[Wang Yungui]: Good morning, friends from the press. Welcome to the press conference of the State Administration of Foreign Exchange or the SAFE on policies for the second quarter of 2015. I am Wang Yungui, director-general of the General Affairs Department of the SAFE. Today we have with us Du Peng, director-general of the Current Account Management Department, Guo Song, director-general of Capital Account Management Department, and Zhang Shenghui, director-general of the Supervision and Inspection Department. On behalf of the SAFE, I would first like to unveil the latest policies for foreign exchange administration. [10:12]
[Wang Yungui]: Since the beginning of this year, the SAFE has actively implemented the work plans of the CPC Central Committee and the State Council. To be specific, it has accelerated promoting the "five shifts" in foreign exchange administration, further deepened the reform of foreign exchange administration in trade in goods, trade in services and direct investments, promoted trade and investment facilitation, and stably pressed ahead with the capital account convertibility, thus effectively improving foreign exchange administration to serve the real economy. Below are the reformative measures that have been taken: [10:13]
[Wang Yungui]: First, the reform on foreign exchange administration for insurance business is yielding dividends. [10:13]
[Wang Yungui]: The Guidelines for Foreign Exchange Administration for Insurance Business came into force on March 1, 2015, cancelling or handing down administrative approvals for foreign exchange business of insurance companies. This reform is now gradually yielding dividends. First, the policy offers significant convenience to insurance institutions to handle relevant business. According to an insurance company, the reform simplifies the business application materials required and approval process, and cancels the requirements on the validity of the qualification for carrying out foreign exchange-related insurance business, offering great convenience to insurance institutions to handle foreign exchange business, helping reduce HR cost and improving business efficiency. Second, the integrated regulations are easier to implement. Compared with the original policies for foreign exchange-related insurance business, the Guidelines is clear, centralized and transparent, featuring coherent and consistent contents, making it easy for relevant insurance institutions and banks to implement. Third, the reform boosts the development of foreign exchange-related insurance business. Relaxing the requirements on the currency for pricing and settlement solves the problems encountered by most insurance institutions and provides room for introducing policies to promote the development of foreign exchange-related insurance business.[10:14]
[Wang Yungui]: Second, reform of foreign exchange administration for direct investments has produced preliminary results. [10:15]
[Wang Yungui]: To further simplify and improve foreign exchange administration for direct investments, the SAFE announced in February 2015 that administrative approvals for foreign direct investment (FDI) and overseas direct investment (ODI) will be canceled starting from June 1. From then on, the absolute majority of businesses under direct investment will be processed directly at banks, with no need for companies to register or verify with foreign exchange authorities. [10:15]
[Wang Yungui]: Well received by banks and companies, the reform allows banks to provide whole-process services including foreign exchange registration, accounts opening and remittance, which is favorable for banks to improve the level of service and attract and retain quality customers. The cancellation of the verification for the registration of foreign exchange for direct investments has significantly cut the business processing process and links, reducing the costs of companies for moving to and fro between a foreign exchange authority and a bank. In the first week since the implementation of the policy, namely, between June 1 and 7, 43 banks across China conducted foreign exchange registration for 398 direct investments, with the contracts involving USD 12.4 billion in total. These direct investments, FDI or ODI, were registered as new items or for alteration, featuring bidirectional flows of cross-border capital. [10:16]
[Wang Yungui]: Third, the reform of voluntary settlement of foreign exchange capital of foreign-invested enterprises (FIEs) has been rolled out nationwide. [10:17]
[Wang Yungui]: Based on the experience in voluntary settlement of foreign exchange capital gained in the pilot program in force in China (Shanghai) Pilot Free Trade Zone and 16 other national pilot economic and financial reform and development zones, the SAFE began reforming the administrative approach to settlementof foreign exchange capital at the end of March, announcing the reform of voluntary settlement of foreign exchange capital will be rolled out nationwide starting from June 1, granting companies the full right of decision making and choice in settling foreign exchange capital. Companies will be allowed to choose the time and amount of foreign exchange capital to be settled based on their operating needs, and conduct receipts and payments of the RMB through the account for FX settlement and pending payment. While offering more convenience, the SAFE will continue to supervise the use of funds after the foreign exchange is settled and introduce more measures to guard against and control risks. [10:18]
[Wang Yungui]:As the RMB exchange rate falls in the bidirectional fluctuation range, the reform of voluntary settlement of foreign exchange capital provides enterprises with policy space for evading risks associated with the exchange rate fluctuation, and facilitates equity investment in China by FIEs using funds after settlement of foreign exchange, whereby better satisfying FIE's demand for business operations and funds operations, and will thus play a positive role in promoting the foreign-related economic development. [10:18]
[Wang Yungui]: Fourth, the Guidance on Foreign Exchange Administration for Mainland-Hong Kong Mutual Fund Connect is forthcoming. [10:18]
[Wang Yungui]: Approved by the State Council, the Mainland-Hong Kong Mutual Fund Connect scheme will be launched on July 1. Under this framework, mainland investors can buy HK public offering of funds on the mainland and HK investors can trade mainland public offering of funds in Hong Kong. The initial quota for investment under the Mutual Fund Connect would be RMB 300 billion in each direction. The Guidance on Foreign Exchange Administration for Mainland-Hong Kong Mutual Fund Connect has been developed and is forthcoming. [10:18]
[Wang Yungui]: This policy creates a new channel for both mainland and HK investors to invest in the stock market and is the first step to liberalize portfolio investment under the collective investment scheme. With the launch of the Mutual Fund Connect, the "overseas sales or issuance by residents" and "domestic sales or issuance by non-residents" under "capital and monetary market instruments — securities for collective investment" in the transactions under the capital and financial account will no longer be strictly restricted, indicating that two inconvertible capital accounts will be slashed and China's capital account convertibility will be further enhanced. [10:20]
[Wang Yungui]: Fifth, cracking down on activities in violation of foreign exchange laws and regulations. [10:20]
[Wang Yungui]: Since the beginning of this year, the SAFE has stepped up foreign exchange inspections, cracked down on acts in violation of foreign exchange laws and regulations, and effectively guarded against risks arising from abnormal flows of cross-border capital. First, the SAFE organizes special inspections of banks' compliance with laws and regulations on foreign exchange business and strengthens internal control by and external supervision over banks, so as to promote banks to improve their level of compliance in the foreign exchange business. On-site inspections have been completed while subsequent handling and rectification and follow-up are underway. Second, under the unified arrangement of the Office of International Hunt for Corrupt Officials Who Have Fled Abroad and Recovering Ill-Gotten Gains under the Central Anti-Corruption Coordination Team, the SAFE works with the People’s Bank of China Ministry of Public Security, the Supreme People's Court, and the SupremePeople'sProcuratorate to clamp down on underground banks and illegal acts such as transferring overseas the illegal gains through offshore accounts and non-resident accounts in a centralized manner to eliminate the channels for transferring illegal gains and income such asbribes andgraft. Third, the SAFE organizes special off-site inspections of the main channels, players and businesses with abnormal flows of cross-border capital, and analysis and identification of the clues to foreign exchange transactions in violation of relevant laws and regulations, so as to precisely crack down on players that violate the foreign exchange laws and regulations. [10:21]
[Wang Yungui]: Overall, by adapting to the requirements from market players for easier foreign exchange administration, the SAFE was committed to collaboratively pressing ahead with administration streamlining and power delegation, combination of regulation and deregulation and providing optimized services, and stably implemented reformative measures for foreign exchange administration in the second quarter, playing a significant role in making full use of the vitality of market players and promoting the sustainable and healthy economic development. [10:21]
[Wang Yungui]: Now we will take your questions and please remember to tell us where you are from before you raise questions. [10:22]
[Reporter]: Mr. Wang, I am from the CAIJING Magazine. The State Council recently adopted the policy of limited convertibility for Guangzhou, Tianjing and Fujian Free Trade Zone. I am wondering the differences between the policy and the ongoing capital account reform. When will the detailed provisions be promulgated? [10:24]
[Wang Yungui]: Let's invite Mr. Guo Song to answer this question. [10:25]
[Guo Song]: In the past, the capital account was administered by business lines such as direct investments, portfolio investment and external debts, with the extent of administration prescribed in each policy dependent on the degree of risk. The limited convertibility is a new approach we are planning to adopt or are exploring. According to this approach, we will no longer determine or distinguish the use of funds within the limit, or no longer follow the traditional way of administration, that is, investors may make direct investments or portfolio investments within the limit. We believe this is a new way of reform. The successful experience from some other countries and regions which have tested such a way shows that this approach will be effective. In our view, if this policy is introduced, the degree of overall convertibility of the capital account in China will be improved significantly. But when this approach will be adopted depends on our internal work processes. [10:25]
[Reporter]: I am from China Daily. I have a question for Mr. Wang. According to Governor Zhou Xiaochuan, the Regulations on Foreign Exchange Administration will be revised this year to further liberalize the convertibility of capital accounts. I am wondering the progress of the revision. In what logic will the Regulations be revised? When will the revised version be disclosed? Thank you. [11:06]
[Wang Yungui]: This is a very good question, which concerns the academia and media. According to Mr. Zhou, there is still a lot to do to press ahead with the capital account convertibility and one of them is revising the Regulations. The current version came into force in August 2008 after being approved by the State Council. Over the past few years, the Regulations has played significant roles in advancing the foreign exchange administration reform, serving the real economy and guarding against and controlling financial risks. [11:06]
[Wang Yungui]: As China enters the new normal of economic development, the administration streamlining and power delegation will be further accelerated, and the foreign exchange administration reform will be deepened. Looking back and into the future, it is necessary to further consolidate the reform fruits by adjusting and revising the Regulations, which is underway under the leadership of the People's Bank of China. The main logic of revising is summarized in four aspects as follows: [11:06]
[Wang Yungui]: First, continuing to streamline administration and delegate power. The permission and approval involved in the Regulations on Foreign Exchange Administration for the regulation of the capital account will be canceled, simplified or handed down. It is expected that streamlining administration and delegating power will provide room for the capital account convertibility. As a result, a large part of the revised version will be dedicated to adjustments relating to administration streamlining and power delegation. [11:06]
[Wang Yungui]: Second, further intensifying statistical monitoring. After the realization of the capital account convertibility, we believe that the statistics and monitoring of cross-border capital flows will be enhanced, and some transactions will even be recorded. This means that administration will still be required after achieving the capital account convertibility. But how? What's important is that comprehensive and continuous monitoring of cross-border capital flows along the entire chain will be conducted. Therefore, the revised version will emphasize statistical monitoring in terms of declaration of the balance of payments, monitoring of cross-border capital flows, statistics on external debts, and statistics on foreign exchange settled and sold. [11:06]
[Wang Yungui]:Third, innovating the concept for financial regulation by learning from the lessons of the international community on financial regulation after the 2008 subprime mortgage crisis. At that time, the international community focused on strengthening macro-prudential management in crisis monitoring, and intensified the regulation of systematic financial institutions. While propelling the capital account convertibility, China needs to draw from the latest international experience and practice in financial regulation. As a result, the revised version will stress macro-prudential monitoring of cross-border capital flows, introduce policies for strengthening macro-prudential management of external debts and highlight provisions on business operations by financial institutions. While liberalizing specific approvals, this means lines of defense against macro risks will be built. [11:06]
[Wang Yungui]: Fourth, improving measures for crisis response and stepping up efforts to revise and improve the provisions on guaranteeing the balance of payments. Given that the surplus or deficit of the balance of payments will adversely impact the economic development, preventing and controlling external risks is critical. The revised version sets forth the temporary control terms in case of sharp fluctuation in the balance of payments or in the domestic financial market, which satisfies the special requirements of the IMF on crisis and accords with the international practice. [11:06]
[Wang Yungui]: To sum up, we expect to provide room for the capital account convertibility and build lines of defense against risks, making sure no systematic and regional financial risks will occur, which is our bottom line. [11:07]
[Reporter]: I am from CBN. Reportedly, the IMF announced on June 12 that a team has been sent to assess China regarding the Special Drawing Right (SDR). Could you tell us about the progress of the assessment? [11:12]
[Wang Yungui]: Currently, the assessment of SDR is led by the People's Bank of China (PBC) and carried out by the SAFE. The assessment is now carried out in accordance with the unified requirements of the PBC, so you can consult the PBC about the specific progress. But I want to stress here that having the RMB included in the SDR basket is a key plan made by the CPC Central Committee and the State Council during the reform and opening up and under the new normal of economic development. Including the RMB in the SDR basket is critical for pressing ahead with the RMB internationalization and further reducing the likelihood of currency mismatch in China's foreign-related economy and financial risks. Just as Mr. Zhou and Mr. Yi said, we will actively promote the inclusion of the RMB in the SDR basket, but this should be a natural result. We will cooperate with the IMF in the assessment for including the RMB in the SDR basket, enabling the international community to acquire a clearer and more comprehensive understanding of the use of the RMB in the global market.[11:12]
[Reporter]:I am from Xinhua News Agency. I have two questions. First, how does the hunt for corrupt officials who have fled abroad and recovery of ill-gotten gains, which is part of the Skynet Act, turn out?Since the beginning of the year, cross-border e-commerce has boomed, but some small companies have been found having difficulty in foreign exchange settlement for exports. For example, they can only handle receipts and payments under small-sum trade in goods through a third-party payment institution, with a single transaction of not more than USD 50,000. More small companies export goods in small packages and cannot settle foreign exchange, perhaps due to incorrect declaration to the Customs, and have to settle through underground banks. Given this, my second question is how to make it easier and more convenient for companies to settle foreign exchange while promoting and supporting the development of cross-border e-commerce. [11:43]
[Wang Yungui]: Let's invite Mr. Zhang to answer the first question. [11:43]
[Zhang Shenghui]: I would first like to clarify that cracking down on transferring ill-gotten gains through offshore companies or underground banks is part of the Skynet Act, which has been carried out nationwide by the SAFE, PBC, Ministry of Public Security, Supreme People's Court, and SupremePeople'sProcuratorate since this April. Under the deployment of the Office of International Hunt for Corrupt Officials Who Have Fled Abroad and Recovering Ill-Gotten Gains under the Central Anti-Corruption Coordination Team, this act focuses on clamping down on illegal acts of transferring overseas the illegal gains through offshore accounts and underground banks in a centralized manner to confiscate illegal gains such as bribes and graft as many as possible. Under the command of a special action steering team, the SAFE, highly concerned over this act, has developed an inspection scheme for the special action in the first place, and called on its branches in the key areas to hold meetings to make deployment, in an effort to press ahead with the act by making full use of the experience of foreign exchange authorities in cracking down on illegalities such as underground banks and its own advantages. This act is underway now and it is improper to disclose more details here. But as the act proceeds, we will immediately disclose relevant information to you if necessary. Thank you! [11:43]
[Wang Yungui]: Let's invite Mr. Du to brief us about cross-border e-commerce and foreign exchange settlement. [11:43]
[Du Peng]: I remember that on the briefing for the third quarter of last year, I introduced something on the third-party payments for cross-border e-commerce, which has produced some results. By summarizing the experience gained on the preliminary pilot program in Beijing, Shanghai, Chongqing, Zhejiang and Shenzhen, we have scaled up nationwide the pilot program on online payments through a third party starting from this January, which means that qualified institutions across the country will be allowed to engage in this business. Regarding the inconvenience to make payments in some places, I'd like to answer as follows: [11:44]
[Du Peng]: First, this business is launched to allow companies and individuals to make online deals through third-party payment institutions. Individuals are free from the annual cap of USD 50,000, provided that the transaction is authentic. [11:44]
[Du Peng]: To further expand online payment and satisfy companies' and individuals' demand for cross-border business, we raise the cap of original USD 10,000 to USD 50,000 for a single transaction. 1.329 million deals of receipt and payment via e-commerce under the pilot program have been handled since September 2013, involving USD 3.32 billion. In particular, the transaction value for this January through May alone approached the amount involved from the kickoff of the pilot program to the end of last year, indicating this business has grown rapidly. Meanwhile, it is noticed that among these transactions, a single payment involves less than USD 100 on average, far lower than the cap of USD 50,000. [11:44]
[Du Peng]: On the other hand, as for the pilot program of cross-border online payment, we recognize the electronic data on all the transaction links of e-commerce, as the ground for authenticity review. This means individuals and companies can have cross-border online payments processed with a payment institution, without the need to present the customs declaration form. [11:44]
[Du Peng]: To facilitate foreign exchange settlement in the case of mailing bulk goods overseas, we have launched a pilot program in Zhejiang and Fujian allowing commercial instruments to replace the customs declaration form as the basis for foreign exchange settlement, which has produced positive results. This approach is a desirable response to the failure to get the customs declaration form, the case you said just now. [11:44]
[Du Peng]: Next, we will study whether it is viable to further increase the payment cap in accordance with the overall plan for economic and strategic development by the State Council, if the risk is controllable. [11:45]
[Reporter]: I am from the Financial News. In the SAFE annual report recently released, I notice that the SAFE identified many clues to foreign exchange transactions in violation of laws and regulations through big data analytics. I'm wondering how the foreign exchange big data review system works and what major and serious cases have been identified through this system? [11:46]
[Zhang Shenghui]: This system was developed around 2009 and put into operation in 2010. Its features include: First, wide coverage. This system covers many players of foreign exchange-related transactions as well as information on foreign exchange transactions under the current account and capital account. Second, strong search capability. Capable of screening suspected transaction leads from enormous data on foreign exchange transactions, which is conductive to locking on the players violating laws and regulations and illegal acts. This system has significantly enhanced the relevance and effectiveness of foreign exchange inspections and is of great help to intensify ex-post regulation. [11:46]
[Zhang Shenghui]: For example, a branch of the SAFE used this system to identify and confirm that a company conducted false entrepot trade to gain spread between domestic and overseas interest rates. Another branch analyzed and confirmed that a company used fake invoices to illegally settle the foreign exchange that was equivalent to the RMB in value. Overall, this off-site inspection system has played significant roles through big data analytics. [11:47]
[Zhang Shenghui]: The use and improvement of the off-site inspection system in recent years have produced positive results in cracking down on foreign exchange violations. From 2012 to 2014, based on the analysis and investigation using this system, the SAFE verified 1,524 cases of foreign exchange violations, imposing an administrative fine of RMB 650 million. Of the cases verified by the SAFE in 2014, up to 1/3 was identified and verified using this system, involving a fine that was 70% of the total. Moreover, the cases identified using this system generally involved a large amount and had serious impact on foreign exchange receipts and payments. [11:47]
[Zhang Shenghui]: To sum up, using the off-site inspection system to make big data analytics has been the normal of foreign exchange inspections. Thank you! [11:47]
[Wang Yungui]: I'd like to say something more. Over the past few years, especially since 2009, the SAFE has been committed to promoting administration streamlining and power delegation in foreign exchange administration, emphasizing integration of the systems for unified data monitoring. We have since merged and streamlined systems relating to foreign exchange administration on a large scale, and shared some key data, and hence built a platform for monitoring cross-border capital flows, which is chiefly used by the business line under the charge of Mr. Zhang. [11:58]
[Wang Yungui]: This system gathers the shared resources of all the SAFE's systems relating to cross-border capital flows, which concern trade in goods, trade in services, direct investments as well as some transactions under the capital account, and cover logistics and capital flows, as well as various company catalogues. With this system, we can understand foreign exchange settlement and sales by companies around the clock.[11:58]
[Wang Yungui]: For example, a company may, without filing its information with the SAFE in advance, transfer funds under relevant accounts and settle and sell foreign exchange for cross-border transactions. However, this can be identified using this system. While it will not interrupt any creditable acts in such a case, the SAFE can identify transactions in violation of laws and regulations by using the flexible search modules of the system and regular statements. Although the many cases Mr. Zhang mentioned just now were dealt with by us with limited inspection forces, and many clues are yet to be verified, I want to say here that we will further facilitate trade and investments to provide effective services to market players, but given that many transactions in violation of laws and regulations have been recorded, the SAFE will, in the meantime, identify suspected transactions through this inspection system. Many of the key cases of foreign exchange violations have been identified through off-site big data analytics. Many punished enterprises wonder how the SAFE identified the violations as they were very careful, but this big data system did it. The system is also a key showcase of the CPC Central Committee's and the State Council's emphasis on strengthening ongoing and ex-post management. In my view, the SAFE is forward-looking by building this system, which also accords with the requirements on streamlining administration and delegating power, and intensifying regulation. Thank you! [11:58]
[Reporter]: I have one more question. The QDII2 scheme has drawn wide concern recently. It is reported that a pilot program will be carried out in 6 cities. When will the policy on the pilot program be introduced? [12:03]
[Wang Yungui]: We have noted the relevant reports on the scheme, too. As far as I know, the People's Bank of China and relevant departments are studying this scheme, and I don't know whether the real scheme will be like the one that has been reported. I am also learning. Anyway, either the QDII or the QFII scheme, or even the QDII2 scheme as you mentioned, is a key strategic plan made by the PBC and the SAFE for uniformly propelling the capital account convertibility in accordance with the plans of the CPC Central Committee and the State Council. For details such as whether the policy will be introduced soon, when it will be introduced, and whether a pilot program will be carried out in 6 regions, you should consult relevant competent authorities. The SAFE will cooperate with relevant departments to vigorously press ahead with the capital account convertibility, improve services to entities and intensify regulation. It is also our hope to pave the way for individuals to make overseas investments through legitimate channels. This also accords with the overall spirit and requirements of the Third Plenary Session of the 18th CPC Central Committee that the market should be given a decisive role in resource allocation. We will keep a close eye on relevant progress. Thank you! [12:03]
[Reporter]: I am from Reuters. What about the cross-border capital flows in the second quarter? Is there any change compared with the first quarter or the last year? My second question is that do you think it is possible that we would make an official announcement on the capital account convertibility, just as someone calls for. In other words, is it likely that the government will make an announcement on the full capital account convertibility or capital convertibility? [12:31]
[Wang Yungui]: The two questions are very important. As for your first question, the cross-border capital flows in the second quarter, although the data for the second quarter have not been released, I can tell you that the foreign exchange receipts and payments became more balanced in April and May. Despite the deficit in foreign exchange settlement and sales in the first quarter, the situation has become more optimistic since April. The statistical data for May will be unveiled tomorrow. From January through May, China witnessed USD 20 billion in net inflows of cross-border capital. Foreign exchange settlement and sales by banks has turned better after April. To be specific, China saw net sales of foreign exchange by banks in the first four months, but USD 1.3 billion in net settlement of foreign exchange by banks in May. Net sales of foreign exchange by banks persisted for 9 months from August 2014 to April 2015, but turned into net settlement of USD 1.3 billion in May, indicating the market is becoming more balanced. We are delighted to see a more balanced market, which is favorable for market players to deploy their funds and rationally mitigate risks associated with foreign exchange rate and for us to reform foreign exchange administration in a robust environment. [12:31]
[Wang Yungui]: As for your second question, my understanding is that the decisions made at the Third Plenary Session of the 18th CPC Central Committee on deepening the economic institutional reform are the key plans of the CPC Central Committee and the State Council, which clearly stated the requirements on the capital account convertibility. Under the new economic normal, the capital account convertibility is a significant arrangement for utilizing domestic and overseas markets and resources in a coordinated manner. Efforts should be made to gradually press ahead with the capital account convertibility, with relevant reforms conducted in a certain sequence. Its logic is that we should guard against systematic financial risks and avoid introducing external risks in the uncertain international economic and financial environment to impact our strategic plans to adjust structure and promote reforms. The PBC and the SAFE will actively and stably press ahead with the capital account convertibility in accordance with the plans of the CPC Central Committee and the State Council to effectively guard against risks. But as for whether it is necessary to announce the capital account convertibility, the IMF and other international institutions have no such requirements. I believe the capital account convertibility in China will be achieved in a step-by-step manner, with relevant reforms advanced one after another. [12:31]
[Reporter]: It was reported yesterday that the Shenzhen-HK Stock Connect scheme might be postponed, because the SAFE and the China Securities Regulatory Commission haven't agreed on the quota for cross-border investments. How's everything going now? Will it be postponed like the Shanghai-HK Stock Connect?[12:31]
[Guo Song]: As the SAFE is not a major participant, I recommend you consult the China Securities Regulatory Commission. As far as we know, there should be no barrier against the launch. [12:32]
[Wang Yungui]: This is the end of today's conference. Thank you for coming.[12:32]
(The original text is available at www.people.com.cn)
