2013.01.03 CHEN, Jie
On November 9, 2013, the State Council promulgated Decree No. 642 to revise Measures for the Reporting of Statistics on Balance of International Payments (“Reporting Measures”), effective January 1, 2014. On December 2, 2013, the State Administration of Foreign Exchange (“SAFE”) promulgated Rules for Statistics on Overseas Financial Assets, Liabilities and Transactions (“Rules”), effective September 1, 2014, comprehensively revising Operational Rules on the Declaration by Financial Institutions Regarding Their Overseas Assets and Liabilities, and Profits and Losses published in 1996.
I. Significant changes of Reporting Measures
The revisions to Reporting Measures mainly include:
To expand reporting coverage by adding statistics on international investments. The revisions require reporting of not only all economic transactions between Chinese residents and non-Chinese residents, but also Chinese residents’ overseas financial assets and liabilities. In other words, in addition to statistics of cross-border capital flow, the revised measures also cover Chinese residents’ overseas financial assets and liabilities.1
To add reporting persons.
Non-Chinese residents who conduct economic transactions in China have the reporting duty as well as Chinese residents.
Chinese individual residents who own overseas financial assets and liabilities have the reporting duty.
Institutions providing services of registration, clearing and depository in China shall also have the reporting duty, in addition to parties directly involved in the international transactions.
To add persons subject to confidentiality obligations. In addition to SAFE and its branches, such institutions as banks, institutional traders and institutions providing services of registration, clearing and depository also shall have the duty to keep strictly confidential the reported information to which they have access while conducting business.
To specify penalty measures. Reporting persons will still be subject to penalty in accordance with the regulations of foreign exchange for failure of reporting. Further, relevant reporting persons will be subject to administrative penalty and/or other legal responsibility if violating the duty of confidentiality.
II. Our comments on the revision
Intent of the revision. Reporting Measures, Implementing Rules thereof and Rules are formulated in accordance with Statistics Law. According to Rules, the revisions to Reporting Measures and Rules are to comply with the latest international standards issued by the International Monetary Fund (IMF) and to improve Chinese laws concerning statistics of balance of international payments; consequently, besides the statistics on capital flows, the revising of Reporting Measures emphasize the statistics on the position of international investment.
Whether the revisions impose further reporting requirements on Chinese individual residents. The revisions to Reporting Measures do not change the definition of “Chinese residents”. Actually, Reporting Measures have always provided for Chinese individual residents’ reporting duty, therefore the revision cannot be regarded as a breakthrough for the current framework of individuals’ reporting duty. The main changes aim at broadening the reporting scope of Chinese residents (namely, international financial assets and liabilities that they own) and adding non-Chinese residents as reporting persons. However, it is still considerably difficult to require individuals to make declarations on their own initiative2 . in practice, SAFE has not specifically drawn up practical rules for individuals to make such declaration. The revised Rules continue to only require certain institutions 3 to report on international transactions between Chinese residents and non-Chinese residents, as well as Chinese residents’ international investment position. How Chinese individual residents practically perform the duty to report their overseas transactions and investment assets (such as Chinese individuals’ purchase of foreign securities, bonds or real property, outbound acquisition, immigration-related investment etc) has attracted attention from the public, but no specific implementation rules are available yet. Additionally, SAFE has not yet laid out a time table for the revising of the Implementing Rules of Reporting Measures.
Possible development in regulation of individuals’ overseas assets. We note that Reporting Measures and its implementing rules are meant to meet the requirements of Laws of Statistics, while the regulation of Chinese individuals’ foreign exchange transactions is also closely linked with the laws and regulations concerning individual foreign exchange control, individual outbound investment, anti-laundering rules and even the individual income tax laws in China, which are expected to be further updated or improved in the near future. In fact, the requirements of Reporting Measures are arguably inconsistent with the annual quota of $50,000 foreign exchange permitted by the current individual foreign exchange regulations. Further developments in regulation of overseas assets and liabilities by Chinese individual residents will depend on not only the revising of Reporting Measures and its implementing rules, but also the reforming and developing of legal regime of Chinese individual resident’s foreign exchange matter.
1. According to Rules, overseas financial assets means financial assets of Chinese residents that are claims on non-Chinese residents, including out-bound direct investment, securities investment, financial derivatives investment, deposits, granting of loans and all kinds of receivables, etc. Overseas liabilities means the liabilities of Chinese residents to non-Chinese residents, including in-bound direct investment, issuance of securities, financial derivatives investment, receipt of deposit, receipt of loans and all kinds of payments, etc.
2. Currently, individuals’ statistics and declarations are collected by financial institutions when they provide financial services, rather than reported by individuals on their own initiative. In addition, the definition of Chinese residents includes persons without Chinese nationality who live within China’s territory, but even under the revised Rules, the main method to recognize Chinese residents is to check the nationality revealed on the valid identity cards. In other words, the reporting regulation for Chinese residents without Chinese nationality is a grey area in practice.
3. Certain reporting persons are referred to as financial institutional legal persons registered in China, responsible reporting branch of foreign financial institutions, National Council for Social Security Fund, China Investment Corporation, China Central Depository & Clearing Co., Ltd., China Securities Depository and Clearing Corporation Limited, Shanghai Clearing House, bank card organizations and other designated reporting persons.
