[Moderator]: Good morning, friends from the press. Welcome to the Policy Press Conference of the State Administration of Foreign Exchange (SAFE) for the first quarter of 2015. The theme of today's press conference is Foreign Exchange Administration Policies for 2015 Q1. [10:16]
[Moderator]: I am Wang Yungui, director-general of the General Affairs Department of the SAFE. Today my three colleagues are present at the conference as well. They are Du Peng, director-general of Current Account Management Department, Guo Song, director-general of Capital Account Management Department, and Zhang Shenghui, director-general of Supervision and Inspection Department. [10:17]
[Moderator]: First, I’d like to share with you the recent foreign exchange administration policies. Since the beginning of 2015, the SAFE has actively adapted to the new normal of economic development, accelerated "five shifts" in foreign exchange administration, stepped up efforts to streamline administration and delegate power, taken reform and making breakthroughs as its work priorities and promoted the convertibility of capital accounts in a good order, while combining delegation and regulation, and stressing risk prevention and control, thus driving the stable and healthy development of the economy. Below are the reform measures introduced in the quarter: [10:17]
[Moderator]: First, deepening the foreign exchange administration reform for cross-border e-commerce [10:18]
[Moderator]: The SAFE kicked off a pilot program for foreign exchange payment for cross-border e-commerce in Shanghai, Beijing, Chongqing, Zhejiang and Shenzhen in 2013, allowing payment institutions to handle receipt, payment, settlement and sales of foreign exchange funds under small-sum purchases and cross-border activities including booking air tickets, staying in hotels and studying abroad, which have been widely applauded by the public. Based on this, the SAFE further advanced the pilot program and rolled it out nationwide in January 2015. It simplified the foreign exchange payment process and relaxed the quota on a single online transaction from the equivalent of USD 10,000 to the equivalent of USD 50,000. Meanwhile, the principles of real name and transaction-by-transaction data collection were followed to prevent the risks arising from abnormal transactions. [10:28]
[Moderator]: The pilot program has taken shape so far, providing convenient payment support for cross-border online shopping such as overseas purchases by companies and individuals. Payment institutions processed USD 1.7 billion in foreign exchange receipts and payments through the pilot program in 2014, and USD 610 million in foreign exchange receipts and payments between January and February 2015. [10:28]
[Moderator]: Second, removing or delegating to lower-level authorities the administrative approval for foreign exchange insurance business [10:29]
[Moderator]: The SAFE released the Guidelines for Foreign Exchange Administration for Insurance Business in January 2015 and nullified eight relevant foreign exchange administration rules together with the China Insurance Regulatory Commission (CIRC), including the Interim Regulations on Foreign Exchange Administration for Insurance Business. The Guidelines made it clear that all the qualification approval for domestic insurance companies to run foreign exchange insurance business would be delegated to the SAFE branches, and that the approval for opening or closing foreign exchange accounts by insurance companies would be canceled, except for registration for opening an account for the first time, and that an insurance company's foreign exchange funds can be collected or paid in a centralized way. [10:29]
[Moderator]: Third, carrying out a pilot program to reform macro-prudential management of external debts [10:31]
[Moderator]: In recent years, the SAFE has stepped up efforts to streamline administration and delegate power, actively explored the replicable and promotable experience in the capital account reform, and combined motivating the market dynamics and accelerating transformation of management models to facilitate cross-border financing and investment by companies, which have delivered progress in capital account convertibility. Overall, the reforms in the Twelfth Five-Year Plan period have effectively promoted the convertibility process. Latest statistics show that of the 40 capital account transaction items, 34 items have been partially convertible or beyond, accounting for 85%. [10:31]
[Moderator]: Following the gist of the Decision from the Third Plenum of the 18th CPC Central Committee, the SAFE has taken a crucial step in building and improving the external debts system under the macro-prudential management framework since the beginning of this year. In February 2015, the SAFE approved that a pilot program of macro-prudential management adopting the external debts proportional self-discipline model should be conducted in the Core Area of Beijing Zhongguancun National Self-dependent Innovation Demonstration Area, Jiangsu Zhangjiagang Free Trade Zone, and Shenzhen Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Area. To be specific, the outstanding external debts of a non-financial enterprise in the pilot zone should not exceed twice the net assets of the enterprise for the previous year, and the total debts of a Chinese non-financial enterprise should not surpass 75% of its total assets. This reform has helped balance the treatment of Chinese and foreign-funded companies, and better satisfied companies' demand for cross-border financing, and thus can somewhat ease companies’ difficulties of raising funds and reducing the cost of financing. This policy has attracted strong interest from companies immediately after its introduction. In one week, more than ten companies in the pilot zones raised funds from abroad at a low cost through this policy. These companies are generally Chinese companies with demand for overseas financing and this policy helped them reduce the cost of financing by 2-3 percentage points. [10:31]
[Moderator]: Fourth, removing the administrative approval for foreign exchange administration for FDI and ODI [10:31]
[Moderator]: The SAFE released in February 2015 the Circular on Further Simplifying and Improving the Policies for Foreign Exchange Administration of Direct Investments and launched many facilitation measures for direct investments, including four reform measures, i.e.: removing the verification for registration of foreign exchange under direct investment, simplifying the management of confirmation and registration of capital contributed by foreign investors under the domestic direct investment, removing filing of foreign exchange for overseas reinvestment, and canceling annual check of foreign exchange under direct investment. Since the launch of the reform, the absolute majority of the businesses under direct investment can be processed directly at banks, and companies need not go to a foreign exchange authority for registration or verification. This indicates that the administrative approval for administration of foreign exchange under direct investment has been basically removed and foreign exchange under direct investment is generally convertible. [10:32]
[Moderator]: Fifth, enhancing management of franchised institutions for domestic and foreign currency exchange for individuals and of their business [10:32]
[Moderator]: The SAFE issued the Circular on Relevant Issues Concerning Standardizing Domestic and Foreign Currency Exchange Franchise Business for Individuals and Foreign Currency Exchange Business,requiring that the SAFE branches should enhance the market access management for domestic and foreign currency exchange franchise business for individuals and foreign currency exchange business, rigorously review applicants' qualifications, intensify day-to-day supervision and management, and stressing that the SAFE branches must suspend or revoke the business of any franchised institution if it runs the business without permission or beyond its business scope or is suspected of getting involved in online foreign currency speculation, to better maintain the market order. [10:32]
[Moderator]: Sixth, cracking down on foreign exchange-related legal and regulatory offences [10:32]
[Moderator]: The SAFE has continued to aggressively crack down on abnormal foreign exchange flows since the beginning of 2015 to guard against the risks arising from cross-border capital flows. First, inspecting banks as the main target. At the end of 2014, the SAFE organized special nationwide inspections of banks that operate the foreign exchange business, and emphasized internal control and external regulation of banks. It identifies serious problems and hidden risks associated with the foreign exchange business in banks to clamp down on operation violations. Moreover, it identifies the weak points of banks in implementing the foreign exchange administration policies and regulations to enhance banks' compliance in operating foreign exchange business and curb regulatory and legal offences regarding the foreign exchange business. The special inspection is underway now and expected to be completed by the end of May. Second, continuing with subsequent handling of cases carried forward from the 2014 special inspections such as of entrepot trade and forward foreign exchange settlement, and foreign exchange regulatory offences. The SAFE investigated and dealt with 1903 cases throughout 2014, with an administrative fine of RMB 445 million. In particular, the SAFE cooperated with the public security authorities to uncover 32 cases of foreign exchange legal offences such as underground money shops and confiscated RMB 222.4 billion from these cases, thus effectively intimidating regulatory and legal violators regarding foreign exchange. [10:32]
[Moderator]: Overall, the SAFE, based on market demand, has actively promoted the capital account convertibility and steadily implemented a series of foreign exchange administration reforms and measures, which have played significant roles in satisfying domestic individuals' demand for holding and using foreign exchange, facilitating market players like companies to conduct cross-border financing and investment and guarding against abnormal cross-border capital flows. [10:33]
[Moderator]: Now please ask your questions on these foreign exchange administration policies and remember to tell us where you are from before raising your questions. [10:33]
[Journalist]: I have two questions and the first is about the RMB account convertibility policy. Zhou Xiaochuan, PBC governor, said last weekend that the PBC is expecting to basically realize capital account convertibility by the end of this year, and I am wondering what steps the SAFE would take to achieve this target. In face of the challenges from the global market, including the differentiation of European and American policies and the pressure from capital flight on the emerging capital market, how will the SAFE respond to the risks arising from the implementation of these steps? [10:48]
[Journalist]: The second question is about foreign exchange settlement and sales. What other non-banking financial institutions besides Harvest Fund and Guotai Junan will be qualified for running this business? [10:48]
[Guo Song]: Capital account convertibility is a significant issue that is to be addressed during the 12th Five-Year Plan period while this year is the last year in the period. Zhou Xiaochuan, PBC governor, has proposed the necessary work to be done, including modifying the foreign exchange administration regulations, further opening the capital market and facilitating individuals' investment or transfer. We have been pursuing capital account convertibility for years from all aspects. As was said earlier, about 85% of the 40 capital account transaction items we assessed are partially convertible now. [10:49]
[Guo Song]: How to advance this process? It can be done in multiple ways. What we should do is to streamline administration and delegate power, lessen interference into the transactions and cut approval items. We have done a lot over the past five years, reducing administrative approval items concerning capital account from more than 50 to 17, or by 71%. [10:49]
[Guo Song]: What's more, what was prohibited in the past is being opened and done, where we also have done a lot. Given that the capital account convertibility requires coordination and cooperation among multiple departments, the SAFE has introduced within the compass of its power many measures to pursue the capital account convertibility. For example, the centralized management of MNCs' funds enables conglomerates to operate capital within the company more easily. The QDLP pilot program currently in force in three regions aims to identify more channels for going global or bringing in. Moreover, the pilot reform of macro-prudential management of external debts is now carried out in three regions for proportional self-discipline of external debts. All these measures are advancing the process of capital account convertibility. [10:49]
[Guo Song]: As for your second question, I would like to say that we did grant the qualifications to two securities firms for foreign exchange settlement and sales. But what they can do after obtaining the qualification is still in question. Will more institutions obtain the qualification in the future? Definitely, provided that the two institutions deliver a good performance. But if the two institutions find nothing could be done, I guess other institutions will not be interested in this in the future. [10:49]
[Financial channel of CCTV]: I noticed that China witnessed a trade surplus of more than USD 120 billion, while a deficit of foreign exchange settled and sold of more than USD 120 billion in the first two months of this year. Are the two figures contradicting with each other? Does this indicate massive outflows of cross-border capital? How will the SAFE respond to this? [11:16]
[Wang Yungui]: I'd like to use figures to make a clarification. This contains three aspects: first, as is monitored, there is still a net inflow of cross-border receipts and payments. From August to December 2014, there were net outflows of cross-border receipts and payments, or the outflows exceeded the inflows of cross-border receipts and payments by enterprises and individuals via banks, but this situation reversed in January and February 2015. Data show that after deducting cross-border payments from cross-border receipts, there was a net inflow of USD 55.1 billion, representing a year-on-year increase of 38%. Specifically, the net inflow under trade in goods stood at USD44.9 billion, which was 5.6 times that of the same period last year. Therefore, the monitoring data indicate that there is still a considerable net inflow of cross-border receipts and payments. [11:16]
[Wang Yungui]: The second figure is about foreign exchange settlement and sales via banks. There was a deficit of USD 25.4 billion in foreign exchange settlement and sales in January through February. What's your idea of this deficit? It should be viewed from two perspectives. First, plenty of export revenue has not been settled but been deposited as foreign exchange. From January to February, the proportion of export revenue translated into the RMB was down by 10 percentage points while the foreign exchange deposit of enterprises and individuals rose by USD 63.9 billion, indicating the surplus or deficit in foreign exchange settlement and sales is a structural adjustment between the central bank's foreign exchange reserves and private foreign exchange savings. In others words, enterprises and individuals are optimizing the currency structure of their balance sheets by holding more USD assets, which doesn't mean capital outflows however. [11:17]
[Wang Yungui]: The third figure is about the basic items of the balance of payments. Generally there are two basic items of the balance of payments, namely, trade and direct investment. Customs statistics show that
[Wang Yungui]: Given these figures, China's GDP is rapidly increasing, compared with its international counterparties, and the investment, consumption and export remain robust, with great potential for growth.
[Journalist]: What was your consideration to conduct macro-prudential management of external debts starting from last year? What's the effect? [11:22]
[Guo Song]: The macro-prudential management of external debts has been written into the resolution document of the Third Plenum of the 18th CPC Central Committee to build a management system for external debts and capital flows under the macro-prudential framework. To implement the resolution document of the Third Plenum of the 18th CPC Central Committee, the SAFE adopts the proportional self-discipline management of external debts. Proportional self-discipline is a simple concept with the same meaning of a buzzword, macro prudence. Macro prudence takes many factors into consideration, such as the level of a country's total liabilities and the level of corporate liabilities. The proportional self-discipline is being explored on a small scale, aiming to implement the resolution of the Third Plenum of the 18th CPC Central Committee and create a fair market environment. It used to be easy for foreign-funded enterprises to borrow external debts but hard for Chinese companies to do so since the overseas market was not opened and posed many restrictions. The data we released show that almost none of the Chinese enterprises had external debts. The second aim is to create a fair market environment that enables both Chinese and foreign-funded enterprises to have equal treatment in this area. The third aim is to address the difficulties and reduce the cost of financing by enterprises. Overseas financing is surely cheaper than domestic financing, which, just as Mr. Wang Yungui said earlier, is about 1-2 percentage points lower. That's why overseas financing is considered a way to ease the difficulties of and cut the cost of financing. But as the proportional self-discipline measure was just launched and signing a loan contract takes time, there are not many transactions yet. We do not expect many transactions, but do hope that this can satisfy some companies' demand to win fair market competition. In the past, borrowing external debts required approval from the SAFE, which is now replaced by proportional self-discipline, that is, all the companies can borrow money without prior approval from the SAFE, provided that these companies' external debts do not exceed a certain proportion of the approved assets as of the end of the previous year. [11:23]
[Journalist]: Can QFII and RQFII access the inter-bank market, according to the foreign exchange policy? [11:28]
[Guo Song]: Definitely. QFIIs must make sure that less than 50% of its assets will access the inter-bank market. But there is no similar limit on RQFIIs. All of the assets of RQFIIs can access the market. But they can also choose not to enter the market. [11:28]
[Journalist]: It was recently reported that the QFII and RQFII systems may require registration? What would you say about this? [11:29]
[Guo Song]: We have been considering reforming the QFII and RQFII systems. It is relatively convenient for RQFIIs to make investments as we carried out some reforms in this regard. We are also considering making some changes to the QFII system. For example, removing the upper limit of USD 1 billion, which I believe will be completed in a couple of days. We are considering facilitating capital inflows and outflows too. [11:29]
[Journalist]: The data released by the Bank for International Settlement at the end of last year show that the Chinese companies had overseas debts of USD 1.1 trillion. What about the data that have been monitored by the SAFE? The overseas media have been recently saying that as the US dollar appreciates, these debts would be at stake, putting heavy pressure of capital outflow on
[Guo Song]: As of last September, China reported a balance of USD 894.8 billion in foreign currency debts, which is quite different from USD 1.1 trillion you just said. The data I said refers to the balance of foreign currency debts the Chinese institutions including the Chinese government owe to overseas counterparties, which exclude the domestic currency. The two figures are different in statistical standards. Some institutions with overseas debts or liabilities might be registered overseas, so in theory they are not Chinese institutions and excluded from our statistics and management. The problem is whether these debts will increase the liabilities of domestic players if transferred into
[Journalist]: The IMF will review currencies in the SDR basket in the second half of this year. My question is how likely the RMB will be included in the SDR basket this time? What new actions will be taken or what has been done to promote the inclusion of the RMB in the SDR basket? [11:57]
[Wang Yungui]: Mr. Zhou and Mr. Yi answered your questions in detail during the National People's Congress and Chinese People's Political Consultative Conference. We should be objective in having the RMB included in the SDR basket. We would do our best to make it happen, but also assess the situation objectively. [11:57]
[Wang Yungui]: While driving the inclusion of the RMB in the SDR basket, we should focus on the domestic reforms, promoting the two-way opening-up of the capital market, further boosting the convertibility of the RMB under the capital account, and enhancing the free use of the RMB in international exchange. With all these efforts, inclusion of the RMB in the SDR basket would become a natural result. [11:57]
[Economic Daily]: Mr. Zhou said we might realize capital account convertibility this year, but some scholars are concerned about capital flight given the changes in the domestic and international environment. What would you say about this? What approach is or will be adopted to control the possible capital flight as we are striving to realize capital account convertibility or after capital account convertibility has been realized? [12:09]
[Wang Yungui]: It was required by the Third Plenum of the 18th CPC Central Committee that we should realize capital account convertibility. To this end, the PBC and the SAFE have done a lot. As I said earlier, 85% of capital account is convertible now. This means there is only the last mile left on the path to capital account convertibility. In the process, we devoted ourselves to promoting reforms while preventing risks, and fully assessed the possible impact of the capital account convertibility on cross-border capital inflows and outflows. According to the domestic and international authoritative literature, it is very hard to make certain whether a country will witness capital inflows or outflows after the full convertibility of capital account is realized. Persistent efforts should be made to explore and improve the reform schemes as the reforms proceed. Under the leadership of the CPC Central Committee, the State Council and the PBC, the SAFE has always combined the process of convertibility with administration streamlining and power delegation. Meanwhile, by building relevant statistical information system and management information system, the SAFE has closely monitored and analyzed the cross-border capital flows, and collected statistical data. So far, our schemes and reform steps have proved feasible. [12:09]
[Wang Yungui]: Whether it is capital inflow or outflow depends more on the macro economic conditions in the domestic and global market. The current domestic economic conditions prove that our efforts in promoting reforms and adjusting structure are effective. We also believe that the absolute majority of domestic and international market players will calmly and objectively assess capital inflows and outflows. I said just now that China witnessed a trade surplus of roughly USD 120 billion and received USD 22.5 billion of FDI in January through February, which indicates that there are net cross-border capital inflows. Therefore, it is viable to stably realize capital account convertibility amid the current reformative environment. In this process, our top priority is to control risks and capital outflows, so as to guard against the systematic and regional financial risks, which is our bottom line. The roles and responsibilities of individual players who fail to put risk prevention measures in place as we pursue capital account convertibility should be defined by the market by clearly defining the ownership, while we are committed to guarding against systematic and regional financial risks. [12:10]
[South China Morning Post]: I want to confirm what Mr. Guo said just now. Is it true that we will see the upper limit on QFII exceeding USD 1 billion in a couple of days? [12:10]
[Guo Song]: It's true. We will release the data soon, and you will see that. [12:11]
[South China Morning Post]: Is it a natural breakthrough, instead of an institutional change? [12:11]
[Guo Song]: Institutional change takes time. [12:11]
[South China Morning Post]: My second question is what the SAFE would say about the overstatement of the RMB, as said by Asian Development Bank? Both the OECD and Asian Development Bank expect
[Wang Yungui]: The RMB exchange rate formation mechanism reform has always been a key issue in the exchange rate reform, not merely about the level. We have been stressing that the exchange rate reform should focus on the building and improvement of the mechanism. Specifically, the RMB exchange rate formation mechanism aims to give the market a decisive role in the formation of the RMB exchange rate. As you can see, the central bank phased out the normal interference in the market in the past year, with the bilateral exchange rate between the RMB and US dollar fluctuating by 2% or -2% every day while the exchange rate of RMB against other currencies fluctuating in a broader range, which indicates that the exchange rate is decided by the market is playing a larger role. When studying the exchange rate of RMB against foreign currencies, we should look at the exchange rate of RMB against a basket of currencies, including euro and Japanese yen, not just the US dollar. While the exchange rate of RMB against the US dollar depreciates, it is likely that the exchange rate of RMB against many other currencies appreciates. The RMB has been appreciating all the time, including in the first two months of this year, according to the two exchange rate indexes of the Bank for International Settlements, namely, the nominal effective exchange rate and the real effective exchange rate. In monitoring the exchange rate, other countries focus on the exchange rate against a basket of currencies. The US dollar index, for example, is an index for the USD exchange rate against a basket of currencies. This holds true for
[Journalist]: A source said yesterday that a foreign-funded company in Shanghai violated laws by having its foreign exchange settled to buy housing, but failed in the lawsuit against a foreign exchange authority. I wonder why a company will be fined after its foreign exchange has been settled, and what's the cause of such a case? [12:35]
[Zhang Shenghui]: It is normal that the administrative enforcement authority and the administrative counterpart have conflicts or disputes with each other on some issues. It is everyone's legitimate right to request hearing and administrative reconsideration, or even to file a lawsuit, and we respect such rights. Since every case has its unique features, it is hard to generalize them. Of the more than 1,900 cases we handled in 2014, only 6 cases requested reconsideration, which was low. But it should be noted that people's awareness to protect rights and the state's requirements on law-based administration are increasing, which I believe will ensure that the law enforcement team stringently abide by laws and will protect the rights of administrative counterparts. [12:36]
[Moderator]: This is the end of today's press conference. Thank you for your attention to foreign exchange administration and for coming to this conference. A press conference on foreign exchange situation will be held at the Information Office of the State Council by late April. We are looking forward to your attendance to pay more attention to foreign exchange administration in
(The original text is available at www.people.com.cn)
