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Editor's Note: The FAQs on Foreign Exchange Administration Policies released by the State Administration of Foreign Exchange (SAFE) in July 2010 helped the general public learn about foreign exchange administration and received positive feedback. Recently, the media, experts, scholars, and the public have attached great importance to issues related to the foreign exchange reserves and offered many valuable opinions and suggestions, thereby giving us an important impetus to improve our work. In order to promote communication and interaction with people from all walks of life, we have compiled the FAQs on Foreign Exchange Reserves with respect to the recent hot topics. These FAQs will be published in three installments for your discussion and reference. 1. Recently, the SAFE issued a public statement that an appreciation of the RMB will not lead to any loss of foreign exchange reservesand explained this view from the perspective of book-value gains. Nevertheless, some people still believe that an RMB appreciation will gradually dissipate our wealthforeign exchange reservesjust like a cooked duck flying away.So, will an appreciation of the RMB really lead to actual losses of foreign exchange reserves and even social welfare? Answer: An appreciation of the RMB will not directly causes losses of Chinas foreign exchange reserves. Foreign exchange reserves are essentially assets in foreign exchange, which use the USD as the recording currency. Variations in the RMB/USD exchange rate will result in a change in the book value of the RMB that is converted from the foreign exchange reserves, which is not the actually realized gains or losses. The variations only mean some differences in the book value when using different reporting currencies, be it RMB or USD, and thus will not have a direct impact on the effective purchasing power of the foreign exchange reserves. Changes in foreign exchange will only occur when the foreign exchange reserves are repatriated from overseas countries (regions) and converted into RMB. At present, China has no need to repatriate its foreign exchange reserves on a large scale. We can give a counter example: if an RMB appreciation should lead to losses in Chinas foreign exchange reserves, then a depreciation of the RMB would bring about gains in our foreign exchange reserves. According to this logic, we could increase the returns on our foreign exchange reserves and even our social wealth by continually depreciating the RMB, which, in fact, is impossible. We should adopt a comprehensive and objective view of the impact of an increase in foreign exchange reserves from the overall situation in Chinas development and reform. By the end of June 2011, Chinas foreign exchange reserves reached USD3.197491 trillion. Such increase in foreign exchange reserves is of great significance to improve Chinas external payment ability, promote its reform and opening-up, and raise its international status. However, the excessively rapid increase and large scale of the foreign exchange reserves pose certain challenges to their operation and management. Therefore, it is imperative that we accelerate the transformation of the economic development mode, follow the concept of expanding domestic demand, adjusting the structure, reducing surpluses, and promoting a balance,expedite the reform of the RMB exchange-rate formation mechanism, give full play to the fundamental role of the market in the allocation of resources, and promote the balance of payments so as to achieve a basic equilibrium. 2. According to a report by the U.S. Department of the Treasury, China is the largest holder of U.S. Treasury bonds. Lately, credit rating agencies, including Standard & Poors, Moodys, and Fitch, have repeatedly issued warnings about the U.S. debt problem. In the case of a USD depreciation and a future rise in inflation in the U.S., is it a growing risk to hold such a large sum of U.S. Treasury bonds? Will this sum be reduced in the future? Answer: U.S. Treasury bonds are both a reflection of the credibility of the U.S. government and a critical variety of investment for U.S. and international institutional investors. To buy U.S. Treasury bonds with foreign exchange reserves is market investment behavior, and it will be dynamically adjusted according to market conditions. Any increase or decrease in the holding of U.S. Treasury bonds is a normal investment operation. We have noted the latest views expressed by Standard & Poors and other rating companies regarding the credit rating of the U.S. sovereign debt, and we expect that the U.S. government will take responsible policy measures to boost the confidence of the international financial market and respect and guarantee the interests of its investors. 3. Recently, the prices of gold, petroleum, and other major international commodities have risen dramatically. Why do we not invest our foreign exchange reserves more in these commodities and in energy resources? Answer: Gold, silver, and other precious metals, as well as major international commodities like petroleum and iron ore, often experience great fluctuations in price, their market capacity is relatively limited, and their transaction, collection, and storage costs are high. Investment in these commodities is already included in the investment portfolio of our foreign exchange reserves; furthermore, there are special domestic institutions engaged in the collection and storage of major commodities and other related work, which serve as a supplement to the investment of our foreign exchange reserves so as to jointly safeguard Chinas overall interests. In addition, gold, petroleum, and so forth are consumed in huge quantities by residents and enterprises in China, so any large-scale investment of our foreign exchange reserves in such items will possibly raise their market prices, and in turn will hinder Chinas household consumption and economic development. 4. Some people believe that the scale of Chinas foreign exchange reserves is so large that we should not only pay attention to their security but also make efforts to increase the gains from our foreign exchange. What measures have been taken in this regard? Answer: Financial investment is a major part of the investment of our foreign exchange reserves. Because modern financial markets are highly efficient, more returns are usually accompanied by greater risks. During the current global financial crisis, a great number of financial institutions went bankrupt or were acquired, some of which in the past had been leaders in the industry with splendid achievements. However, due to their failure to maintain a balance between risks and returns, they could hardly carry on under the deteriorating market conditions, thereby providing us with a good lesson. The management of our foreign exchange reserves must emphasize scientific operations and sustainable development. The nature of Chinas foreign exchange reserves requires that their operation and management adhere to the principles of security, liquidity, and increases in value, among which security is the primary principle. In addition, the foreign exchange reserves should maintain sufficient liquidity to satisfy the general demand for external payments, and also to play an effective role in safeguarding the stability and security of the national economy and finance. Under the precondition of guaranteeing overall security and liquidity, the operation of our foreign exchange reserves shall strive for higher investment returns in an effort to help attain the goal of maintaining and increasing their value. 5. In the face of holding such a large scale of foreign exchange reserves, what can we do to better promote a diversification of our foreign exchange assets? Answer: Diversification is one of the main operating principles of our foreign exchange reserves. In order to better promote our diversification strategy, we should avoid several misunderstandings. First, a superficial diversification of investment products -- different investment products may possess very similar risk factors, so it will not be spreading risks if we allocate funds to these sorts of investment products. Second, a superficial diversification of investment industries and regions -- without considering the interconnections among industries and the degree of integration among regions, investments will not necessarily achieve the expected goal of diversification. Third, deciding the timing to implement diversification according to the short-term performance of the market and public opinion -- effective diversification is a way to allocate assets strategically, which requires prospective planning and implementation. Diversification based on the short-term performance of the market and public opinion is often irrational and unprofessional, and can easily degenerate into opportunistic practices. 2011-07-20/en/2011/0720/1005.html
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At the end of June 2011, China’s outstanding external debt (excluding that of the Hong Kong SAR, Macao SAR, and Taiwan Province) reached USD642.528 billion. Specifically, the outstanding registered external debt reached USD402.828 billion and the balance of trade credit was USD239.7 billion. With respect to the term structure, the outstanding long- and medium-term external debt (with the remaining term) was USD180.417 billion, accounting for 28.08 percent of the outstanding external debt. The outstanding short-term external debt (with the remaining term) was USD462.111 billion, accounting for 71.92 percent of the outstanding external debt. Specifically, the outstanding registered short-term external debt (with the remaining term) was USD222.411 billion and the balance of trade credit was USD239.7 billion. In terms of the composition of the short-term external debt, at the end of June 2011 the balance of trade-related credit was USD348.221 billion, accounting for 75 percent of the outstanding short-term external debt (with the remaining term). Specifically, trade credit and trade financing accounted for 52 percent and 23 percent respectively of the outstanding short-term external debt. As trade-related credit is mainly based on real import and export trade, its growth is basically consistent with that of China’s import and export trade. Therefore, the increase in the proportion of the short-term external debt will not affect the security of China’s external debt. In terms of types of debtors, the outstanding debt of Chinese-funded financial institutions was USD182.852 billion, accounting for 45.39 percent of the outstanding registered external debt; the outstanding debt of foreign-funded enterprises was USD122.379 billion, accounting for 30.38 percent; the outstanding debt of foreign-funded financial institutions was USD52.418 billion, accounting for 13.01 percent; the outstanding sovereign debt borrowed by ministries under the State Council was USD39.353 billion, accounting for 9.77 percent; the outstanding debt of Chinese-funded enterprises was USD5.679 billion, accounting for 1.41 percent; and the outstanding debt of other institutions was USD147 million, accounting for 0.04 percent. In terms of the types of debts, the balance of international commercial loans amounted to USD334.641 billion, accounting for 83.07 percent of the outstanding registered external debt, representing a 3.09-percentage-point increase compared with that at the end of 2010. The balance of foreign government loans and loans granted by international financial organizations amounted to USD68.187 billion, accounting for 16.93 percent. In terms of the currency structure, debt in U.S. dollars accounted for 78.27 percent of the outstanding registered external debt, representing an increase of 7.86 percentage points compared with that at the end of 2010. Debt in Japanese yen accounted for 7.99 percent, representing a decline of 0.57 percentage point compared with that at the end of 2010. Debt in euro accounted for 4.09 percent, representing a decline of 0.32 percentage point compared with that at the end of 2010; and other kinds of debt including SDRs and HKD accounted for 9.65 percent of the outstanding registered external debt, a decline of 6.97 percentage points compared with that at the end of 2010. In terms of industrial sectors in which the debt is invested, with reference to the Industrial Classification of the National Economy, USD50.292 billion was invested in the manufacturing sector, accounting for 23.79 percent of the medium- and long-term outstanding registered external debt (based on contract terms); USD26.496 billion was absorbed by the transportation sector, the warehousing sector, and the postal-service sector, accounting for 12.53 percent; USD17.133 billion went to the production and supply of electric power, and the coal, gas, and water sectors, accounting for 8.1 percent; USD8.13 billion was absorbed by the IT services sector, accounting for 3.85 percent; and USD10.626 billion was channeled to the real estate sector, accounting for 5.03 percent. From January to June 2011, the long- and medium-term external debt totaled USD19.579 billion, a year-on-year decrease of USD197 million, or 1 percent. Repayment of the principal was USD11.412 billion, a year-on-year decrease of USD983 million, or 7.93 percent. Payment of interest was USD1.107 billion, a year-on-year decrease of USD336 million, or 23.28 percent. 2011-09-16/en/2011/0916/1014.html
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The SAFE recently released the revised data on China’s Balance of Payments Statement for the second quarter and the first half of 2011. In Q2 of 2011 the current account and the capital and financial account continued to post a "twin surplus" and international reserves maintained a growing momentum. The surplus under the current account totaled USD59 billion. Specifically, according to the statistical coverage of the balance of payments, the surpluses in goods and current transfers reached USD66.9 billion and USD6.5 billion, respectively, whereas the deficit in trade in services and income amounted to USD11 billion and USD3.3 billion respectively. Meanwhile, China’s surplus under the capital and financial account totaled USD97.7 billion. In particular, net inflows of direct investments, portfolio investments, and other investments amounted to USD47.9 billion, USD11.1 billion, and USD37.3 billion respectively. International reserves registered an increase of USD142.5 billion (exclusive of changes in the value of non-transaction factors such as exchange rates and prices). Specifically, foreign exchange reserve assets posted an increase of USD143 billion. In the first half of 2011, China’s surplus under the current account totaled USD87.8 billion. The ratio of the surplus under the current account to GDP during the same period was 2.8 percent. Meanwhile, China’s surplus under the capital and financial account totaled USD183.9 billion. China’s international reserve assets posted an increase of USD283.7 billion. In addition, the BOP Analysis Team of the SAFE released China’s Balance of Payments Report for the first half of 2011 so as to facilitate understanding of the data and analysis of China’s balance of payments among all groups in society. 2011-09-30/en/2011/0930/1016.html
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The SAFE recently released its revised data on China's Balance of Payments Statement for Q1 of 2011. The statistics reveal that in Q1 of 2011 the current account and the capital and financial account continued to post a "twin surplus." In Q1 of 2011, China's surplus under the current account totaled USD28.8 billion, a decrease of 21 percent year on year. Specifically, according to the statistical coverage of the balance of payments, the surpluses in goods, income, and current transfers reached USD20.8 billion, USD5.1 billion, and USD11.6 billion, respectively, whereas the deficit in trade in services amounted to USD8.7 billion. Meanwhile, in Q1 of 2011 China's surplus under the capital and financial account totaled USD86.1 billion, an increase of 41 percent year on year. In particular, net inflows of direct investments and other investments amounted to USD44.8 billion and USD42.5 billion respectively, whereas net outflows of portfolio investments reached USD2.7 billion. China's international reserve assets from transactions increased by USD141.2 billion. Specifically, foreign exchange reserve assets registered a net increase of USD138 billion (exclusive of the influence of non-transaction value change factors such as exchange rates, prices, and so forth), reserve investment in the IMF registered an increase of USD3.2 billion, and special drawing rights registered a decrease of USD100 million. 2011-07-11/en/2011/0711/1003.html
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The SAFE recently released preliminary data on China ’s Balance of Payments Statement for the second quarter and the first half of 2011. The current account and the capital and financial account (including net errors and omissions) posted a "twin surplus" in Q2 of 2011, and international reserves maintained their growing momentum. In Q2, the surplus under the current account reached USD69.6 billion. Specifically, according to the statistical coverage of the balance of payments, the surpluses in goods, income, and current transfers reached USD68.5 billion, USD4.4 billion, and USD7.5 billion, respectively, whereas the deficit in trade in services amounted to USD10.8 billion. Meanwhile, China ’s surplus under the capital and financial account (including net errors and omissions) totaled USD67 billion. In particular, net inflows of direct investments amounted to USD40.2 billion. International reserve assets posted an increase of USD136.5 billion. Specifically, transactions in foreign exchange reserve assets registered an increase of USD136.9 billion (exclusive of the influence of non-transaction changes in value such as exchange rates and prices) and the reserve position in the IMF registered a decrease of USD200 million. In H1 of 2011 the surplus under the current account was USD98.4 billion and that under the capital and financial account (including net errors and omissions) was USD179.3 billion, whereas international reserves registered an increase of USD277.7 billion. 2011-08-16/en/2011/0816/1011.html
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The SAFE recently released Chinas International Investment Position (IIP) as of the end of March 2011. This is the first time that China has released its quarterly IIP statistical data. The statistics reveal that at the end of March 2011, China's external financial assets hit USD4394.8 billion, a rise of 17 percent over the end of 2010; external financial liabilities reached USD2460.8 billion, a rise of 5 percent; and external net financial assets totaled USD1934 billion, a rise of 8 percent. Among the external financial assets, direct investments abroad totaled USD317.4 billion, portfolio investments totaled USD263.5 billion, other investments totaled USD698.3 billion, and reserve assets reached USD3115.6 billion, accounting for 7 percent, 6 percent, 16 percent, and 71 percent of external financial assets respectively. In terms of external financial liabilities, foreign direct investments totaled USD1526 billion, portfolio investments USD223.1 billion, and other investments USD711.7 billion, accounting for 62 percent, 9 percent, and 29 percent of external financial liabilities respectively. The IIP is a statistical statement that reflects at a specific point the stocks of financial assets and liabilities of one country or region to other countries or regions in the world; together with the trade flows and the international balance of payments, it reflects the complete international accounts system of the country or region. 2011-07-26/en/2011/0726/1007.html
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According to statistical data released by the State Administration of Foreign Exchange (SAFE), in August 2011 the amount of foreign exchange settlement and sales by banks on behalf of clients amounted to USD144.4 billion and USD106.5 billion respectively. The surplus of foreign exchange settlement and sales by banks on behalf of clients amounted to USD37.8 billion. For the first eight months of 2011, the cumulative amount of foreign exchange settlements and foreign exchange sales by banks on behalf of clients amounted to USD1068.6 billion and USD713.9 billion respectively. The foreign exchange settlement and sales surplus was USD354.8 billion. In August 2011, foreign-related receipts and payments by domestic banks on behalf of clients amounted to USD211.9 billion and USD185.8 billion respectively, and the surplus of foreign-related receipts and payments reached USD26 billion. For the first eight months of 2011, the cumulative foreign-related receipts and payments of banks on behalf of clients amounted to USD1500.9 billion and USD1264.9 billion respectively; and the surplus of foreign-related receipts and payments reached USD236 billion. 2011-09-28/en/2011/0928/1015.html
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The branches and foreign exchange administrative departments of the State Administration of Foreign Exchange (SAFE) in all provinces, autonomous regions, and municipalities directly under the Central Government; the branches of the SAFE in Shenzhen, Dalian, Qingdao, Xiamen, and Ningbo: For the purpose of regulating the administration of the bankssynthetic positions in foreign exchange settlement and sales, the SAFE has formulated this Circular in accordance with the Regulations of the Peoples Republic of China on Foreign Exchange Administration. This Circular has collated and integrated the existing regulations on the administration of the bankssynthetic positions in foreign exchange settlement and sales. We hereby notify you as follows: I. The term bankssynthetic positions in foreign exchange settlement and sales (hereinafter referred to as positions) refer to the foreign exchange positions held by the designated foreign exchange banks (hereinafter referred to as the banks) arising from transactions between RMB and foreign currencies, which are formed from the bankssettlement and sales of foreign exchange for their clients in conformity with the administrative provisions on foreign exchange, from the settlement and sales of foreign exchange on their own, and from participation in transactions on the inter-bank foreign exchange market. II. The SAFE and its branches and foreign exchange administrative departments (hereinafter referred to as the foreign exchange authorities) shall be responsible for ratification of the limits for the bankspositions and the daily management thereof. (1) The SAFE shall be responsible for the ratification and daily management of the positions of the policy or national banks. (2) The local branches and foreign exchange administrative departments of the SAFE (hereinafter referred to as the SAFE branches) shall be responsible for the ratification and management of the positions of urban commercial banks, rural commercial banks, rural cooperative financial institutions, foreign-funded banks, and the finance companies of enterprise groups (hereinafter referred to as local financial institutions). The SAFE branches may authorize the central sub-branches within their respective jurisdictions to carry out the daily management of the positions of the banks. (3) Where a SAFE branch intends to ratify the positions of a local financial institution, the upper limit of which is USD1 billion or more, or to ratify the positions of a local financial institution which exercises the function of market-maker on the inter-bank foreign exchange market, it shall carry out a preliminary examination and then report it to the SAFE for unified ratification. III. Principles for the administration of positions (1) Unified ratification of legal persons. The foreign exchange authorities shall uniformly ratify the positions of the banks under the principle of regulation of legal persons and shall not separately ratify the positions of the branches of a bank (except the branches of a foreign bank). (2) Management of limits. The foreign exchange authorities shall adopt the administrative model of ratification of limits for the positions in accordance with the balance of payments, the foreign exchange business operations of banks, and other factors. (3) Management on an accrual basis. A bank shall include the foreign exchange settlement and sales for its clients, the foreign exchange settlement and sales of its own, and transactions on the inter-bank foreign exchange market in the positions on the day when the transaction is concluded (rather than the day when the capital is actually received and paid). (4) Examination and regulation on a daily basis. A bank shall manage the positions of the entire bank on a daily basis, and shall maintain the positions at the end of each trading day within the limits ratified by the foreign exchange authority. If the positions exceed the limits at the time, the bank shall adjust the positions within the limits before the end of the next trading day. (5) Reconciling the balance of positions against the accounting subjects on a regular basis. For differences, the bank may apply to the foreign exchange authority on an annual basis for an adjustment, and for differences caused by a variance in the currency conversion or any other reasonable reason, the foreign exchange authority may directly approve the adjustment; for differences resulting from false reporting or missed statistical data, the foreign exchange authority may approve the adjustment, but shall issue a sanction for violation of the relevant regulations. IV. Specific management requirements for positions (1) A bank shall, within 30 work days after obtaining the qualification to operate the business of foreign exchange settlement and sales, apply to the foreign exchange authority for ratification of its position limits. (2) Where the volume of foreign exchange settlement and sales of a bank undergoes any significant change and its position limits need to be adjusted, the bank shall file a written application with the foreign exchange authority. The bank shall not adjust the position limits without approval. (3) When applying for ratification or adjustment of the position limits, a bank shall submit the following materials to the foreign exchange authority: a. a request for instructions on ratification or adjustment of the position limits; b. the measurement and calculation basis for the ratification or adjustment of the position limits; c. the domestic consolidated balance sheet in both RMB and foreign currency and the domestic balance sheet in foreign currency at the end of the year prior to application; and d. other documents and information as required by the foreign exchange authority. (4) The foreign exchange authority shall, in light of the actual business operational needs, the volume of settlement and sales, as well as the receipt and payment of foreign exchange on behalf of clients, capital (or working capital) in RMB and foreign currencies, asset status, and other factors, ratify the position limits of the bank. In principle, the foreign exchange authority shall adjust the position limits of the bank not more than once during a calendar year. (5) A bank whose position limits have not been ratified by the foreign exchange authority will be subject to zero-position management, the net balance between the settlement and sales of foreign exchange on the current business day shall be balanced through the inter-bank foreign exchange market on the next business day. (6) The transactions for balancing the positions among banks shall be carried out through the inter-bank foreign exchange market. No bank may square off the positions over the counter without approval by the foreign exchange authority. (7) Where a bank takes the initiative to apply for closure of the business of foreign exchange settlement and sales or has its qualifications for operating the business of foreign exchange settlement and sales cancelled by the foreign exchange authority for illicit business operations, it shall, within 30 work days after the closing down of the business of foreign exchange settlement and sales, file an application with the foreign exchange authority and clear the positions until the date of closure of the said business upon approval of the foreign exchange authority. V. The administrative provisions on positions in this Circular shall not apply to foreign-funded banks that are qualified for foreign exchange settlement and sales, but are not approved to operate RMB businesses. Such banks shall be governed by the following provisions: (1) The bank shall use the special RMB account for foreign exchange settlement and sales opened with the local branch or sub-branch of the Peoples Bank of China (PBC) in accordance with the Detailed Rules for Implementation of the Foreign Exchange Settlement, Sales, and Payments of Foreign-funded Banks (Yinfa No. 202 [1996]). (2) The balance in the special RMB account for foreign exchange settlement and sales shall be subject to control. The account balance shall not exceed the equivalent of 20% of the registered foreign exchange capital or working capital of the bank, and the bank may conduct the RMB and foreign exchange conversion on its own to the extent that it does not exceed the balance. (3) The bank may open and use a special RMB cash account for foreign exchange settlement and sales in accordance with the Circular of the Peoples Bank of China on Relevant Issues concerning the Opening of Special RMB Cash Accounts for Foreign Exchange Settlement and Sales by Foreign-funded Banks (Yinfa No.180 [2003]). The balance in the special RMB cash account for foreign exchange settlement and sales shall be incorporated into the balance in the special RMB account for foreign exchange settlement and sales for the purposes of balance control. (4) The bank shall, within 30 work days after obtaining the approval of the CBRC to handle the RMB business, apply to the foreign exchange authority for ratification of the position limits in accordance with Part IV of this Circular, and shall, during the process of application, submit the document issued by the CBRC granting it approval to handle the RMB business. The bank shall, within 10 work days after obtaining the ratified limits, apply to the local branch or sub-branch of the PBC to close the special RMB account for foreign exchange settlement and sales in accordance with the Circular of the Peoples Bank of China on Relevant Issues concerning the Special RMB Accounts for Foreign Exchange Settlement and Sales (Yinfa No. 292 [2005]), and adjust the synthetic positions in foreign exchange settlement and sales within the range of the ratified position limits. VI. Centralized management of the positions of the branches of a foreign bank (1) For a foreign bank that has two or more branches in China, the head office or regional headquarters thereof may authorize a branch within China (hereinafter referred to as branch responsible for centralized management) to carry out centralized management of the positions of its branches within China. (2) Where the branches of a foreign bank adopt centralized management of the positions, the branch responsible for the centralized management shall file an application with the local SAFE branch. The application materials shall include the following: a. the letter of authorization granted by the head office approving implementation of the centralized management of the positions; b. the approval document issued by the CBRC for the resident office of the foreign-funded financial institution within China ; and c. the explanation by the foreign bank of its internal management system, accounting methods, and technical support for implementation of the centralized management of the positions. (3) The SAFE branch shall, upon receipt of the application, visit the business office of the branch responsible for centralized management, and inspect and check on-the-spot the supporting technical system for the centralized management of the positions of the bank. If the relevant requirements are met, the SAFE branch shall, within 20 work days upon acceptance of the application, give its opinions on the approval of the centralized management of the positions by the branch responsible for the centralized management, send a copy to the SAFE, and simultaneously send a copy to the local SAFE branches or sub-branches in the places where the branches of the foreign bank are located. (4) After the branches of a foreign bank are placed under centralized management of the positions, the original positions of all the branches or sub-branches of the foreign bank within China shall be incorporated into the positions of the branch responsible for the centralized management for the purposes of management, and shall be uniformly squared and managed by the branch responsible for the centralized management. If any new branch or sub-branch of the foreign bank is added under the centralized management of the positions, the branch responsible for the centralized management and the new branch or sub-branch shall file with their local SAFE branches respectively 10 work days in advance. (5) After the branches of a foreign bank are placed under the centralized management of the positions, the local SAFE branch in the place where the branch responsible for the centralized management is located shall be responsible for the ratification and daily management of the position limits; if the branch responsible for the centralized management exercises the function of a market-maker on the inter-bank foreign exchange market, Part II (3) of this Circular shall apply. When the branch responsible for the centralized management applies for or adjusts the position limits, the measurement and calculation basis shall be the aggregate data of all the foreign banks branches and sub-branches within China . (6) After the branches of a foreign bank are placed under the centralized management of the positions, if neither the branch responsible for the centralized management nor any other branch or sub-branch under the centralized management has opened an RMB business, the relevant provisions of Part V of this Circular shall apply. If the branch responsible for the centralized management has opened an RMB business, and other branches or sub-branches within China have not opened an RMB business, the branches or sub-branches which have not opened an RMB business shall still be governed by the relevant provisions of Part V of this Circular, but the balance in their special RMB accounts for foreign exchange settlement and sales shall be converted into US dollars and be recorded with a negative value into the positions of the branch responsible for the centralized management. VII. Data submission (1) Each SAFE branch shall, within 20 work days after the beginning of each year, fill out the Form of the XX Branch (Foreign Exchange Administrative Department) of the State Administration of Foreign Exchange on the Ratification of Limits for the Synthetic Positions in Foreign Exchange Settlement and Sales of Financial Institutions within the Jurisdiction (See Annex 1), and send an e-mail to the Intranet e-mail box of the SAFE (manage@bop.safe). (2) All banks shall, in accordance with the requirements of the Daily Statements on the Synthetic Positions in Foreign Exchange Settlement and Sales and the Directions for Submission (see Annex 2), submit all relevant data on the synthetic positions to the foreign exchange authorities in a timely and accurate manner. (3) Each bank shall fill in under the Remarkscolumn in the Daily Statements on the Synthetic Positions in Foreign Exchange Settlement and Sales the transaction information on the foreign exchange settlement and sales for clients, its own transactions of foreign exchange settlement and sales, and contract transactions of forward foreign exchange settlement and sales for clients, the single sum of which exceeds the equivalent of USD50 million on the current day, and shall submit the transaction information, including the clients name, item, amount, currency, and term (limited to forward foreign exchange settlement and sales contracts) for each transaction. VIII. Where a bank violates the administrative provisions on the positions, the foreign exchange authority shall punish it in accordance with the Regulations of the Peoples Republic of China on Foreign Exchange Administration and other laws and regulations. IX. This Circular shall come into force as of the date of promulgation. If there is any discrepancy between any previous provisions and this Circular, this Circular shall prevail. The documents on foreign exchange administration as listed in Annex 3 shall be abolished on the date of implementation of this Circular. All SAFE branches shall, upon receipt of this Circular, promptly forward it to the central sub-branches and branches of the SAFE, urban commercial banks, rural commercial banks, rural cooperative financial institutions, and foreign-funded banks within their respective jurisdictions. If any problems are encountered during implementation, please contact the Balance of Payments Department of the SAFE. Tel: 010-68402374, 68402464. 2010-10-20/en/2010/1020/959.html
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Q: Recently the PBOC publicized China's balance of foreign exchange reserves at the end of September. There was a substantial increase in the amount of foreign exchange reserves in Q3, 2010. How do you regard this increase? A: At the end of Q3, 2010, China's balance of foreign exchange reserves reached USD2648.3 billion, up USD194 billion as compared with Q2, 2010. During the first half of 2010, the balance of foreign exchange reserves increased by USD55.1 billion from the previous year. The rapid increase in foreign exchange reserves in Q3, 2010 can be ascribed to three factors: (1) China's foreign-related economy continued to grow. In Q3, 2010, the country posted a foreign trade surplus of USD65.3 billion, exceeding the surplus of USD55.3 billion in H1, 2010. China's utilized foreign investment reached USD6.924 billion and USD7.602 billion respectively in July and August of this year. (2) Some large-scale Chinese enterprises initiated public offerings on overseas markets, with large sums of foreign exchange settled by banks. For example, the Agricultural Bank of China raised more than USD10 billion by going public on the Hong Kong stock market. (3) The conversion of currencies and fluctuations in asset prices also contributed to the substantial increase in foreign exchange reserves. The fluctuations caused by changes in non-transactional values such as exchange rates and prices are included in the data publicized by the PBOC. In Q3, 2010, there was an appreciation of major non-dollar currencies, especially the Euro, against the US dollar. The exchange rate of EUR/USD posted an increase of 11 percent in Q3, 2010. The conversion of non-dollar currencies into US dollars and the fluctuations in the prices of assets led to an increase of more than 80 billion US dollars in the countrys foreign exchange reserves. The 15-percent depreciation of the EUR against the USD during the first half of 2010 reduced the increase in Chinas foreign exchange reserves. In addition, the operating income from foreign exchange reserves also contributed to the rapid increase in Chinas foreign exchange reserves. Q: Financial statistical data publicized by the PBOC indicate that in September there was an increase of RMB289.565 billion in outstanding foreign exchange funds. Does this imply a new round of hot moneyinflows? What is your point of view on pressures of fund inflows in China for the foreseeable future? A: Recently there have been comments that hot money is again flowing into China. Such comments are based on the calculation that hot money = newly-increased funds outstanding for foreign exchange surplus in trade utilized amount of foreign investment. Such a method of calculation is unscientific because it neglects the transactional items in the balance of payments, including services, income, portfolio investment, and so forth. Furthermore, it makes comparisons between statistical data of different categories, without specifying the elements and formation mechanisms of the outstanding foreign exchange funds. Thus, the conclusion is untenable, providing misleading information for an understanding of real cross-border fund flows. China will, in the short term, cope with relatively high pressures of fund inflows. The country enjoys high stability of macroeconomic operations, a promising outlook for economic growth, a tendency for the home currency to appreciate, and a strong attractiveness for foreign investment. But there exists some instability in global financial markets and the countrys macroeconomic controls confront problems such as how to manage inflation expectations and how to curb the upsurge in asset prices. These factors may increase the instability of cross-border fund flows through such channels as foreign trade, foreign investment, banks, and so forth. Comprehensive measures are needed for effective control of the risks brought about by the cross-border flow of hot money. Since the beginning of this year, the SAFE has launched a special campaign to struggle against hot money, mainly targeting the penetration of funds via channels with a high degree of openness, such as trade in goods, trade in services, direct investment, and individual transactions. From a long-term perspective, efforts should be made to improve the mechanism for the formation of the RMB exchange rate and to give further play to the fundamental role of the market mechanism to reduce opportunities for arbitrage and speculation by hot money. Efforts should also be made to combat hot money by strengthening collaboration with regulatory departments, keeping a close eye on the major channels of current regulation, and cracking down strongly on various kinds of foreign exchange transactions in violation of the relevant laws and regulations, thereby preventing the inflow of hot money. 2010-10-14/en/2010/1014/957.html
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At the end of June 2010, China's outstanding external debt reached USD513.81 billion (excluding that of Hong Kong SAR, Macao SAR, and Taiwan Province), of which the outstanding registered external debt was USD307.21 billion and the balance of trade credit was USD206.6 billion. With respect to the terms, the outstanding long- and medium-term external debt (with the remaining term) was USD170.022 billion, accounting for 33.09 percent of the outstanding external debt. The outstanding short-term external debt (with the remaining term) was USD343.788 billion, accounting for 66.91 percent of the outstanding external debt. Specifically, the outstanding registered short-term external debt (with the remaining term) was USD137.188 billion and the balance of trade credit was USD206.6 billion. In terms of the composition of the debt, trade credit and trade financing (e.g., credit support for foreign trade provided by banks) accounted for 60.10 percent and 18.48 percent of the outstanding short-term external debt (the remaining term) respectively. Together, the two accounted for 78.58 percent of the outstanding short-term external debt (the remaining term). The data are closely related to the dramatic growth of Chinas foreign trade during recent years. Because trade credit and trade financing transactions are conducted based on the real background in foreign trade, they will not result in additional external debt risks. In terms of the types of debtor, the outstanding sovereign debt borrowed by ministries under the State Council was USD38.209 billion, accounting for 12.44 percent of the outstanding registered external debt; the outstanding debt of Chinese-funded financial institutions was USD123.094 billion, accounting for 40.07 percent; the outstanding debt of foreign-funded enterprises was USD95.816 billion, accounting for 31.19 percent; the outstanding debt of foreign-funded financial institutions in China was USD43.806 billion, accounting for 14.26 percent; the outstanding debt of Chinese-funded enterprises was USD5.958 billion, accounting for 1.94 percent; and the outstanding debt of other institutions was USD327 million, accounting for 0.10 percent. In terms of the types of debt, the balance of international commercial loans amounted to USD237.25 billion, accounting for 77.23 percent of the outstanding registered external debt, with the relevant proportion rising by 2.8 percentage points compared with that at the end of 2009. The balance of foreign government loans and loans granted by international financial organizations amounted to USD69.96 billion, accounting for 22.77 percent of the outstanding registered external debt. In terms of the currency structure, the debt in U.S. dollars accounted for 72.10 percent of the outstanding registered external debt, representing an increase of 4.34 percentage points compared with that at the end of 2009. The debt in Japanese yen accounted for 10.11 percent, representing a decline of 1.78 percentage points compared with that at the end of 2009. The debt in euro accounted for 4.51 percent, a decline of1.87 percentage points compared with that at the end of 2009; other kinds of debt including SDRs and HKD accounted for 13.28 percent of the outstanding registered external debt, a decline of 0.69 percentage point compared with that at the end of 2009. In terms of sectors in which the debts were invested, with reference to the Industrial Classification of the National Economy, USD41.467 billion was invested in the manufacturing sector, accounting for 21.58 percent of the medium- and long-term outstanding registered external debt (based on contractual terms); USD24.687 billion was invested in the communications and transportation sector, the warehousing sector, and the postal-services sector, accounting for 12.85 percent of the total; USD17.192 billion was invested in the production and supply of electric power, gas, and water, accounting for 8.95 percent; USD11.771 billion was invested in the information technology services sector, accounting for 6.13 percent; and USD11.038 billion was invested in the real estate sector, accounting for 5.74 percent. From January to June 2010, medium- and long-term external borrowing totaled USD19.776 billion, a year-on-year increase of USD10.443 billion or 111.89 percent. The principal repayment was USD12.395 billion, a year-on-year decrease of USD7.077 billion, or 36.34 percent. The interest payment was USD1.443 billion, a year-on-year decrease of USD641 million, or 30.76 percent. Addendum: Definition of terms and interpretation Trade credit refers to the external liability arising from directly extending credit between the seller and buyer of goods, specifically transactions between residents in Mainland China and foreign non-residents (including non-residents in Hong Kong SAR, Macao SAR, and Taiwan province), i.e., the debt incurred due to the difference between the time of payment and that of the transfer of ownership of the goods. Trade credit includes credit directly provided by the supplier (e.g., the overseas exporter) for commodity transactions and services, and advance payments made by buyers (e.g., overseas importers) for goods, services, and on-going business (or business to be undertaken). Trade financing refers to loans extended by a third party (e.g., banks) related to trade to exporters or importers, for instance, loans extended by foreign financial institutions or export credit agencies to buyers. Trade-related credit is a broad concept. In addition to trade credit, it also includes other kinds of credit provided for trade activities. According to the definition, trade-related credit includes trade credit, trade financing, short-term notes related to trade, and so forth. 2010-10-09/en/2010/1009/954.html