Cross-border Money Transactions

Transactions in China are carefully scrutinized by the Chinese regulatory system. The institution in charge of China’s foreign exchange market is called SAFE. Here is what WFOEs should know about it.

What is SAFE?

The State Administration of Foreign Exchange is affiliated with the People’s Bank of China, and is involved in all foreign currency transfers. It enjoys unparalleled power and authority compared to similar institutions in other markets.

As SAFE is central to administering foreign money exchange, it is divided into 8 different departments and is spread all over China, throughout all municipal levels.

SAFE’s roles & responsibilities

SAFE’s duties support its goals: to ensure the stability and legitimacy of the foreign exchange market at the macro level, and to form a management framework for international capital flow at the micro level.

• Governing and overseeing China’s foreign exchange market

• Formulating regulations related to foreign exchange

• Implementing new policies pertaining to RMB convertibility

• Advising the People’s Bank of China on RMB exchange rate

• Taking measures to control exchange rate fluctuation and to prevent financial fraud and risks

• Monitoring all kinds of cross-border transactions, external credits and debts

• Safeguarding and managing financial assets and reserves

• Regulating cryptocurrency

Considerations for WFOEs

WFOE managers and CFOs must remember that SAFE is engaged in many types of foreign capital exchanges (e.g. capital registration, service fee payments, debt payments, etc.), in a wide variety of accounts. Foreign exchange is still very much controlled, and RMB isn’t convertible freely.

When screened by either SAFE itself or the local banks (to which some of SAFE’s responsibilities are delegated), WFOEs should make sure they possess necessary documentation that complies with local requirements, and that all overseas transactions are properly declared. SAFE and its execution arms will be present every step of the way, and violations will have consequences.

For more information about WFOE operation in China visit our Regulations Guide to WFOE Establishment, Registration & Liquidation.

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