Laws of the People's Republic of China

The State Administration of Foreign Exchange

Provisions Governing the Use of Foreign Currency by Enterprises with Foreign Investment in Computing Prices and Settling Accounts in China

January 7, 1989

The following Provisions are enacted by the State Administration of Foreign Exchange (SAFE) in accordance with the Rules for the Implementation of Foreign Exchange Control Relating to Enterprises with Overseas Chinese Capital, Foreign-capital Enterprises and Chinese-Foreign Equity Joint Ventures and relevant regulations with a view to facilitating the use of foreign capital, tightening control over the use of foreign currency by enterprises with foreign investment in computing prices and settling accounts within China, and helping these enterprises balance their foreign exchange receipts and expenditures:

Article 1

An enterprise with foreign investment (hereinafter referred to as enterprise) that wishes to use foreign currency to compute prices and settle accounts for the products it sells in China must apply to the SAFE or its branch or sub-branch office (hereinafter referred to as exchange control authorities) in the place where the enterprise is located.

Article 2

The applicant must conform to one of the following conditions:

(1)

Its products are those that need to be imported under the State plan;

(2)

Its products are sold to the special economic zones, economic-technological development zones, or enterprises with foreign investment; or

(3)

Its products are raw or semi-finished materials, spare parts or fittings which domestic production enterprises need to import with foreign exchange.

Article 3

While applying for the use of foreign currency to compute prices and settle accounts for the products it sells in China, the enterprise shall submit the following documents to the exchange control authorities:

(1)

an application to that effect, stating the reason for application, the names and amounts of products, the sum of money, and the duration;

(2)

a certificate from an accountant office registered in China confirming that the enterprise's capital has been fully paid up as scheduled; and

(3)

other documents required by the exchange control authorities.

Article 4

The exchange control authorities shall examine and approve the application from an enterprise on an annual basis, stipulating the sum of money, the amounts and names of products, the time limit for the use of foreign currency by the enterprise in computing prices and settling accounts for its products, as well as the annual quota for the products involved in this regard.

Article 5

In case an enterprise needs to use foreign currency to compute prices and settle accounts for the products it sells in places other than where it is located, it must obtain approval from the exchange control authorities at the place where the enterprise receiving the foreign exchange is located, and copies of the document of approval shall be sent to the relevant SAFE branch offices and reported to the SAFE headquarters for reference.

Article 6

For products the prices of which are allowed to be computed and the accounts to be settled in foreign currency, the prices shall generally be set with reference to the FOB prices of the same category of export goods or the CIF prices of the same category of import goods, according to the principle of the same prices for goods of the same quality and higher prices for goods of higher quality.

Article 7

Generally, an enterprise shall not be allowed to compute prices or settle accounts in foreign currency for its products in one of the following cases:

(1)

If the enterprise, in violation of the provisions of its contracts, articles of association or the documents of approval, has failed to perform its duties in exporting its products or selling them in China, or failed to reach the goal of switching to domestic materials and parts in manufacturing the products; or

(2)

If the enterprise or its products are not of the category in which investment is encouraged by the State.

Article 8

Without the approval of the exchange control authorities, no enterprise may use foreign currency to compute prices and settle accounts for its products. Any enterprise violating these Provisions shall be punished by the said authorities in accordance with the Rules for the Implementation of Penalty on Offenses Against Exchange Control.

Article 9

In case of conflict between past provisions and the present Provisions, the present Provisions shall prevail.

Article 10

The right to interpret these Provisions resides in the SAFE.

Article 11

These Provisions shall enter into force on March 1, 1989.