Several days ago, Premier Wen Jiabao of the State Council signed a State Council decree, promulgating the revised Regulations of the People's Republic of China on Foreign Exchange Administration, which came into force as of the date of promulgation.  Officials in charge of the Legislative Affairs Office of the State Council, the People's Bank of China, and the State Administration of Foreign Exchange (SAFE) held an interview with reporters on relevant issues concerning the Regulations.
Q: What is the main background to the revision to the Regulations?
Answer: It is common practice in the world to timely adjust financial regulations in line with changing situations. The original Regulations of Peoples Republic of China on Foreign Exchange Administration played an important role in promoting an equilibrium in the balance of payments and preventing financial risks since their promulgation on January 29, 1996 and their revision on January 14, 1997. In recent years, with the rapid economic development of China and the profound changes in the international economic situation, the foreign exchange administration in China has confronted some new situations and problems, which the system must resolve. First, with the deepening of the reform of foreign exchange administration, full convertibility of the current account has been realized, foreign exchange income under the current account can be discretionarily retained by enterprises, the demand for personal foreign exchange is basically satisfied, the convertibility of the capital account is improving constantly, and the RMB exchange rate formation mechanism has been further perfected, so the Regulations need to be revised to consolidate the reform achievements and to allow room for further reform. Second, the situation in the balance of payments in China has changed fundamentally, from a foreign exchange shortage to excessive growth of foreign exchange reserves, but the original Regulations only focus on administration of foreign exchange outflows, so the Regulations needed to be revised for the balanced and standard administration of both capital inflows and outflows of foreign exchange. Third, as Chinas economy has become increasingly globalized and international capital flows have accelerated, the monitoring system for cross-border capital flows needed to be further perfected and a sound balance of payments emergency response and guarantee system needed to be established to effectively prevent risks and to improve the open economy.
The revised draft of the Regulations of Peoples Republic of China on Foreign Exchange Administration, jointly drafted by the Peoples Bank of China and the SAFE on the basis of in-depth studies and seeking broad views and opinions, was submitted to the State Council for review. After soliciting opinions of the relevant departments of the State Council, various banks, and enterprises, the Legislative Affairs Office of the State Council, together with the Peoples Bank of China , the SAFE, and other departments, conducted repeated studies and modifications of the revised draft, and then submitted the final draft to the executive meeting of the State Council for review. The final Regulations were announced in a decree of the Decree of the State Council with the approval of the executive meeting of the State Council.
Q: What principles were followed in revising the Regulations?
A: First, adhering to the policy of reform and opening up, we drew on the reform achievements with respect to the current account, capital account, foreign exchange market, and RMB exchange rate formation mechanism in recent years, and reserved policy space for further reform. Second, centering on macro control and focusing on promoting an equilibrium in the balance of payments, we carried out balanced and standard administration of the capital inflows and outflows of foreign exchange. Third, we focused on creating a fair competitive environment to abolish the differential treatment between domestic enterprises and foreign enterprises, state-owned enterprises and private enterprises, institutions and individuals, and to exercise supervision according to the nature of the transaction. Fourth, in line with the requirements of the administrative system reform and the legal administration, we further perfected the regulations regarding the content and modes of foreign exchange administration, promoted trade and investment facilitation, and strengthened supervision and limits over administrative power.
Q: Compared with the original Regulations, what contents have been revised in the new Regulations?
A: The new Regulations, composed of 54 articles, represent a comprehensive revision of the original Regulations. They further facilitate trade and investment activities, improve the RMB exchange rate formation mechanism and the foreign exchange control system of financial institutions, establish a balance of payments emergency response and guarantee system, strengthen the monitoring of cross-border capital flows, perfect foreign exchange supervisory means and measures, and correspondingly clarify relevant legal liabilities.
First, they pursue balanced administration of capital inflows and outflows of foreign exchange. They require that foreign exchange income and expenditure under the current account be made on the basis of authentic and lawful trade; they abolish the requirement for compulsory repatriation of foreign exchange income; and they allow foreign exchange income to be transferred back to China or deposited overseas in line with the prescribed conditions and terms; they standardize administration of the settlement of foreign exchange income under the capital account, and require that the foreign exchange and funds from sales of foreign exchange under the capital account be used for purposes approved by the relevant authorities, and impose penalties on illegal activities, such as illegal inflows of foreign exchange, illegal sales of foreign exchange, violations of the administration of the flow of funds from sales of foreign exchange; and they clarify the authority of the foreign exchange administrative organs in supervising and inspecting capital inflows and outflows, and specify administrative powers and procedures.
Second, they improve the RMB exchange rate formation mechanism and the foreign exchange administration of financial institutions. They stipulate that the RMB exchange rate be subject to a floating exchange rate regime based on market supply and demand, and require the financial institutions operating foreign exchange sale and purchase business and other institutions satisfying the requirements to conduct foreign exchange transactions in the inter-bank foreign exchange market be in line with the stipulations of the foreign exchange administrative departments of the State Council; they regulate the administrative modes of the foreign exchange position, and carry out comprehensive position management of the foreign exchange business of financial institutions.
Third, they strengthen the monitoring of cross-border capital flows and establish a balance of payment emergency response and guarantee system. They perfect the balance of payment statistics and reporting system, improve the collection of foreign exchange income and expenditure data, and strengthen statistics, analysis, and monitoring of  cross-border capital flows; in accordance with WTO rules, they stipulate that the state may take necessary protection and control measures over the balance of payments when the balance of payments becomes or may become seriously unbalanced, or when the national economy confronts or may confront a serious crisis.
Fourth, they perfect the foreign exchange supervisory means and measures. In order to guarantee the legal and effective fulfillment of the duties of the foreign exchange administrative organs, they stipulate the supervisory means and measures of the foreign exchange administrative organs and prescribe the supervisory and inspection procedures for the foreign exchange administrative organs.
Q: How is the administration of foreign exchange under the current account  prescribed in the Regulations?
A: Chapter 5 and Article 2 in the general provisions of the Regulations contain the main stipulations for the administration of foreign exchange under the current account. Compared with the original Regulations, the new Regulations greatly simplify the content and procedures for the administration of foreign exchange income and expenditure under the current account.
The Regulations stipulate that international payments of foreign exchange or the transfer of foreign exchange under the current account are not subject to any state control or restrictions, thus further facilitating foreign exchange income and expenditure under the current account; they require that the compulsory settlement of foreign exchange income under the current account be abolished, and foreign exchange income under the current account may be reserved or sold to financial institutions in accordance with the regulations; they stipulate that the foreign exchange expenditure under the current account be paid by an institution with its own foreign exchange or with foreign exchange purchased from financial institutions based on valid documents in accordance with the administrative provisions for the payment and purchase of foreign exchange.
In order to guarantee that the foreign exchange income and expenditure under the current account be made on the basis of authentic and lawful trade, the Regulations require that the financial institutions that operate foreign exchange businesses conduct reasonable examinations of the authenticity of the transaction documents and of the consistency between the transaction documents and the foreign exchange income and expenditure; at the same time, they stipulate that the foreign exchange administrative organs have the right to supervise and inspect these issues through verifications and cancellations, write-offs, off-site data checking, on-site checking, etc.
Q: How is the administration of foreign exchange under the capital account standardized in the new Regulations?
A: The stipulations on the administration of foreign exchange under the capital account are mainly described in Chapter 3 of the Regulations, which are among the key content of the revisions to the Regulations. 
First, they reserve policy space for widening capital outflow channels. They simplify the administrative examination and approval process for foreign exchange administration of direct investments overseas, establish the administrative principles for transactions, such as overseas institutions raising funds within the territory of China, domestic institutions engaging in overseas securities investment and derivative products transactions, and domestic institutions providing commercial loans to overseas parties.
Second, they reform the modes of the administration of foreign exchange under the capital account. Reserves and settlement of foreign exchange income under the capital account, shall require the approval of the foreign exchange administrative organs; with respect to the foreign exchange expenditure under the capital account, if the state provisions do not require it to be subject to the approval of the foreign exchange administrative organs in advance, in principle it can be directly handled at the financial institutions based on valid documents; and if the state provisions require that it be subject to the approval of the foreign exchange administrative organs, the approval procedures shall be handled prior to the payment of foreign exchange, unless it is otherwise provided by state provision.
Third, they strengthen administration of the usage of capital inflows. They require that the foreign exchange and RMB funds from sales of foreign exchange under the capital account be used for purposes approved only by the relevant departments and the foreign exchange administrative organs, and they authorize the foreign exchange administrative organs to supervise and inspect the use of foreign exchange and RMB funds from sales of foreign exchange under the capital account and the changes in foreign exchange accounts.
Q: What stipulations are there in the Regulations to perfect cross-border capital flows?
A: Perfecting the monitoring of cross-border capital flows has important significance to grasp the situation in the income and expenditure of foreign exchange and to prevent international financial risks. On the one hand the Regulations clearly require in the general provisions that the foreign exchange administration department of the State Council collect statistical data and monitor the balance of international payments, and publish the balance of payments on a regular basis; on the other hand, they require the financial institutions handle the foreign exchange business through foreign exchange accounts and send the foreign exchange income and expenditure and the changes in the accounts of their clients to the foreign exchange administration organs according to the law. Domestic institutions that engage in foreign exchange operations shall submit financial accounting reports, statistical reports, and other data to the foreign exchange administration department of the State Council according to the relevant previsions. Based on these provisions of the Regulations, the foreign exchange administration organs can comprehensively monitor cross-border capital flows. At the same time, a supervisory information reporting system of the foreign exchange administration departments, relevant departments of the State Council, and the institutions is established.
Q: How are the foreign exchange inspection means and legal responsibilities perfected in the Regulations?
A: In order to carry out administration according to the law, guarantee effective implementation of the foreign exchange administration policies, and realistically prevent international financial risks, the Regulations clearly detail the inspection means and measures of the foreign exchange administration organs. According to the Regulations, when foreign exchange administration organs legally perform their duties, they have authority to take the following measures: to conduct on-site inspections, to enter places where illegal acts of foreign exchange are suspected to have occurred for investigation and collection of evidence, to make inquiries of the parties related to cases under investigation, to consult and photocopy relevant transaction documents and financial accounting data, to seal any documents and data that may have been transferred, concealed, or damaged, to inspect the accounts of an institution or an individual related to a case under investigation for illegal foreign exchange activities (excluding individual savings deposit accounts), to file an application with the peoples court to freeze or seal any property or important evidence involved, etc. However, the foreign exchange administration organs must carry out the relevant inspections in line with the procedures prescribed in the Regulations so as to safeguard the legal rights of the parties concerned. Meanwhile, in order to adapt to the demand to crack down on illegal foreign exchange activities under the new situation, the Regulations newly establish penalty provisions for illegal activities, such as for the illegal inflow of capital, illegal foreign exchange sales, violation of the administration of the flow of settlement funds, the illegal carrying of foreign exchange in or out of China, and the illegal introduction, purchase, and sale of foreign exchange, etc.
Several days ago, Premier Wen Jiabao of the State Council signed a State Council decree, promulgating the revised Regulations of the Peoples Republic of China on Foreign Exchange Administration, which came into force as of the date of promulgation.  Officials in charge of the Legislative Affairs Office of the State Council, the Peoples Bank of China , and the State Administration of Foreign Exchange (SAFE) held an interview with reporters on relevant issues concerning the Regulations.
Q: What is the main background to the revision to the Regulations?
Answer: It is common practice in the world to timely adjust financial regulations in line with changing situations. The original Regulations of Peoples Republic of China on Foreign Exchange Administration played an important role in promoting an equilibrium in the balance of payments and preventing financial risks since their promulgation on January 29, 1996 and their revision on January 14, 1997. In recent years, with the rapid economic development of China and the profound changes in the international economic situation, the foreign exchange administration in China has confronted some new situations and problems, which the system must resolve. First, with the deepening of the reform of foreign exchange administration, full convertibility of the current account has been realized, foreign exchange income under the current account can be discretionarily retained by enterprises, the demand for personal foreign exchange is basically satisfied, the convertibility of the capital account is improving constantly, and the RMB exchange rate formation mechanism has been further perfected, so the Regulations need to be revised to consolidate the reform achievements and to allow room for further reform. Second, the situation in the balance of payments in China has changed fundamentally, from a foreign exchange shortage to excessive growth of foreign exchange reserves, but the original Regulations only focus on administration of foreign exchange outflows, so the Regulations needed to be revised for the balanced and standard administration of both capital inflows and outflows of foreign exchange. Third, as Chinas economy has become increasingly globalized and international capital flows have accelerated, the monitoring system for cross-border capital flows needed to be further perfected and a sound balance of payments emergency response and guarantee system needed to be established to effectively prevent risks and to improve the open economy.
The revised draft of the Regulations of Peoples Republic of China on Foreign Exchange Administration, jointly drafted by the Peoples Bank of China and the SAFE on the basis of in-depth studies and seeking broad views and opinions, was submitted to the State Council for review. After soliciting opinions of the relevant departments of the State Council, various banks, and enterprises, the Legislative Affairs Office of the State Council, together with the Peoples Bank of China , the SAFE, and other departments, conducted repeated studies and modifications of the revised draft, and then submitted the final draft to the executive meeting of the State Council for review. The final Regulations were announced in a decree of the Decree of the State Council with the approval of the executive meeting of the State Council.
Q: What principles were followed in revising the Regulations?
A: First, adhering to the policy of reform and opening up, we drew on the reform achievements with respect to the current account, capital account, foreign exchange market, and RMB exchange rate formation mechanism in recent years, and reserved policy space for further reform. Second, centering on macro control and focusing on promoting an equilibrium in the balance of payments, we carried out balanced and standard administration of the capital inflows and outflows of foreign exchange. Third, we focused on creating a fair competitive environment to abolish the differential treatment between domestic enterprises and foreign enterprises, state-owned enterprises and private enterprises, institutions and individuals, and to exercise supervision according to the nature of the transaction. Fourth, in line with the requirements of the administrative system reform and the legal administration, we further perfected the regulations regarding the content and modes of foreign exchange administration, promoted trade and investment facilitation, and strengthened supervision and limits over administrative power.
Q: Compared with the original Regulations, what contents have been revised in the new Regulations?
A: The new Regulations, composed of 54 articles, represent a comprehensive revision of the original Regulations. They further facilitate trade and investment activities, improve the RMB exchange rate formation mechanism and the foreign exchange control system of financial institutions, establish a balance of payments emergency response and guarantee system, strengthen the monitoring of cross-border capital flows, perfect foreign exchange supervisory means and measures, and correspondingly clarify relevant legal liabilities.
First, they pursue balanced administration of capital inflows and outflows of foreign exchange. They require that foreign exchange income and expenditure under the current account be made on the basis of authentic and lawful trade; they abolish the requirement for compulsory repatriation of foreign exchange income; and they allow foreign exchange income to be transferred back to China or deposited overseas in line with the prescribed conditions and terms; they standardize administration of the settlement of foreign exchange income under the capital account, and require that the foreign exchange and funds from sales of foreign exchange under the capital account be used for purposes approved by the relevant authorities, and impose penalties on illegal activities, such as illegal inflows of foreign exchange, illegal sales of foreign exchange, violations of the administration of the flow of funds from sales of foreign exchange; and they clarify the authority of the foreign exchange administrative organs in supervising and inspecting capital inflows and outflows, and specify administrative powers and procedures.
Second, they improve the RMB exchange rate formation mechanism and the foreign exchange administration of financial institutions. They stipulate that the RMB exchange rate be subject to a floating exchange rate regime based on market supply and demand, and require the financial institutions operating foreign exchange sale and purchase business and other institutions satisfying the requirements to conduct foreign exchange transactions in the inter-bank foreign exchange market be in line with the stipulations of the foreign exchange administrative departments of the State Council; they regulate the administrative modes of the foreign exchange position, and carry out comprehensive position management of the foreign exchange business of financial institutions.
Third, they strengthen the monitoring of cross-border capital flows and establish a balance of payment emergency response and guarantee system. They perfect the balance of payment statistics and reporting system, improve the collection of foreign exchange income and expenditure data, and strengthen statistics, analysis, and monitoring of  cross-border capital flows; in accordance with WTO rules, they stipulate that the state may take necessary protection and control measures over the balance of payments when the balance of payments becomes or may become seriously unbalanced, or when the national economy confronts or may confront a serious crisis.
Fourth, they perfect the foreign exchange supervisory means and measures. In order to guarantee the legal and effective fulfillment of the duties of the foreign exchange administrative organs, they stipulate the supervisory means and measures of the foreign exchange administrative organs and prescribe the supervisory and inspection procedures for the foreign exchange administrative organs.
Q: How is the administration of foreign exchange under the current account  prescribed in the Regulations?
A: Chapter 5 and Article 2 in the general provisions of the Regulations contain the main stipulations for the administration of foreign exchange under the current account. Compared with the original Regulations, the new Regulations greatly simplify the content and procedures for the administration of foreign exchange income and expenditure under the current account.
The Regulations stipulate that international payments of foreign exchange or the transfer of foreign exchange under the current account are not subject to any state control or restrictions, thus further facilitating foreign exchange income and expenditure under the current account; they require that the compulsory settlement of foreign exchange income under the current account be abolished, and foreign exchange income under the current account may be reserved or sold to financial institutions in accordance with the regulations; they stipulate that the foreign exchange expenditure under the current account be paid by an institution with its own foreign exchange or with foreign exchange purchased from financial institutions based on valid documents in accordance with the administrative provisions for the payment and purchase of foreign exchange.
In order to guarantee that the foreign exchange income and expenditure under the current account be made on the basis of authentic and lawful trade, the Regulations require that the financial institutions that operate foreign exchange businesses conduct reasonable examinations of the authenticity of the transaction documents and of the consistency between the transaction documents and the foreign exchange income and expenditure; at the same time, they stipulate that the foreign exchange administrative organs have the right to supervise and inspect these issues through verifications and cancellations, write-offs, off-site data checking, on-site checking, etc.
Q: How is the administration of foreign exchange under the capital account standardized in the new Regulations?
A: The stipulations on the administration of foreign exchange under the capital account are mainly described in Chapter 3 of the Regulations, which are among the key content of the revisions to the Regulations. 
First, they reserve policy space for widening capital outflow channels. They simplify the administrative examination and approval process for foreign exchange administration of direct investments overseas, establish the administrative principles for transactions, such as overseas institutions raising funds within the territory of China, domestic institutions engaging in overseas securities investment and derivative products transactions, and domestic institutions providing commercial loans to overseas parties.
Second, they reform the modes of the administration of foreign exchange under the capital account. Reserves and settlement of foreign exchange income under the capital account, shall require the approval of the foreign exchange administrative organs; with respect to the foreign exchange expenditure under the capital account, if the state provisions do not require it to be subject to the approval of the foreign exchange administrative organs in advance, in principle it can be directly handled at the financial institutions based on valid documents; and if the state provisions require that it be subject to the approval of the foreign exchange administrative organs, the approval procedures shall be handled prior to the payment of foreign exchange, unless it is otherwise provided by state provision.
Third, they strengthen administration of the usage of capital inflows. They require that the foreign exchange and RMB funds from sales of foreign exchange under the capital account be used for purposes approved only by the relevant departments and the foreign exchange administrative organs, and they authorize the foreign exchange administrative organs to supervise and inspect the use of foreign exchange and RMB funds from sales of foreign exchange under the capital account and the changes in foreign exchange accounts.
Q: What stipulations are there in the Regulations to perfect cross-border capital flows?
A: Perfecting the monitoring of cross-border capital flows has important significance to grasp the situation in the income and expenditure of foreign exchange and to prevent international financial risks. On the one hand the Regulations clearly require in the general provisions that the foreign exchange administration department of the State Council collect statistical data and monitor the balance of international payments, and publish the balance of payments on a regular basis; on the other hand, they require the financial institutions handle the foreign exchange business through foreign exchange accounts and send the foreign exchange income and expenditure and the changes in the accounts of their clients to the foreign exchange administration organs according to the law. Domestic institutions that engage in foreign exchange operations shall submit financial accounting reports, statistical reports, and other data to the foreign exchange administration department of the State Council according to the relevant previsions. Based on these provisions of the Regulations, the foreign exchange administration organs can comprehensively monitor cross-border capital flows. At the same time, a supervisory information reporting system of the foreign exchange administration departments, relevant departments of the State Council, and the institutions is established.
Q: How are the foreign exchange inspection means and legal responsibilities perfected in the Regulations?
A: In order to carry out administration according to the law, guarantee effective implementation of the foreign exchange administration policies, and realistically prevent international financial risks, the Regulations clearly detail the inspection means and measures of the foreign exchange administration organs. According to the Regulations, when foreign exchange administration organs legally perform their duties, they have authority to take the following measures: to conduct on-site inspections, to enter places where illegal acts of foreign exchange are suspected to have occurred for investigation and collection of evidence, to make inquiries of the parties related to cases under investigation, to consult and photocopy relevant transaction documents and financial accounting data, to seal any documents and data that may have been transferred, concealed, or damaged, to inspect the accounts of an institution or an individual related to a case under investigation for illegal foreign exchange activities (excluding individual savings deposit accounts), to file an application with the peoples court to freeze or seal any property or important evidence involved, etc. However, the foreign exchange administration organs must carry out the relevant inspections in line with the procedures prescribed in the Regulations so as to safeguard the legal rights of the parties concerned. Meanwhile, in order to adapt to the demand to crack down on illegal foreign exchange activities under the new situation, the Regulations newly establish penalty provisions for illegal activities, such as for the illegal inflow of capital, illegal foreign exchange sales, violation of the administration of the flow of settlement funds, the illegal carrying of foreign exchange in or out of China, and the illegal introduction, purchase, and sale of foreign exchange, etc.