Q: The People’sBank of China (PBC) has recently published Provisional Administrative Ruleson Sales and Payment of Foreign Exchange for Personal Asset Outbound Transfer(hereinafter “the Provisional Rules”). Would you please explain thebackground and purpose for the publication of the Provisional Rules?
A: With economicdevelopment and the deepening of the open-up policy, cross-border movement ofpeople has increased. More and more emigrants are asking to have their assets transferredfrom China to their destination residence. Also,non-residents need to cash in their inheritor assets in China into foreign exchange, and remit it to their place ofresidence (hereinafter “personal asset outbound transfer”). In recent years,many overseas Chinese have expressed to related government departments theirdemand in this regard. Some have even consulted the Chinese resident embassiesor consulates in foreign countries about this issue. To meet the legitimaterequirements of personal asset outbound transfer, protect the lawful assetrights and interests of individuals, and safeguard an orderly foreign exchangesystem, since 2003, the PBC has joined relevant government departments in thecareful research and feasibility study of loosening foreign exchange managementrestrictions on personal asset outbound transfer, and established and issuedthe Provisional Rules which will enter into force on December 1, 2004.
Q: What is thesignificance of the Provisional Rules?
A: China has for long been without rules governing theoutbound transfer of personal assets, dissatisfying the legitimate requirementsfor exchange and transfer. The Provisional Rules clarifies foreignexchange management policies governing personal asset outbound transfer. Itbears significance in the following aspects:
1. It demonstrates theincrease of China’s national strength. The recent years havewitnessed a sustained and rapid growth in the economy and the worldacknowledges our achievements in the process of development. The balance ofpayments keeps a relatively large surplus for many consecutive years andforeign exchange reserves keeps growing at a high rate. By end September 2004, China’s foreign exchange reserves reached US$514.5 billion.An enhanced national strength makes it possible to transfer personal assetsoutbound under appropriate conditions.
2. It fully protects theindividuals’ rights and interests in legal assets. It’s enshrined in the Constitutionof the People’s Republic of China that the law protects the asset rights ofthe individual. If the asset is not allowed to be transferred correspondinglywhen a person emigrates outside China, his/her asset rights are not fullyexercised. Law of the People’s Republic of China on Inheritance providesthat foreigners reserve the right to the inheritance of an estate in China. Such a right to inheritance is not fully exercisedif the foreigner is not allowed to purchase foreign exchange for repatriation.The implementation of the Provisional Rules purport to fully protect therights and interests of individuals to their legal asset and embodies the guidingprinciples of the Party and the government to truly safeguard the fundamental interestsof the majority of people.
3. It introduces a goodway of sound management and plugs the loopholes. In the past, some legalChinese emigrants took illegal measures to transfer their domestic assets toprovide for their livelihood outside China, disregardingthe cost and the risks. This has to some extent fostered illegal trading offoreign exchange. The Provisional Rules will introduce a lawful way forthe outbound transfer of legitimate personal assets and standardize the outfluxof capital.
4. It improves the capitalaccount convertibility. Emigrant transfer and inheritance transfer are two ofthe basic items of capital account transactions. The developed countries imposevirtually no restrictions on these two transactions. Some developing countriesare lifting or have lifted the restrictions while others are providingexplicitly for examination and approval. Chinamakes a breakthrough in loosening certain restrictions on the outboundtransfer, further improving the convertibility.
Q: Would you introducethe major contents of the Provisional Rules?
A: The ProvisionalRules basically consists of the following aspects:
1. Define the range ofassets qualified for outbound transfer. Personal assets qualified for outboundtransfer as defined in the Provisional Rules include emigrant assettransfer and inheritor asset transfer. The Rules do not apply to otherforms of personal asset transfer.
The Provisional Rules stipulate that the assetsapplied for transfer should be the legal asset belonging to the applicant and indisputablein terms of ownership; Foreign exchange administration departments do notaccept applications for the transfer of assets which is legally prohibited bythe judicial or supervisory authorities and applications for outbound transfer ofassets which are legally untransferable, have no prove for their lawful sourceor involve unsettled criminal or civil litigations.
2. Identify relevantapplication procedures. All applications for personal asset transfer should befiled to the local branch offices of the State Foreign Exchange Administrationin places where the emigrants or the persons whose assets are inherited haveoriginally registered their residence. Sub-branches of the State ForeignExchange Administration can accept the applications. The applications can besubmitted by the applicants themselves, or by other persons entrusted by theapplicants.
3. Clarify the proceduresfor examination and approval of the applications and the procedures for theverification of capital remit. Applications for asset transfer equivalent toless than RMB500,000 yuan will be examined and approved by the provincialbranches of the State Foreign Exchange Administration; applications for assettransfer equivalent to more than RMB500,000 yuan (inclusive) will be examinedby the State Foreign Exchange Administrations at the provincial level beforebeing submitted to the head office of the State Administration of ForeignExchange for approval.
Also, emigrant transfer of assetsequivalent to more than RMB200,000 yuan (inclusive) should be made in smallerinstallments. This means, the applicant can apply for transfer of the wholeamount, but can only remit a half of the approved sum for the first time, halfof the other half one year later, and the rest within two years after theapproval. Assets inherited from the same person requires only one applicationbut can be remitted in lump sum or installments. The assets inherited fromdifferent persons by the same person should file separate applications and havethe assets remitted respectively.
Q: Who are the eligible applicants forasset outbound transfer? How do people apply for individual asset transfer? Atwhich level of foreign exchange administration do people submit theapplication? And if the applicant cannot make it to China, may he/she entrust other persons to file theapplication?
A: Natural persons emigrated from theChinese mainland to foreign countries or Hong Kong and Macao SpecialAdministrative Regions (hereinafter SARs) can apply to cash in their legal assetsin China, buy foreign exchange, and remit the foreign exchange outbound. Theserefer to assets gained before they have obtained their immigrant status.Foreign citizens and residents of Hong Kong or MacaoSARs can apply to cash in their legal inheritance in China,buy foreign exchange and remit it. The Rules may serve as a reference indealing with personal asset transfer to Taiwanregion.
All applications for personal assettransfer should be submitted to the local branch offices of the State ForeignExchange Administration. If the local foreign exchange authority is asub-branch of the State Foreign Exchange Administration, the application shouldbe therefrom referred to the branch office of the State Foreign ExchangeAdministration.
The application can be submitted in personby the applicant or by other persons entrusted by the applicant. The applicantmust provide materials requested by the Provisional Rules and guaranteethe authenticity and integrity of the materials. In the case the applicant entrustsother persons to file the application, the Entrustment Agreement of theassignee must also be provided. Relevant documents such as the EntrustmentAgreement, certificates of asset rights, certificates of inheritance, andcertificates of asset ownership must all be notarized.
Q: Some people worry that the ProvisionalRules may lead to the illicit outflow of capital, especially the state-ownedassets. Does the authority have corresponding means to mitigate the risks?
A: I mentioned that the ProvisionalRules require certifications for the origin of the assets proposed to be transferredand the assets must be legally owned by the applicant. However, it is possiblethat some illicit funds may seek to seep out making use of the ProvisionalRules. To prevent such lawlessness from happening, the Provisional Rulesemphasize the confirmation of the identity of the applicant and the examinationof the sources of the assets. Foreign exchange authorities will cooperate withdepartments of foreign affairs, public security, discipline inspection, justiceand taxation to jointly mitigate and control risks.
Q: China now has a comparatively sufficient reserve of foreignexchange and a large surplus in balance of payments. If the BOP situationchanges, will a large amount of asset transfer incur risks?
A: To avoid such risks, the ProvisionalRules stipulate that emigrant transfer of assets equivalent to more thanRMB 200,000 yuan should be divided into and made in smaller installments.Applications for transferring different amounts of assets shall be examined andapproved at different levels of authorities. Additionally, in case ofunexpected development, the PBC reserve the right to adjust the ceiling andremitting frequency of personal assets transfer based on the condition ofbalance of payments.
