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    Further Deepening Reform of the Foreign Exchange Administration System and Actively Promoting a Basic Balance of Payments Equilibrium
Further Deepening Reform of the Foreign Exchange Administration System and Actively Promoting a Basic Balance of Payments Equilibrium

A National Foreign Exchange Administration Conference has been held in Beijing . The participants earnestly studied the spirit of the Seventeenth National Congress of the CPC and China 's Central Economic Work Conference. A scientific concept of development was deeply implemented, foreign exchange administration work of prior periods reviewed and summarized, the current situation and tasks analyzed, and the main work for 2008 researched and arranged.  Ms. Hu Xiaolian, deputy governor of the PBOC and administrator of the SAFE, attended the meeting and delivered a speech on foreign exchange administration.
In 2007, according to the uniform plans set forth by the Party Central Committee and the State Council, the foreign exchange administrations continued to facilitate the holding and use of foreign exchange by domestic institutions and individuals, tightened supervision over capital inflows and sales of foreign exchange, and improved foreign exchange administration, thereby, making progress in various fields. First, a package of policies and measures on foreign exchange administration to promote a balance of payments equilibrium was promulgated. The SAFE abolished the quota limit on the foreign exchange account under the current account, integrated the foreign exchange administration policies for the customs special supervisory zone, and actively supported implementation of the Qualified Domestic Institutional Investors (QDII) system. Second, the SAFE further facilitated foreign exchange receipts and payments incurred to domestic institutions and individuals, and raised the total amount for individuals annual purchases of foreign exchange. Annual individual purchases of foreign exchange increased by almost 3 times, qualified finance companies were approved to deal with the trial operations of internal sales and purchases of foreign exchange, approvals of value-maintenance businesses under the debt accounts through overseas institutions, etc. were abolished, and enterprises were helped to enhance the efficiency of capital utilization. Third, the SAFE continued to broaden capital outflow channels. The annual outward remittances of FX capital under the overseas direct investment account totaled USD 10.82 billion, an increase of 32%. The outward remittances of foreign exchange investment with foreign exchange purchased by the QDII totaled USD 35.3 billion. Fourth, the SAFE continued to strengthen construction of the foreign exchange market. The SAFE introduced new institutions to the inter-bank foreign exchange market, enriched the trading categories and business scope, launched the swap business for the RMB and foreign currencies in the inter-bank market, and improved market access management for spot foreign exchange sales and purchases. Fifth, the SAFE tightened management of foreign exchange capital inflows and sales. It strictly monitored foreign exchange collection and payments under the goods trade of  enterprises with much foreign exchange collection, reduced in phases the short-term external debt quota of financial institutions, strengthened management of foreign exchange registration and borrowing of external debt by foreign real estate enterprises, carried out a series of special inspections and investigations of key foreign exchange capital inflow links and areas, and intensified efforts to crack down on underground money houses and illegal foreign exchange trading, and other illegal and criminal activities, and constantly improved foreign exchange reserve management, while, at the same time, realizing the maintenance and appreciation of the national foreign exchange reserves, strengthening statistics and monitoring of the balance of payments, and boosting construction of IT applications for foreign exchange administration.
Hu Xiaolian pointed out that, since the reform and opening up, China has been deepening its reform of the foreign exchange administration system and has made a series of breakthroughs. For example, the convertibility of RMB current accounts has proceeded gradually; the convertibility of capital accounts is increasing step by step; the formation of the RMB exchange rate is increasingly market-oriented; a foreign exchange market is gradually being established and has made considerable progress; the statistical and monitoring system for foreign exchange business is constantly improving and the management system for foreign exchange reserves is being perfected. Ms. Hu emphasized that the SAFE should continue to use the reform and development methods to solve future problems, devote more energy to institutional and mechanism innovations, and give better play to the basic role of the market in the allocation of foreign exchange resources, constantly improving the market mechanism and management system for the balance of payments and continuing to promote the convertibility of RMB capital accounts in a safe and orderly manner so as to guard against international economic risks. At present, the contradictions in the imbalance in Chinas balance of payments are still prominent; we still face many challenges to improve the situation in this regard. Generally, a twin surplus in the balance of payments will be maintained and various uncertainties will obviously emerge. This will increase the risk of volatility in Chinas balance of payments. Foreign exchange administration departments must always remain clear-headed, further enhance their sense of urgency, keep close track of the domestic and international situations, remain vigilant in peace time, take precautions in advance, and make good preparations to cope with all kinds of complex and difficult situations and emergencies.
The conference also made arrangements for the major foreign exchange administration work for 2008. Hu Xiaolian stressed that the foreign exchange administration work in 2008 should fully implement the spirit of the Seventeenth National Congress of the Communist Party of China, hold high the great banner of socialism with Chinese characteristics, remain under the guidance of Deng Xiaoping Theory and the important thoughts of the Three Represents, and earnestly implement the scientific concept of development. Ms. Hu also emphasized deepening the reform of the foreign exchange administration system in accordance with the requirements of the Central Economic Work Conference and the specific arrangements of the work meetings of the Peoples Bank of China, to better meet the needs of domestic institutions and individuals to legitimately hold and use foreign exchange, and to strictly oversee and manage cross-border capital flows and  strengthen foreign exchange reserve operations in a bid to improve the equilibrium in the balance of payments. Ms. Hu urged the SAFE to continue to follow and to do a better job in pushing forward the reform, promoting outflows, stressing supervision, and improving methods.  First, innovative methods of foreign exchange administration under trade must be developed, vigorously promoting reform of the cancel-after-verification system for imports and exports, carrying out the reform of the foreign exchange administration of the services trade step by step, and formulating a unified set of regulations concerning foreign exchange administration of the services trade. Second, the foreign exchange market must be actively nurtured and developed, strengthening the infrastructure of the foreign exchange market and further improving currency exchange services. Third, the convertibility of the capital account should be promoted in an orderly way, actively supporting overseas direct investment conducted by domestic enterprises and individuals (namely, foreign industrial investment), and steadily pushing forward implementation of the qualified domestic institutional investor system to better satisfy the demands from individual residents for foreign exchange resulting from the growth of personal property income and diversified investment.  Fourth, supervision over the foreign exchange business of financial institutions should be consolidated, intensifying supervision over banks implementing foreign currency policies and establishing and improving the bankssupervision and management system of their own foreign exchange revenue and expenditure. Fifth, management of foreign exchange capital collection and sales should be tightened, strengthening dynamic supervision and ex post verification of foreign exchange revenue and expenditures under the goods trade and services trade, further standardizing the administration of individual foreign exchange revenue and expenditures, continuing to strengthen the quota management of banksshort-term external debt, and conducting research on methods to improve external debt management in foreign-invested enterprises. Sixth, efforts should be made to intensify foreign exchange inspections of cross-border capital flows, carrying out a series of special inspections focusing on foreign exchange capital inflows and the flow direction of RMB capital after sales of foreign exchange, conducting special inspections on the compliance of banks in implementing foreign exchange policies and cracking down on underground money shops and illegal trading of foreign exchange, and other illegal and criminal activities together with the relevant departments, and, at the same time, further improving foreign exchange reserves management and promoting foreign exchange administration regulations and administrative capacity-building.

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