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Investing in mainland China
Useful information
Some information that might be useful to you before you leave - click on the headings below:
Please note: The information is provided for your reference only, and does not construe any form of legal, financial or other professional advice. HSBC is not responsible for the accuracy, updatedness and completeness of the information. This document does not constitute an offer, solicitation, advice or agreement, and is not legally binding over any party. HSBC makes no representation or warranty (express or implied) of any nature nor is any responsibility of any kind accepted with respect to the completeness or accuracy of any information, representation or warranty (expressed or implied) in, or omission from, this document. No liability is accepted whatsoever for any direct, indirect or consequential loss arising from the use of this document.
Banking in mainland China
China's banking system has undergone significant change in recent decades. Although the banking industry is still highly regulated, China's accession to the WTO has led to a significant opening of this industry to foreign participation, with full market relaxation taking place in 2007.
Supervisory Bodies - PBOC (People's Bank of China) and CBRC (China Banking Regulatory Commission)
The People's Bank of China (PBOC) is China's central bank which formulates and implements monetary policy. The PBOC maintains the banking sector's payment, clearing and settlement systems, and manages official foreign exchange and gold reserves. It oversees the State Administration of Foreign Exchange (SAFE) for setting foreign exchange policies.
According to the 1995 Central Bank law (revised in 2003), PBOC has full autonomy in applying monetary instruments, including setting interest rates for commercial banks and trading in government bonds. The State Council maintains oversight of PBOC policies.
The China Banking Regulatory Commission (CBRC) was officially launched on 28 April 2003, with responsibility for the regulation and supervision of banks, asset management companies, trust and investment companies as well as other deposit-taking financial institutions. Its mission is to maintain a safe and sound banking system in China.
Foreign Exchange
On 21 July 2005, China's government abandoned the Renminbi (RMB) exchange rate's managed float and the Renminbi was revalued against the US Dollar by 2.01%. On 15 May 2006, the rate broke the 8-point level (8 Renminbi to 1 US Dollar) for the first time. By the end of Feb 2008, the USD/RMB exchange rate had risen by 12%.
The RMB is still not a fully convertible currency and the State Administration for Foreign Exchange (SAFE) supervises the onshore FOREX market. The CFETS (China Foreign Exchange Trading System) organises the operation of the currency market.
Securities
There are two stock exchanges in mainland China: the Shanghai Stock Exchange and the Shenzhen Stock Exchange. Both of these exchanges are national stock exchanges supervised by the China Securities Regulatory Commission (CSRC).
A wide variety of products are traded on the stock markets, ranging from A shares and B shares, to close-ended funds, state / enterprise bonds and options.
- A shares: normal shares denominated in RMB. A shares are issued by onshore companies and can be traded in RMB between PRC residents and institutions.
- B shares: special shares denominated in RMB. B shares are issued by onshore companies and can be traded in foreign currencies by both PRC residents, expatriates and other qualified foreign institutional investors.
Expatriates can invest in the B share market only, by opening a Stock Dealing and a Funding account. You can visit a security company's office with your passport for account opening.
Unit trusts
Although the history of mainland China fund companies is very short, mainland China's unit trust industry has seen fast development in recent years. At the end of Sep 2007, there were 59 fund management companies and 341 funds. You should check with the relevant fund companies for more details before investing in unit trusts.
Tax
Currently the interest income from deposits is subject to 5% tax while the income from stocks, unit trusts and bond trading is not subject to income and interest tax.
Stamp duty is applicable to many types of transactions carried out in mainland China. For share transactions both the buyer and seller must bear 0.3% stamp duty.
Interest derived from any deposit placed in mainland China is subject to interest tax of 5%, collected by the financial institution the deposit is residing with.
Local banking regulations
China is a country with quite a lot of banking restrictions and certain major constraints are listed below:
Foreign currency (FCY) conversion/overseas remittance
1. There are no restrictions on expatriates receiving FCY from overseas and remitting FCY funds from their accounts.
2. For expatriates, the annual FCY-RMB conversion amount should not exceed US$50,000. For amounts exceeding this annual limit, customers need to provide supporting documents and obtain approval from the State Administration of Foreign Exchange (SAFE) on a case by case basis.
3. Due to the foreign exchange regulations in mainland China, expatriates can only convert RMB into FCY and further remit the funds out of China from their legal RMB incomes:
3.1) Salary in RMB
Supporting documents required for initial conversion (original copies):
• Passport / Hong Kong/Macao permanent ID
• Employment contract showing salary paid in RMB
• Payroll slip
• Work permit in mainland China
• Income tax certificate
Supporting documents required for subsequent conversions (original copies):
• Income tax certificate
• Payroll slip
3.2) Rental income in RMB for property in mainland China
Supporting documents required for initial conversion (original copies):
• Tenancy agreement
• Leasing certificate
• Property ownership certificate
• Tax return
• Leasing invoice
• Passport/Hong Kong/Macao permanent ID
Supporting documents required for subsequent conversions (original copies):
• Tax return
• Leasing invoice
3.3) Sales proceeds in RMB for property in mainland China, if the property purchase proceeds are originally in FCY
Customers can remit the sales proceeds overseas upon approval from SAFE. You have to approach the following three bodies for the above remittance.
a) Local tax bureau - To obtain a tax payment certificate
Supporting documents required:
• Sale & Purchase Agreement
• Vendor's ID card/passport
• Purchaser's ID card/passport copy
• Property ownership certificate copy
• A tax return
b) State Administration of Foreign Exchange - To obtain remittance approval
Supporting documents required:
• An application for an outward remittance
• Proven inward remittance of the purchase settlement
• Invoices of the original purchase price
• Property ownership certificate copy
• Sale & Purchase Agreement
• Vendor's ID card/passport (For delegation, a notarised delegation letter together with the ID/passport of the delegate are required)
• Purchaser's ID card/passport copy
• Registration certificate of the transfer of the title deeds
• A tax return and a tax payment certificate
c) Bank - For an outward remittance
Supporting documents required:
• SAFE's approval
• Sale & Purchase Agreement
• Property ownership certificate copy
• A tax return and a tax payment certificate
Transfer Services
1. Cheques are still not popular in mainland China. Foreign currency cheques cannot be used in mainland China for settlement as all settlements onshore must be denominated in RMB. RMB cheques are also seldom used by expatriates as they must be completed in simplified Chinese.
2. Due to local regulations, expatriates can only transfer FCY funds to self-name and same nature accounts
(notes account to notes account and exchange account to exchange account) in mainland China.
The information provided is intended as a general guide for reference. Benefits and features may be subject to local country regulatory restrictions.Please refer to the Premier Service Guide for detailed information.
