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With a view to regulating the business of letters of credit of the Chinese-funded commercial banks (including the solely-funded state-owned commercial banks, joint-stock commercial banks, policy banks, commercial city banks, rural commercial banks and the rural credit cooperatives, hereafter referred to "banks"), urging the banks to strengthen their control over the risks of the letters of credit, improving the quality of foreign exchange assets, the present circular is hereby circulated, upon the approval of the People's Bank of China, on the principles for handling foreign exchange advance for letters of credit and the corresponding expenses (hereafter referred to foreign exchange imprest): I. Scope of application The present Circular is applicable to the imprest for letters of credit made before September 30, 2001 by the banks, but not applicable to the foreign exchange imprest made for the letters of credit opened after September 10, 1998 by the financial institutions within the bonded areas. II. Repayment of the foreign exchange imprest under the items of letters of credit 1. As for the foreign exchange imprest for which the applicant for letters of credit is able to provide a Form for Writing Off Foreign Exchange for Imported Goods which has been affixed with the seal of "Reported for Examination and Approval" issued by the department of the State Administration of Foreign Exchange or a branch or sub-branch thereof (hereafter "foreign exchange administration") in charge of writing off foreign exchanges, the applicant or the guarantor thereof may apply to the foreign exchange administration at the place where it is registered for purchasing foreign exchanges by submitting the relevant attestation materials about the foreign exchange imprest, and purchase foreign exchanges at the banks by presenting the documents of approval of the competent foreign exchange administration. a. If the imprest is to be repaid by the applicant by purchasing foreign exchanges, the applicant shall provide to the foreign exchange administration qualified materials including an aforesaid Form for Writing Off Foreign Exchange for Imported Goods and an attestation of foreign exchange imprest under letters of credit issued by banks. b. If the imprest is to be repaid by the guarantor by purchasing foreign exchanges, the guarantor shall submit a contract of guarantee besides the materials that the aforesaid applicant is required by the foreign exchange administration to submit. After the guarantor has repaid the foreign exchange imprest under the item of letters of credit by purchasing foreign exchanges, the applicant cannot apply for purchasing foreign exchange for a same imprest, instead, it can only repay the guarantor with corresponding RMB. If the guarantor uses its own foreign exchanges to repay the foreign exchange imprest under the item of letters of credit, the applicant for letters of credit may still apply to the foreign exchange administration for purchasing foreign exchange by presenting an attestation of the guarantor concerning the imprest under the item of letters of credit, and repay the guarantor after purchasing foreign exchanges at the banks by presenting the documents of approval of the competent foreign exchange administration. 2. As for the foreign exchange imprest for which the applicant for letters of credit is unable to provide a Form for Writing Off Foreign Exchange for Imported Goods which has been affixed with the seal of "Reported for Examination and Approval" issued by the department of the foreign exchange administration in charge of writing off foreign exchanges, and if the applicant or the guarantor thereof has repaid the banks with RMB on its own initiative, or the banks have directly recovered directly RMB repayment from the applicant or the guarantor thereof through judicial or arbitration procedures, or if the banks have obtained the RMB repayment by selling off the assets of the applicant or the guarantor thereof through judicial procedures, of if the applicant has repaid the imprest in RMB after liquidation for bankruptcy, the banks concerned may apply to the foreign exchange administration for purchasing foreign exchanges. III. When the banks that have made advance payment for the foreign exchange under the item of letters of credit apply for purchasing foreign exchanges, the following procedures shall be followed: 1. The branches of the banks shall file an application to the foreign exchange administrations of the places where they are situated and submit a detailed list of imprest made under the item of letters of credit for which foreign exchanges are to be purchased according to the Form in Annex I so that the local foreign exchange administrations may examine the authenticity and lawfulness of each foreign exchange imprest; 2. The branches of the banks shall report a detailed list of the foreign exchanges paid in advance under the item of letters of credit that have been verified by the foreign exchange administration of the place where they are situated to the bank on the next higher level or to the head office of the banks so that the local foreign exchange administrations can examine the authenticity and lawfulness of each foreign exchange imprest; and 3. The head office of all banks shall collect all the data of foreign exchange imprest under the item of letters of credit within their respective jurisdictions that have been verified by competent foreign exchange administrations, and apply to the SAFE for uniform purchase of foreign exchanges by submitting a detailed list of the imprest in each province. IV. The following procedures shall be followed by the foreign exchange administrations in their examination of the applications of the banks for purchasing foreign exchange: 1. All the branches and sub-branches of the foreign exchange administrations shall make careful examinations over the materials of foreign exchange imprest under the item of letters of credit provided by the banks within their jurisdictions, give their comments to the banks in written form and provide a detailed list of foreign exchange imprest under the item of letters of credit the applications of which have been approved according to the Form in Annex II, and at the same time, report to the local department of supervision of the People's Bank and the foreign exchange administration on the higher level. Where it approves the application of a bank to purchase foreign exchanges, it shall inform the banks within its jurisdiction not to make further purchases of foreign exchanges for the same imprest under the item of letters of credit on behalf of the applicant for letters of credit, and, at the same time, change the data of the foreign exchange payment involved from the "overdue unwritten-off" state to the state of "for reference". The applications of the applicant for letters of credit whose industrial and commercial registration has been canceled or who is no longer existing for purchasing foreign exchanges for the imprest under the item of letters of credit shall not be approved by any foreign exchange administration; 2. All the branches and sub-branches of the SAFE shall be responsible for gathering the data of foreign exchange imprest under the item of letters of credit within their respective jurisdictions that have been approved, and report detailed lists on the monthly basis and on the basis of different banks to the Department of International Payment of the SAFE; and 3. The SAFE shall be responsible for approving the applications of the head offices of commercial banks for purchasing foreign exchanges, and arranging for purchases according to the market situation of the banks. When approving the applications of the banks for purchasing foreign exchanges, it shall feed the approved lists of foreign exchange imprest under the item of letters of credit back to the branches of the SAFE where the imrests involved have happened through the website of the Information Center of the SAFE. The branches and sub-branches shall check carefully the lists of allowing the local banks to purchase foreign exchanges for the imprest fed back by the SAFE against the imprest lists of their own. If you find any inconsistency, you should report to the Department of International Payment of the SAFE in good time. V. Where any foreign exchange imprest under the item of letters of credit has been made and the banks concerned cannot recover the payment, they shall follow the relevant provisions of the Interim Measures for Recognizing Bad Loans published by the People's Bank of China and shall take the foreign exchange imprest involved as bad loans as of the day when they are made in accounting. VI. The existing provisions concerning the administration of foreign exchange shall be applicable to the normal accounting of the import and export trade under the item of letters of credit. VII. The present circular shall be implemented as of the day of promulgation. Any provision previously published that runs in conflict with the present provisions shall be repealed simultaneously. The branches of the SAFE should, after receiving the present circular, distribute it to the sub-branches, banks and enterprises within their respective jurisdictions. In case you encounter any problem in the implementation of the present circular, please report to the Department of International Payment of the SAFE. (Tel: 010-68402310, 68402313; Fax: 010-68402315). Attachments: I. Application Form for Banks' Purchasing Foreign Exchange for Imprest under the Item of Letters of Credit II. Verification Form for Banks' Purchasing Foreign Exchange for Imprest under the Item of Letters of Credit |
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