Banking & treasury services in China.

China’s current FOREX control system was first introduced in 1996. According to this system, all FOREX transactions are classified into two categories: capital account items and current account items.

Capital account items are capital inflow or outflow transactions which serve either to increase or decrease a company’s debt or equity, including foreign direct investment, all types of loans, loan-related security transactions and securities investments. All capital account transactions are subject to approval by the State Administration for Foreign Exchange (SAFE).

Current account items are transactions of an ordinary recurrent nature, including payments for foreign trades and services and interest payments for FOREX debts.

The Types of Capital Conversion are as follows:

1. Reserve Settlement (equivalent to USD 50,000 or less)
2. Large Settlement

For Capital Settlement, the enterprise needs to provide the necessary documents to the bank. Such as the SAFE IC card, a letter of payment order for the RMB funds derived from its capital settlement, certificates demonstrating the purposes for which RMB funds derived from the capital settlement are to be used and the most recent capital verification report, etc.

Where the settlement is to be made for the reserve funds of a foreign-invested enterprise equivalent to USD 50,000 or less, the enterprise may directly go through the settlement procedure with respect to the accrued interests to its capital account using the relevant interest bill issued by any of the banks.

The Large Settlement should be transferred to the payee’s bank account directly after submitting the application documents. However, the Reserve Settlement with the amount of USD 50,000 or less is allowed to be transferred and kept in a basic RMB bank account.

There are 6 methods that are currently used to determine the pricing. These are:

1. Comparable Uncontrolled Price Method A pricing method adopted by arm’s length parties in conducting same or similar transactions
2. Resale Price Method A product purchase pricing method that begins with the resale price to arm’s length parties (of a product purchased from an affiliated party), reduced by a gross margin of the same or similar transactions
3. Cost-Plus Method A pricing method that takes into consideration additional cost, reasonable fees and profits
4. Transactional Net Profit Method Profits are determined as per the net profit margins of arm’s length parties in conducting same or similar transactions
5. Profit Split Method The consolidated profits or losses of an enterprise and its affiliated parties are allocated between or among them using a reasonable rate
6. Other Methods As set out in compliance with the arm’s length principle