Opening All the Necessary Accounts

After choosing a bank, you’re ready to set up your accounts. Most foreign-invested enterprises (FIEs) open from three to five accounts — one RMB account and two to four for dealing with transactions that involve exchanging foreign currency. Read on.

Working with the people’s currency: Your RMB account

The RMB account is for paying RMB-denominated expenses. These expenses usually include your PRC employees’ salaries, overhead, and payments to domestic suppliers. You also deposit your RMB revenue into this account. Most smaller businesses don’t need more than one RMB account.

Switching things up: Accounts for foreign exchange

In addition to an RMB account for RMB transactions, you need to open several accounts in order to navigate the RMB exchange controls (which we discuss in the earlier section “Introducing China’s Currency: The Tricky RMB”). You need separate foreign exchange (forex) accounts for all remittances, or foreign currency payments sending money into or out of China.

The body that enforces China’s forex laws and regulations is the State Administration of Foreign Exchange (SAFE). Regulating these types of forex accounts and remittances is one of its primary jobs. You first need SAFE approval to open each forex account — your bank should be able to walk you through the SAFE approval process.

When SAFE approves opening a forex account, it specifies the scope of the account (the types of transactions that the account may be used for). SAFE also specifies the maximum amount of foreign currency allowed to be held in the account, based on the company’s registered capital (see Chapter 7) and foreign currency needs. Any amount of foreign currency in the account above the maximum needs to be exchanged for RMB and moved to the RMB account.

China divides forex transactions into two general types: current account and capital account. You almost certainly need at least one account for each type of transaction, although some companies open additional capital-item bank accounts to deal with loans. We discuss current and capital accounts in the following sections.

Current-item bank accounts

Current account items involve the day-to-day forex transactions that a company may undertake. Examples of typical current items include trade payments for imported goods and services, intellectual property (such as trademarks and patents), licensing fees, expatriate salaries, payments of dividends and after-tax profits, and foreign travel expenses.

As the name implies, your company may use its current-item bank account only for current account items. This is the account from which you pay your current account expenditures, and it’s also the account into which you receive foreign currency payments for your overseas sales.

SAFE has been giving banks more authority to supervise forex transactions on their own. In almost all cases, you don’t need SAFE approval for current account transactions. In order to pay a current account item (either with foreign currency already in your account or by converting RMB into foreign currency), you need to show the bank some basic documentation about what you’re paying for.

For example, to pay for imported goods, your company may have to present the import contract, invoice, and some other documents. Submitting these documents isn’t part of an approval process — it’s usually just a formality.

Capital-item bank accounts

Capital account items are less frequent than current account items and are usually investment-related. They include registered capital contributions (see Chapter 7), loan repayments, asset sale proceeds, and funds for overseas investments.

You need at least a general capital item account; however, many businesses set up three types of these accounts:

✓	General capital: The general capital account is the account you deposit your foreign currency capital contributions into. Note that if your current account has no foreign currency but your capital account does, you can often use the money in your capital account to pay current items.
✓	Loan proceeds: If you’re going to borrow money from overseas (which we discuss later in this chapter in “Borrowing from offshore”), you must set up another special capital item bank account just to receive and hold the loan proceeds.
✓	Loan repayment: In order to repay an overseas loan, you have to open yet another special capital item bank account specifically for your loan repayments!

We include this info on the Cheat Sheet as well. Keep it handy when you do your banking to make sure you put funds in the right accounts.

You must pay all registered capital contributions into the proper capital account at the bank. Any money otherwise sent into China doesn’t count as contributed capital. Moreover, if you or the parent company is going to pay any expenses for the FIE, make sure you pay them through the FIE’s capital account — otherwise, these expenses also won’t count toward the capital contribution.

To exchange RMB to pay for capital account items, you need approval from SAFE. Your bank should be able to tell you what documents you need to provide in order to get approval.