United States: China Capital Controls: Best Practices For Accelerating International Payments

Following the depreciation of Chinese currency RMB and the reduction in China's foreign exchange reserves[1], foreign companies and individuals in China have met hurdles in moving their money out of China, and overseas companies have experienced delays of payments by their Chinese business partners. This article will discuss the recent tightened controls over capital outflows from China to overseas and offer the best practical solutions to accelerate the funds transfer progress.

Mandatory Submission of Application for Individual Purchase of Foreign Exchange

Starting from January 1, 2017, individuals are required to submit the Application for Individual Purchase of Foreign Exchange for whatever amount of foreign exchange that they seek to buy at a bank counter or an online bank. This new requirement comes from the Notice re Improving Individual Foreign Exchange Business Information System-Hui Fa [2016] No. 34 promulgated by the foreign exchange regulatory authority-State Administration of Foreign Exchange ("SAFE") on December 30, 2016.

As background, transactions processed by any amount of foreign exchange in China must be declared[2], and each individual is free to settle foreign exchange with the equivalent of USD 50,000 as well as purchase foreign exchange with the equivalent of USD 50,000 within one year without submitting supporting documents of the transaction.[3] However, under the new requirement, an individual could no longer easily purchase foreign exchange only with an ID card but would need to submit this additional Application for Individual Purchase of Foreign Exchange which identifies the purpose of the funds.

In addition, an individual is subject to more obligations under the Application for Individual Purchase of Foreign Exchange. Buying overseas real estate with individual foreign exchange is prohibited[4] and borrowing other people's annual quota to split the purchase of foreign exchange is not allowed[5]. A violation of this rule will subject the individual to being listed on the SAFE's "watch list" which restricts this person from using his annual quota to purchase foreign exchange in the year when he is included in the "watch list" and the two consecutive years thereafter; in the interim, an anti-money laundering investigation will be initiated against this person.

Ways to Expedite Processing of Cross-border Payment Approvals

For cross-border payment exceeding the annual quota of USD 50,000 by an individual and any amount of cross-border payment by an entity, supporting documents of the current account transactions or the capital account transactions are required to submit to the banks. For example, the bank would need to review the tuition sums issued by a foreign school for approving the payment in foreign exchange; a license agreement executed between the Chinese licensee and the foreign licensor should be submitted to the bank for approving the outbound payment of the license fees.

However, following the SAFE's recent imposed capital controls over outbound payments in foreign exchange, payment delays are becoming more common. That said, before a foreign creditor jumps to file an arbitration or litigation action against the Chinese debtor for collection of bills, the following steps can be helpful due to the costs and the time to pursue a claim:

First, check the supporting documents and make sure each agreement, receipt, certificate, etc. has a Chinese version. As a practice, Chinese translations are always required for the banks, the SAFE, and the tax authorities in China to review and issue their approvals of the payment.

Second, send a bilingual demand letter in both Chinese and English which includes an offer to support the governmental approval processes.

Third, engage lawyers with cross-border transaction experience to make connection with both the bank and the SAFE representatives handling the approval application.

Fourth, in appropriate situations, recruit support of the foreign government representatives in China, for example, the US Treasury representative at the Beijing Embassy, for purpose of communicating with the SAFE officers and breaking the logjam.

We have been successful in working with both the banks and the SAFE to expedite processing of cross-border payment approvals. We understand that the SAFE's main task is to ensure that Chinese companies and individuals are not engaged in illegal offshore investments and thus capital flight. That said, as long as the supporting documents can justify the transaction, potential hold-ups from the banks or the SAFE should not happen. However, in the event of the tightened capital control policies issued by the SAFE from time to time, we suggest using lobbying efforts in appropriate situation[6] to move things along as a cost-effective strategy to encourage the debtors to make prompt payment.


[1] The year of 2016 has seen the Chinese currency RMB depreciate by 6.5% against the US dollar. Following China's move to sell its US dollars to prop up the RMB's value, the foreign exchange reserves of China have dropped to USD 2.998 trillion at the end of January, 2017, which is the first time the figure has fallen below USD 3 trillion in nearly six years. See here for details: http://www.caixinglobal.com/2017-02-13/101054647.html Caixin News Article "Head of Foreign Exchange Watchdog Vows to Strengthen Fight Against Capital Flight", by Fran Wang, Feb. 13, 2017.

[2] Article 6 of the Regulations of the People's Republic of China on Foreign Exchange Control provides that:

"The State shall practice a system for declaring statistics on international receipts and payments."

[3] Article 2 of the Implementing Rules of the Administrative Measures for Personal Foreign Exchange provides that:

"Administration of annual total amount shall apply to settlement of personal foreign exchange and domestic purchase of personal foreign exchange. The annual total amount is the equivalent of USD50,000 per capita per year. ... Settlement and purchase of personal foreign exchange within the annual total amount shall be transacted at banks on the strength of valid identity certificates of the persons concerned; with regard to settlement and purchase of personal foreign exchange beyond the annual total amount, current items shall be transacted in accordance with Articles 10, 11 and 12 hereof, and capital items shall be transacted in accordance with "Administration on Capital Items of Personal Foreign Exchange" hereunder."

[4] Buying overseas real estate belongs to a capital account transaction, thus is not allowed to use the foreign exchange from a current account transaction. By definition, Article 52 of the Regulations of the People's Republic of China on Foreign Exchange Control provides that:

"Capital account transactions" means the transactions causing the change of external assets and liabilities level in the international receipts and payments, including capital transfer, direct investment, securities investment, derivative products and loans, etc.

"Current account transactions" means the transactions relating to goods, services, profits, and frequent transfer in the international balances of payments.

[5] One example of splitting the purchase of foreign exchange can be seen under Article 1(3) of the Notice of the State Administration of Foreign Exchange on Further Improving the Administration over Individual Settlement and Sales of Foreign Exchange: "where more than five (5) different individuals remit the foreign exchange to the same person or agency outside the territory of China after purchase of foreign exchange separately on the same day, every other day or for many consecutive days."

[6] For outbound investments in favored sectors, for example, biotech, it is important to bring the policy argument to SAFE's attention for approving of the capital flows.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
15 Oct 2019, Seminar, Los Angeles, United States

Please join us for Sheppard Mullin's Labor & Employment Law Update & Happy Hour Seminar Series.

16 Oct 2019, Webinar, Los Angeles, United States

This activity has been approved for Minimum 1 Continuing Legal Education credit by the State Bar of California.

16 Oct 2019, Conference, New York, United States

Black women often are misidentified as holding a position other than the attorney role, whether it be the secretary, paralegal, court reporter or even stenographer.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions