State Administration of Foreign Exchange Control

(Promulgated 28 February 1989 by the State Administration of Exchange Control)

These Regulations are formulated in accordance with the Rules for the Implementation of Exchange Control Regulations relating to Enterprises with Overseas Chinese Capital, Enterprises with Foreign Capital and Sino-foreign Joint Equity Enterprises and other relevant regulations, in order to accelerate the development of undertakings using foreign investment, to tighten control of the use of foreign currency by foreign investment enterprises when computing prices and settling accounts within China, to safeguard financial stability and to assist foreign investment enterprises to achieve a foreign exchange income and expenditure balance.

1. A foreign investment enterprise (hereinafter referred to as an enterprise) which wants to use a foreign currency to compute prices and settle accounts for products it sells within China shall submit an application to the State Administration of Exchange Control or a branch or sub-branch (hereinafter referred to as an exchange control authority) in its local area.

2. To be eligible to apply to an exchange control authority for permission to compute prices and settle accounts in a foreign currency, an enterprise shall meet one of the following conditions:
(1) its products are goods which need to be imported under the State plan;
(2) its products are sold to Special Economic Zones, Economic and Technological Development Zones or other Foreign Investment Enterprises;
(3) its products are raw materials or assembly parts which domestic production enterprises would need to use foreign exchange to import.

3. An enterprise applying to compute prices and settle accounts in a foreign currency for products it sells within China shall submit the following documents to the exchange control authority:
(1) an application in which is clearly stated the reason for the application, names and quantities of products, the amount of money involved and the duration;
(2) a capital inspection certificate issued by an accountancy firm registered in China which confirms that the enterprise has met all its capital requirements on schedule;
(3) other documents required by the exchange control authority.

4. The exchange control authority shall examine and approve such applications from an enterprise on an annual basis and shall stipulate the amount of money, the quantity and types of products and the time limit within which the enterprise may use foreign currency to compute prices and settle accounts, as well as determine an annual quota for the number of products which may be involved.

5. If an enterprise wants to use foreign currency to compute prices and settle accounts for products which it sells in areas other than where it is located, the approval of the local exchange control authority in the area where the enterprise which is to receive the foreign currency is located shall first be obtained. Then copies of the approval documents shall be sent to all relevant branches and sub-branches and details of the case shall be submitted to the State Administration of Exchange Control for its records.

6. In the case of a product which is to have its price computed and accounts settled in a foreign currency, in general the price shall be set with reference to the FOB price of the same category of export product or the CIF price of the same category of import product, in accordance with the principle of the same price for goods of the same quality and a higher price for goods of a higher quality.

7. In general an enterprise shall not be permitted to use foreign currency to compute prices and settle accounts for its products in any of the following circumstances:

(1) if the enterprise violates the provisions of its contract, articles of association or document of approval by failing to fulfil its export responsibilities or its responsibility to resell goods to the place of product origin or fails to fulfil on schedule a requirement to use domestic materials in its production;

(2) if the enterprise or its products are not classified in a category in which the State encourages investment.

8. An enterprise shall not use foreign currency to compute prices or settle accounts for its products without the approval of the exchange control authority. An enterprise which violates these Regulations shall be subject to punishment by the exchange control authority in accordance with the provisions of the Detailed Rules for the Implementation of Penalties for Violation of Exchange Control.

9. In the event of any conflict between the provisions of these Regulations and other relevant legislation promulgated before these Regulations, these Regulations shall prevail.

10. The right to interpret these Regulations shall reside with the State Administration of Exchange Control.

11. These Regulations shall take effect from 1 March 1989.