China's current Forex control system was first introduced in 1996. According to this system, all Forex transactions are classified into two categories: capital account items and current account items.
Capital account items are those capital inflow or outflow transactions which serve either to increase or decrease a company's debt or equity, including foreign direct investment, all types of loans, loan-related security transactions and securities investments. All capital account transactions are subject to approval by the State Administration for Foreign Exchange (SAFE).
Current account items are transactions of an ordinary recurrent nature, including payments for foreign trades and services, and interest payments for Forex debts. Under the 1996 regulations, current account transactions did not require approval. With the new rules promulgated in late 1998 however, SAFE has tightened control over certain capital account transactions and does approve certain current account transactions.
