For the purpose of further promoting the healthy development of trade financing, the State Administration of Foreign Exchange (SAFE) issued the Notice on the Examination and Ratification of Short-term External Debt Quotas of Financial Institutions in 2009 (hereinafter referred to as the "Notice"). The following is a transcript of an interview with SAFE officials on the management of the short-term external debt and the relevant contents of the Notice.
Question: What is the division of responsibilities for the management of the external debt in China?
Answer: According to the division of responsibilities to manage the external debt in China, the National Development and Reform Commission (NDRC) is responsible for management of medium- and long-term external debts (over one year). The SAFE is responsible for management of short-term external debts (one year or less).
The SAFE is in charge of examination and ratification of short-term external debt quotas of financial institutions and of approval to sign contracts, withdraw registrations, open accounts, repay principal and interest, and settle relevant foreign exchange as well as approval of sales of all external debts (including medium- and long-term external debts).
Question: What are the major changes in the short-term external debt management policies over the past two years?
Answer: In order to achieve a general equilibrium in the balance of payments, restrict the scale of the short-term external debt, ensure the security of the national economy and finance, in March 2008 the SAFE made adjustments to the short-term external debt quotas of financial institutions. According to the adjustments, before March 31, 2008 Chinese-funded banks would reduce the short-term external debt quotas to 30 percent of the quotas ratified in 2006. Foreign-funded banks and non-bank financial institutions would adjust the short-term external debt quotas to 60 percent of the quotas ratified in 2006. Foreign-funded banks were encouraged to raise funds by  purchasing foreign exchange in Renminbi and borrowing foreign exchange in China. The tightening up policy was continued in 2008. Once again, the SAFE reduced the short-term external debt quotas of Chinese and foreign-funded financial institutions by some 10 percent, based on the quota reductions in 2007.
As far as policy implementation is concerned, based on the reduction scheme the financial institutions have achieved the aim of restraining the scale of short-term external debts. With regard to the results of the policy implementation, the excessive growth of the short-term external debt has been basically restrained; the irrational expansion of the foreign exchange credit scale of domestic financial institutions has been checked; the imbalance between supply and demand of domestic foreign exchange has been reduced; and the pressures due to the appreciation of the Renminbi have been diminished. 
While tightening the short-term external debt quotas, the SAFE is closely monitoring possible increased foreign exchange pressures on financial institutions due to implementation of the policy. Taking into account the support of the financial industry for the growth of the entire economy, the SAFE has excluded the accepted but unpaid letters of credit with a maturity of under 90 days and overseas agency payments with a maturity of under 90 days involved in trading activities so as to ensure sufficient financing support for trading activities.
Question: What are the distinct aspects of this year's examination and ratification scheme as compared to the previous scheme?
Answer: The 2009 examination and ratification scheme is formulated under the guidance of "maintaining growth, guarding against possible risks, and promoting a balance." When examining and ratifying short-term external debt quotas of national-level Chinese and foreign-funded banks with legal person status and quotas of various regions, we have adopted a methodology of "ensuring the controllability of the increase in the overall scale and taking into account the efficiency and fairness of individual institutions." In 2009, we examined and ratified short-term external debt quotas of financial institutions totaling US$32.9 billion, representing a 12 percent increase over that in 2008.
In the 2009 examination and ratification scheme, special importance is attached to financing for trading activities. According to the scheme, Chinese and foreign-funded financial institutions entitled to the incremental quotas should make use of the total quota increment to support financing of imports and exports of domestic enterprises. The quota increment of various regions should be used preferentially to support financial institutions with a larger volume of trade settlement. In order to achieve maximum benefits to promote the development of the regional economy by using foreign exchange, the scheme transfers authority from the SAFE headquarters to its branches to examine and ratify quotas that have a close relation to the development of the local economy and quotas in need of timely adjustment.
Question: We note that in the 2009 short-term external debt examination and ratification scheme special importance is attached to trade financing. How is the scheme being mapped out?
Answer: In 2009 there will be even greater uncertainty in China's balance of payments. The economic downturn continues to spread in the developed countries, resulting in more uncertainty in future economic conditions. A huge number of multinationals are sliding into financial difficulties as demand on the world market is dropping rapidly. As a result, China will be facing greater challenges in its imports and exports. Cross-border fund flows will be more unpredictable. Taking this into account, we should attach greater importance to the prevention of possible risks based on a complete understanding of China's balance of payments. In response to the rising corporate operational risks and the lowered security of financial credit, we will adhere to the principle of "properly restraining the inflow of funds and prudently handling the prevention of risks," and when examining and ratifying the short-term external debt quotas we will adopt the methodology of "ensuring the controllability of an increase in the overall scale and taking into account the efficiency and fairness of individual institutions". We will impose tight restrictions on the inflow of external debts with high risk uses, a low threshold of outflow channels, and obvious short-term intentions.
In 2009 the SAFE will respond actively to the central government's macroeconomic policy of "maintaining economic growth, expanding domestic demand, and adjusting the industrial structure." We will keep a close eye on the changes in the scale of the external debt and the internal structure, with top priority given to risk prevention. We will make adjustments to the short-term external debt quotas of banks to highlight the intermediary functions of banks by encouraging banks to carry out financing business to facilitate trading activities and capital turnover of enterprises. These measures are expected to promote the healthy development of imports and exports and the entire economy.
Questions: What policies has the SAFE promulgated with respect to trade financing?
Answer: From the perspective of external debt management, the following  policies aimed at facilitating financing of trading activities have been put into place: 1.) The incremental short-term external debt quotas shall be used entirely for trade financing. Chinese and foreign-funded financial institutions entitled to the incremental quotas in the 2009 scheme shall use the quotas entirely for import and export financing of domestic enterprises. The SAFE branches shall preferentially use the regional quota increment to serve banks with a larger volume of trading settlement, with the aim of ensuring that all incremental quotas are used for import and export financing of domestic enterprises. 2.) Trade financing with a maturity of under 90 days shall be excluded from the short-term external debt quotas of the banks. The SAFE shall continue to implement the 2008 policy whereby accepted but unpaid letters of credit with a maturity of under 90 days and overseas agency payments with a maturity of under 90 days are excluded from the quota management. This will allow banks to carry out trade financing with a maturity of under 90 days without using the short-term external debt quotas. 3.) The policy whereby a certain proportion of corporate trade financing may employ foreign exchange settlement will continue to be implemented. In parallel with the regulation in which the foreign exchange settlement of domestic foreign exchange loans is strictly prohibited, the SAFE will give a green light to foreign exchange settlement of trade financing that includes export bill purchases and forfeiting without recourse and factoring to facilitate the trade and relevant procedures will be simplified. In 2008 the SAFE increased the benchmark proportion of advances on sales and deferred payments from 10 percent to 25 percent. According to the new regulation, a registered amount of under US$30,000 for single advances on sales and deferred payments shall be excluded from the quota management. For advances on sales or deferred payments with an insufficient proportion or beyond the quotas, the financial institution shall apply for a manual confirmation from the SAFE.