Five Things to Know about Personal Forex Purchases in China
During the New Year weekend, China’s State Administration of Foreign Exchange (SAFE) amended rules governing the purchase of foreign currency by Chinese citizens. Contrary to earlier widespread rumors, the exchange did not lower the amount that can be exchanged by individuals, but it did tighten scrutiny over the purchases.
1. What is the current quota for Chinese citizens purchasing foreign currency?
Chinese citizens are limited to purchasing no more than $50,000 worth of a foreign currency in a calendar year. This remains unchanged, according to an announcement by the SAFE over the New Year weekend in response to media inquiries. The SAFE’s statement refuted a market rumor that China would reduce the quota on the purchase of foreign currencies by Chinese citizens in a bid to curb capital outflows as the yuan has been depreciating against the dollar. The SAFE increased the quota for individual forex purchases from $20,000 per person to $50,000 on Feb. 1, 2007. However, many people have moved larger sums abroad by using relatives’ quotas.
2. What is the latest change in the rules governing the personal purchase of foreign currency?
China’s foreign exchange regulatory authority said in its latest announcement that the purchase of foreign currency should be subject to rigorous and thorough scrutiny by banks. Chinese citizens who want to buy foreign currency are required to offer more specific information, including the real purpose of any forex purchases, as well as a pledge to bear any legal consequences. Banks are also required to verify the identity of the individual and flag any large-volume or suspicious transactions. Regulators will carry out random inspections on the purpose of the forex transactions. If any violations, such as the illegal transfer of foreign currency funds, are found, the individuals will be put on a “watch list” and could possibly be banned from purchasing foreign currency for a certain period. Personal credit records may also be affected by violating China’s foreign exchange laws.
3. Why such tightened scrutiny?
Capital outflows have become a major concern this year, as China’s central bank is attempting to keep the value of the yuan stable without exhausting the country’s foreign exchange reserves. In 2016, the value of the yuan plunged over 6% against the U.S. dollar. Also, according to the SAFE, the crackdown on money laundering and terrorism financing are motives. So is an increasing demand for foreign currencies driven by more than 100 million Chinese people traveling abroad each year. SAFE also admitted some loopholes in the regulations had allowed some to skirt the regulations, especially in buying houses overseas. The SAFE said such violations also give rise to the sprawling underground banks, which handle hundreds of billions of yuan in illegal foreign exchange transactions.
4. What if an individual needs to purchase extra foreign currency?
Some people need to convert more than $50,000 in foreign currency for such common expenses as tuition for studying overseas, buying non-investment types of insurance policies, or paying for medical charges in a foreign country. For this, more documentation beyond standard identification is required to prove the lawful purpose of the transaction, such as a university admission letter, a tuition statement or a hospital expense bill.
5. For what purposes can individuals use their foreign currency purchase quota?
When exchanging yuan to a foreign currency, the bank is required to review whether the outbound capital is for investment or for personal payments, such as traveling abroad, studying overseas, vising relatives or seeking medical treatment. Outbound capital for fixed-income securities and equity investment is restricted and allowed only through certain qualified asset managers and funds, via the Qualified Domestic Institutional Investor program launched by Beijing in 2006. However, it is common for people to disguise the real intended purpose of the foreign currency.
Contact reporter Dong Tongjian (firstname.lastname@example.org)
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