In order to improve foreign exchange control in bonded zones, the State Administration of Foreign Exchange (SAFE) recently amended the Measures for Foreign Exchange Control in Bonded Zones (the 'measures'), which were initially introduced in 1995. The new measures will become effective on October 1, 2002. In China, bonded zones function as bases for export-oriented processing, bonded warehousing and international trade. The new measures incorporate many changes to the foreign exchange settlement and sale regime aimed at further facilitating these business operations. In essence, the new measures reflect two fundamental policies that SAFE has adopted in regulating bonded zones, namely: Foreign exchange control policies for bonded zones should go hand-in-hand with policies in respect of customs, taxation, foreign trade, etc; Controls over certain foreign exchange transactions that are adverse to the healthy development of the bonded zones should be relaxed. The new measures are divided into five chapters and 38 articles, covering foreign exchange registration, annual inspection, foreign exchange accounts, foreign exchange revenues and expenditures, settlement and sale of foreign exchange and other issues in bonded zones. The new measures introduce three major changes: Unification of the foreign exchange registration certificate; Relaxation of the control over purchase of foreign exchange; Lifting of the restriction that foreign exchange accounts can only be opened with financial institutions in bonded zones. Unified foreign exchange registration certificate At present, foreign investment enterprises and Chinese-invested enterprises are issued different types of foreign exchange registration certificate. Under this system, foreign investment enterprises receive a foreign exchange registration certificate called the 'Foreign Exchange Registration Certificate of a Foreign Investment Enterprise'. Under the new measures, all enterprises in the bonded zones are issued with a uniform certificate referred to as the 'Bonded Zone Foreign Exchange Registration Certificate'. When the new measures enter into effect, this certificate shall be the identity document of an enterprise for the purpose of foreign exchange control. This uniform administration will enable the foreign exchange administration authority to better track and supervise enterprises in bonded zones while at the same time allowing banks to better identify those enterprises. Streamlined policy on purchase of foreign exchange As a precaution measure against fraudulent purchase of foreign exchange during the Asian financial crisis in 1998, the SAFE suspended the purchase of foreign exchange by enterprises in bonded zones. In light of the improvement of the business environment in bonded zones, the new Measures lift the suspension and allow enterprises to purchase foreign exchange under three circumstances: Enterprises engaged in processing or goods distribution business may purchase foreign exchange with the revenues derived from selling goods on the domestic market; Enterprises established in bonded zones may purchase foreign exchange with their RMB paid-up capital provided they were set up with register capital contributed in RMB; and Shareholders of foreign investment enterprises may purchase and expatriate foreign exchange with their earned profits, dividends and bonuses. Liberalisation of opening of forex accounts The 1995 measures were introduced when the bonded zones were not yet subject to fully separate supervision. In order to prevent illegal capital flows, enterprises were therefore only allowed to open foreign exchange accounts with financial institutions inside the bonded zone. The new measures lift this restriction and enterprises in bonded zones will be allowed to open foreign exchange accounts not only in their place of registration (i.e. the bonded zone) but also - subject to the authorisation of the foreign exchange administration authority - in other places throughout China. Bonded zones remain attractive haven for investment The new forex control regime, coupled with recent regulations which permit bonded zone enterprises to set up representative offices outside the bonded zones, will create greater flexibility for all enterprises in bonded zones irrespective of whether they are engaged in export-processing, bonded warehousing or international trade. As a result, investment in bonded zones will remain an interesting option for foreign operators in these business areas despite the gradual opening up of these industries in China proper thanks to China's WTO membership.