)branches or administrative departments of foreign exchange can't bring forth the negative opinions accordingly.

5.

If any foreign investor makes reinvestments within the territory by RMB and any foreign exchange is transferred to its account of registered capital, this sum of transferred foreign exchange shall be recorded down in the corresponding column of "Way of Investment" of the registration forms.

6.

The foreign exchange administrations need not make any comment in the letter of inquiry.

  The State Administration of Foreign Exchange 2002-04-30  


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