Chinese residents will henceforth be required to declare their overseas financial assets and liabilities—including stocks, bonds, deposits, wealth management products, and loans—to the State Administration of Foreign Exchange (SAFE). The "Decision of the State Council on Amending the Measures for the Statistical Declaration of Balance of Payments" was promulgated on the 22nd and will take effect on January 1, 2014. The "Measures" add a new provision: "Chinese resident individuals who possess external financial assets or liabilities shall declare the relevant information regarding their external financial assets and liabilities in accordance with the regulations of the State Administration of Foreign Exchange."
Investment Immigration "Funds" Also Within the Scope of Declaration
With the continuous deepening of China's opening-up, the stock of external financial assets and liabilities held by Chinese residents is constantly increasing. However, such data cannot be fully collected through financial institutions. To ensure the integrity of balance of payments statistics, it is necessary to include these within the scope of statistical monitoring.
The "Measures" stipulate that "Chinese resident individuals who possess external financial assets or liabilities shall declare the relevant status of their external financial assets and liabilities in accordance with the regulations of the State Administration of Foreign Exchange." Compared to the original "Measures," this is a newly added clause. Currently, the State Administration of Foreign Exchange has not yet issued regulations on how individuals should declare their external assets and liabilities. Han Jian, a member of the Committee on Balance of Payments Statistics of the International Monetary Fund, expects that detailed rules will be introduced in the future based on actual circumstances, which may require resident individuals holding external financial assets or liabilities above a certain amount to submit relevant information.
Currently, more and more Chinese people are allocating assets overseas and immigrating. Some investment immigration projects are themselves direct investment and wealth management activities. For example, the Hong Kong Capital Investment Entrant Scheme requires an investment of HK$10 million in financial products such as Hong Kong stocks and securities. According to the new "Measures for the Statistical Declaration of Balance of Payments," these HK$10 million in financial assets must be declared to the State Administration of Foreign Exchange. In addition, some mainland residents invest in U.S. and Hong Kong stocks through various channels, or purchase funds and wealth management products issued by overseas financial institutions; according to the regulations, these assets must also be declared.
Individuals Face Fines of Up to 50,000 Yuan for Violations
The "Measures" reiterate that if Chinese residents or non-Chinese residents fail to make statistical declarations of balance of payments in accordance with the regulations, the State Administration of Foreign Exchange or its branches shall impose penalties in accordance with Article 48 of the "Regulations of the People's Republic of China on Foreign Exchange Administration." Penalties include: an order to correct by the foreign exchange administration, a warning; for institutions, a fine of up to 300,000 yuan; for individuals, a fine of up to 50,000 yuan.
However, many have raised questions regarding such declarations. "Currently, due to foreign exchange controls, mainland Chinese residents can only purchase US$50,000 in foreign exchange annually. Many people transfer funds overseas through illegal channels such as underground banks. Individuals will certainly not declare these financial assets, and it is difficult for foreign exchange departments to monitor and investigate them. While increasing the intensity of crackdowns, more comprehensive detailed rules are needed to ensure the regulations do not become mere formalities," an industry insider stated.
Industry insiders point out that over the past two decades, China's external economy has flourished, the scale of balance of payments transactions has continued to expand, and the content, types, and methods of transactions have become increasingly diversified. New products such as cross-border securities investments and financial derivatives, as well as new businesses such as electronic banking and international bank cards, have continued to emerge. This has led to an increase in uncertain factors in the current operation of the balance of payments, intensified abnormal cross-border flows of international capital, and increased regulatory difficulty. It is necessary to improve the statistical declaration system for the balance of payments, further strengthen the monitoring and analysis of cross-border capital flows, and improve early warning capabilities.