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Notice of the People's Bank of China on Clarifying the Relevant Issues on Cross-border RMB Business (No.145 [2011] of the People's Bank of China)
 

Since the pilot RMB settlement in cross-border trade was initiated in July 2009, the cross-border RMB businesses have run smoothly. By June 2010, the scope of pilot RMB settlement in cross-border trade had been expanded to 20 provinces (autonomous regions and municipalities directly under the Central Government). In January 2011, the pilot RMB settlement of foreign direct investment was initiated. To further facilitate the businesses of banking financial institutions (hereinafter referred to as “banks”) and enterprises, unify and regulate business operation procedures, and effectively promote the in-depth development of the pilot cross-border RMB settlement work, and in accordance with the Measures for the Administration of Pilot RMB Settlement in Cross-border Trade (Announcement No.10 [2009] of the People's Bank of China, the Ministry of Finance, the Ministry of Commerce, the General Administration of Customs, the State Administration of Taxation and the China Banking Regulatory Commission) and the Administrative Measures for the Pilot RMB Settlement of Foreign Direct Investment (Announcement No.1 [2011] of the People's Bank of China), you are hereby notified of the relevant matters on the handling of cross-border RMB businesses as follows:

A bank may, in accordance with the relevant provisions, handle cross-border trade, other current accounts, foreign direct investment, overseas lending business, and other cross-border RMB settlement business of investment and financing as approved by the PBOC through domestic agent banks, RMB business clearing banks in Hong Kong and Macau, or RMB bank settlement accounts opened by offshore institutions in China.

Cross-border funds shall be transferred between a domestic agent bank, as the agent of an offshore participating bank, and any other domestic bank, or between a domestic settlement bank and a RMB business clearing bank in Hong Kong or Macau through the Large Value Payment System (LVPS). When RMB funds are transferred under the current account, "60 - settlement in export trade" and "62 - settlement in import trade" in the remittance and payment message (CMT100) of the LVPS shall be used for the time being. When RMB funds are transferred under the capital account, "70 - settlement of bonds issued overseas by onshore institutions" and "71 – redemption of bonds issued overseas by onshore institutions" in the remittance and payment message (CMT100) of the LVPS shall be used for the time being. The business shall be classified and handled according to new business categories after the second generation payment system is put into operation.

A bank which operates various cross-border RMB business according to law shall first comply with the Cross-border RMB Receipt and Payment Information Management System according to the Interim Measures for the Administration of the Cross-border RMB Receipt and Payment Information Management System (No.79 [2010] of the People's Bank of China), and submit all information on the receipt and payment of RMB funds and the relevant business information to the Cross-border RMB Receipt and Payment Information Management System in a timely, accurate and complete manner. Where a bank operates cross-border RMB business without using the Cross-border RMB Receipt and Payment Information Management System or fails to submit information as required, PBOC may circulate a notice of criticism; and if the circumstances are serious, it may be prohibited from handling cross-border RMB business.

Within three months after the issuance of this Circular, a bank shall, according to the Measures for the Administration of Pilot RMB Settlement in Cross-border Trade, convert its RMB accounts opened for offshore banks according to the bilateral agreement on home currency settlement concluded between the central bank of a neighboring country and the PBOC into nostro accounts of RMB. Before such accounts are converted into nostro accounts of RMB, RMB receipts and payments between the aforesaid accounts and the domestic settlement bank shall fall under the cross-border RMB settlement business, and the relevant information shall be submitted to the Cross-border RMB Receipt and Payment Information Management System by reference to the rules regarding the submission of information by domestic agent banks. The aforesaid accounts which fail to be changed into nostro accounts of RMB within the prescribed time limit shall on longer be used to handle cross-border RMB settlement business.

RMB paid by a domestic importer shall not be used to directly purchase foreign exchange abroad (including Hong Kong) before being paid to the offshore exporter. A domestic settlement bank shall not provide such RMB settlement services.

The RMB debts owed by a PRC resident to a non-PRC resident under RMB settlement in cross-border trade as prescribed in Article 21 of the Measures for the Administration of Pilot RMB Settlement in Cross-border Trade shall include long-term letter of credit, overseas commission payment, agreement-based payments, advanced receiving and deferred payment, and other forms of debts relating to RMB settlement in cross-border trade. The aforesaid external RMB debts shall be registered in the Cross-border RMB Receipt and Payment Information Management System, and shall not be subject to the current management of foreign debts.

A bank may, according to the provisions of the Real Right Law of the People's Republic of China, the Security Law of the People's Republic of China and other laws, issue to clients the RMB letter of guarantee for offshore contracted projects, offshore construction projects, cross-border financing, etc., and such RMB letter of guarantee business of the bank shall not be subject to the current management of foreign debts, but the letter of guarantee and contract performance information shall be submitted to the Cross-border RMB Receipt and Payment Information Management System.

The balance of RMB bank settlement accounts of offshore institutions shall not be subject to the current management of foreign debts.

Re-export trades may be settled with RMB, and domestic settlement banks has the obligation to examine the authenticity of trades when handling the relevant RMB settlement business.

Where refund (compensation) is made after actual RMB receipt/payment by an enterprise, the bank may handle external receipts or payments for the enterprise after examining the relevant supporting documents, but the amount of refund (compensation) shall not exceed the amount of receipt/payment that has been made.

Banks shall handle RMB settlement in customs declaration in foreign currency according to the relevant provisions of the Measures for the Administration of Pilot RMB Settlement in Cross-border Trade, and enterprises shall provide the serial number of the declaration form, declared value and other information to the bank, and the bank shall submit the relevant information to the Cross-border RMB Receipt and Payment Information Management System.

RMB purchase and sale business of a bank shall be limited to the demand of cross-border RMB settlement under trade in goods. A domestic agent bank shall require the overseas participating bank to enhance the verification of authenticity on clients' demands of the purchase and sale.

The signed RMB agency settlement agreement between a domestic agent bank and an offshore participating bank shall at least specify the following obligations of the latter bank: first, the offshore participating bank can only handle RMB purchase or sale business for trading in which an domestic enterprise receives or makes payment, and shall not handle RMB purchase or sale business without direct trading relations with domestic enterprises; second, an offshore participating bank can only handle RMB purchase or sale business for corporate clients with real demand for making trading payments within three months; third, a corporate client shall, after handling RMB purchase or sale in an offshore participating bank, make all trading payments relating to RMB purchase or sale in the same bank; and fourth, an offshore participating bank shall track the flow of the RMB funds purchased or sold by the clients, examine new clients and relatively large-sum transactions in a more detailed manner, and pay attention to monitoring abnormal transactions.

A bank shall, if it is a legal person, submit the aggregate balance of RMB deposit accounts opened by offshore individuals in China to the Cross-border RMB Receipt and Payment Information Management System on a monthly basis, together with the information related to provinces (regions and municipalities), and when submitting information, divide deposit accounts into eight categories of demand deposit, time deposit, time-demand deposit, call deposit, negotiated deposit, agreement deposit, margin deposit and structured deposit.

The RMB settlement business for foreign direct investment is at the phase of case-by-case pilot. To ensure that the relevant business operations are carried out in a smooth and orderly manner and guard against inflows of hot money, applications made by foreign investors to directly invest in restricted projects or those that are the focus of regulation by the state under the pilot programs are currently not accepted. During the pilot period, to regulate foreign investors' investment in China with legally obtained RMB, including capital contribution for newly established business, M&A of domestic enterprises (excluding round-trip M&A), equity transfer, capital increase of existing enterprises and shareholder loans, the RMB settlement business for non-financial foreign direct investment shall be carried out under the following workflow:

A foreign investor or a domestic settlement bank of a domestic foreign-funded enterprise shall submit to the local branch of the PBOC at or above the level of a central sub-branch of a sub-provincial city a written application on a case-by-case basis and the relevant approval documents or approval certificate issued by the competent commerce department;

If, upon acceptance and examination, the local branch of the PBOC at or above the level of a central sub-branch of a sub-provincial city approves the business application of the domestic settlement bank, it shall submit the application to the Head Office of the PBOC;

The Head Office of the PBOC shall convene a meeting to review the pilot cases on the cross-border RMB investment and financing business, and collectively review all pilot cases;

Where the Head Office of the PBOC approves the application of a pilot case, it shall send a reply to the branch of the PBOC at or above the level of a central sub-branch of a sub-provincial city, which shall issue a filing notice of the cross-border RMB investment and financing business;

A domestic settlement bank shall present the notification of filing on record to open a RMB bank settlement account for the foreign investor or the domestic foreign-funded enterprise, and handle the relevant cross-border RMB settlement;

A domestic settlement bank must, in strict accordance with the approval of the Head Office of the PBOC, supervise and record the use of RMB funds in China, so as to ensure that funds are used within the scope of the approved business.