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To further improve the quality and transparency of China's foreign-related data and fully embody the fruits of the RMB internationalization, the People's Bank of China (PBC) and the State Administration of Foreign Exchange (SAFE) have recently disseminated the data on China's foreign exchange reserves, gold reserves and full-scale external debt as required by the Special Data Dissemination Standards (SDDS) of the International Money Fund (IMF). China's external debt includes external debt in RMB after the adjustment of the coverage of the external debt. Responsible persons of the PBC and the SAFE took questions from reporters. I. What is the SDDS? A: SDDS stands for the Special Data Dissemination Standard of the IMF, a global benchmark established in 1996 by the IMF for disseminating countries' economic and financial statistical data. To enhance the transparency of the macroeconomic statistical data of its member countries, the IMF has established two data dissemination standards, namely, General Data Dissemination Standard (GDDS) and Special Data Dissemination Standard (SDDS). The two standards are under similar overall frameworks, but the SDDS imposes higher requirements on data coverage, periodicity, timeliness, and quality, as well as access by the public. Countries that subscribe to the SDDS should disseminate the data on five sectors, namely, the real economic, fiscal, financial, external and socio-demographic sectors, as required by the SDDS. At present, 73 economies have subscribed to the SDDS, including all developed economies and major emerging market economies such as Russia, India, Brazil and South Africa. China has been a participating country of the GDDS to disseminate its macroeconomic data before. II. Why would China subscribe to the SDDS? A: As economic globalization deepens, a consensus has been achieved on improving data quality, narrowing data gaps, increasing data comparableness and enhancing data transparency. China has actively responded to the initiatives to get aligned with the universal data standards worldwide. In November 2014, President Xi Jinping officially announced at the G20 Summit in Brisbane that China will subscribe to the Special Data Dissemination Standards (SDDS) of the IMF. The conditions for disseminating the data required by the SDDS have been met after technical preparations. Compliant with China's demand for further reform and opening up, subscription to the SDDS is conducive to improving the transparency, reliability and global comparableness of the macroeconomic statistical data to perfect the statistical methods, to developing a deeper understanding of the macro-economy to provide grounds for making macroeconomic decisions and guard against and address economic risks, and to China's active participation in global economic cooperation to boost the confidence of the international community and the public in China's economy. III. What data on foreign exchange reserves should be disseminated as required by the SDDS? A: The data on foreign exchange reserves disseminated as required by the SDDS contain two parts, namely, "official reserve assets" and "data template for international reserves and foreign currency liquidity". The former includes foreign exchange reserves, reserve position in Fund, SDR, gold and other reserve assets, of which the foreign exchange reserves refer to the size of foreign exchange reserves China usually unveils. The latter is comprised of four forms, respectively on official reserve assets and other foreign currency assets, expected net outflow of foreign currency assets in the short term, contingent net outflow of foreign currency assets in the short term and MOU. Regarding data periodicity, these data will be disseminated on a monthly basis, of which the "official reserve assets" for the previous month will be disseminated no later than the seventh day of each month and the "data template for international reserves and foreign currency liquidity" for the previous month will generally be released at the end of each month. Since this is the first time we have disseminated the data, we release both parts at the same time for your reference, and will disseminate them separately in the future, in their respective time frame. The statistics collection will be conducted in line with the uniform standards of the IMF. IV. What are the highlights of the data disseminated this time, compared with the size of foreign exchange reserves previously disseminated? A: The highlights are as follows: (1) The foreign exchange reserves disseminated this time are identical to the foreign exchange reserves previously unveiled in terms of data coverage. The foreign exchange reserves previously unveiled were collected based on the methodology and standards required by the SDDS. As at the end of June 2015, China's foreign exchange reserves amounted to USD 3.69 trillion. (2) Other foreign currency assets are also disseminated. As at the end of this June, the PBC reported USD 232.9 billion in other foreign currency assets. (3) The size of gold reserves is increased. As at the end of this June, China's gold reserves were 53.32 million ounces (or 1,658 tons). V. China's gold reserves increased by 604 tons from the end of April 2009, according to the gold reserves data disseminated this time. Why did China increase its gold reserves? A:Gold reserve has been a key part of countries' diversified international reserves and many central banks have gold as part of their international reserves. So does China. As a special asset with properties of financial assets and commodities, gold, together with other assets, is conducive to adjusting and optimizing the overall risk and return characteristics of the portfolios of international reserves.From the long-term and strategic perspectives, we will dynamically adjust the configuration of the portfolios of international reserves when necessary, to ensure the security, liquidity, value preservation and appreciation of international reserve assets. VI. The global gold prices have been fluctuating sharply in recent years. When and through which channels did China increase the gold reserves unveiled this time? Will China continue to do so in the future? A:The global gold prices go up and down like those of other commodities and financial assets. Over the past few years, gold prices have declined after climbing to its historical peak. Based on our assessment of the asset value and analysis of the price changes of gold, we accumulated these gold reserves through multiple domestic and overseas channels, while making sure the market was not impacted and influenced. The channels include purification of mixed gold in China, production and storage of gold, and domestic and foreign trade. With special risk and return characteristics, gold is a desirable investment category in a given period. But as the capacity of the gold market is smaller than the size of China's foreign exchange reserves, the market will be impacted if plenty of gold is bought in the short run using foreign exchange reserves. In China, the largest gold producer and a major gold consumer worldwide, it is a commonplace that people buy and keep gold. In the future, we need to take into consideration both private demand for investments and the requirements for allocation of international reserve assets and take flexible measures. VII. Will the SAFE further enhance the transparency of foreign exchange reserves information after disseminating the data required by the SDDS? A: The transparency of the foreign exchange reserve information has been enhanced in recent years. Foreign exchange reserve information has been disseminated through the SAFE's website, press conference, media interviews, forums with experts, as well as the annual reports and the balance of payments reports by the SAFE. Changing from participating in the GDDS to subscribing to the SDDS is also a new measure to further enhance the transparency of the foreign exchange reserve information in line with international standards. We will continue to take into consideration the security of foreign exchange reserve assets and the requirements for operations to ensure the continued enhancement of the transparency of the foreign exchange reserve information, in accordance with the national laws and regulations and international standards. VIII. What are the background and implications of this adjustment of external debt coverage? A: According to the Interim Measures for the Administration of the External Debt, jointly released by the NationalDevelopmentandReformCommission, the Ministry of Finance and the SAFE in 2003, external debt in China refers to the debt owed by a domestic institution to a non-resident, which are denominated in a foreign currency and exclude external debt in RMB, indicating the coverage of China's external debt is narrower than the international standard coverage. As the external debt in RMB has increased in recent years along with the boom of the cross-border RMB business, the SAFE classified and collected statistics on China's external debt in the early stage as per SDDS and disseminated the full-scale total external debt while unveiling the international investment position (IIP) form, in a bid to fully reflect the overall size of China's external debt. To adopt the SDDS in an all-round way, the SAFE has disseminated the full-scale data on China's external debt on a quarterly basis since the beginning of 2015, so that the public could understand China's external debt in more detail. Including the external debt in RMB in the overall external debt is just an adjustment of statistical method and does not increase the amount of external debt to be serviced. Given this, the adjustment of the data coverage of external debt will not change China's liabilities to service its external debt. With the above adjustment, the data coverage of the external debt China unveils to the public will be further improved and get aligned with the latest international standards, which will be conducive to improving the standards and international comparableness of the data on China's external debt. IX. Why does the balance of the full-scale external debt rise? A: As at the end of March 2015, China's outstanding full-scale external debt amounted to RMB 10.2768 trillion (equivalent to USD 1.6732 trillion), due to the adjustment of the statistical coverage of external debt. To be specific, the amount of outstanding external debt in RMB that was included in the statistical scope for the first time was RMB 4.9424 trillion (equivalent to USD 804.7 billion), accounting for 48.1% of the outstanding full-scale external debt. Calculated by the coverage (external debt in foreign currencies) before the adjustment, China's outstanding external debt was down by 3% from the end of 2014. X. What would you say about China's external debt in RMB accounting for nearly half of its full-scale external debt? A:China is a highly open economy that ranks No. 2 worldwide. Since the initiation of the RMB internationalization in July 2009, RMB cross-border settlement has grown rapidly in size, with the value settled rising from RMB 3.6 billion in 2009 to nearly RMB 10 trillion in 2014. The cross-border receipts and payments in RMB has climbed year by year as a percentage of the cross-border receipts and payments in RMB and in foreign currencies in China, say, from 1.7% in 2010 to 23.6% in 2014 and further to 27.7% in January to May 2015, and RMB has become the second most used currency in cross-border receipts and payments in China. Statistics of the Society for Worldwide Interbank Financial Telecommunication (SWIFT) show that RMB remained stable in its position as the world's No. 5 payment currency in May 2015, 14 places ahead of the ranking for the beginning of 2012; its market share was 2.18%, 8.7 times that of the beginning of 2012; and RMB also remained stable in its position as the second most used currency in trade finance. At the end of this March, non-resident deposits and external debt in RMB under trade finance constituted the majority of China's external debt in RMB, making up nearly 60% of the nation's total external debt. The non-resident deposits refer to the external debt incurred by the RMB deposits of overseas institutions in domestic banks. Considered as external debt in statistics, these deposits differ largely from the external debt directly owed by domestic institutions to overseas parties, indicating non-residents are very willing to hold RMB assets, which is conducive to pressing ahead with the RMB internationalization. Against the backdrop of import and export trade, external debt in RMB under trade finance refers to the external debt incurred by provision of financing products by a domestic financial institution to importers and exporters. In essence, the external debt is a natural result of the increased percentage of RMB settlement in China’s cross-border trade. As the international use of the RMB is expanding in terms of area and scope, which has injected new life into the global financial market, overseas players' demand for holding RMB assets is surging, thus improving the position of the RMB in the global market. This embodies the global confidence in China's economic development and confirms the results of China's reform and opening up, indicating that the RMB internationalization is speeding up. Along with the fast economic and financial development, and the deepening of the reform and opening up in China, especially the implementation of the One Belt and One Road strategy, the RMB internationalization will go deeper, and the external debt in the form of RMB assets held by non-residents will continue to grow. XI. What are the differences between external debt in RMB and that in foreign currencies? A:The external debt in RMB and that in foreign currencies are essentially different in quote currency and payment currency, and in impact on a country's foreign exchange reserves due to the sharp fluctuations of exchange rate and servicing of external debt, thus resulting in different impacts on the economic operation and financial system of the country. To be specific, external debt in foreign currencies is vulnerable to the fluctuations of exchange rate and may increase burden on the debtor to service debt amid a crisis, while the external debt in RMB is immune from the monetary mismatch risk and the foreign exchange rate risk, especially the risk associated with foreign exchange payments, and does not consume foreign exchange reserves directly. At the international level, since the currencies of developed economies such as Europe and the US are highly internationalized and have become the major international reserve currencies, their external debt in domestic currency takes up a large percentage. In US and Germany for example, their external debt in domestic currency accounted for 93% and 72% respectively in their total external debt as at the end of 2014. In other economies with a low level of currency internationalization, the external debt in foreign currencies constituted the majority of their external debt, with a low proportion of external debt in domestic currency. In comparison, the percentage of China’s external debt in RMB, 48.1%, is lower than those of developed economies such as Europe and the US but higher than the major emerging market economies in Asia. Given this, the external debt in domestic currency of a debtor, especially a developing debtor country, is less vulnerable to the changes in exchange rate, exposed to lower external uncertainties and less risky than the external debt in foreign currencies (see table 1). XII. How risky is China's external debt? Will the high percentage of China's short-term external debt expose China to a structural risk? A: According to the Global Development Finance 2012 and the Little Data Book on External Debt 2012 released by the World Bank, the average external debt ratio, debt ratio, debt servicing ratio, and the ratio of foreign exchange reserves to short-term external debt in middle-income countries in 2010 were 69%, 21%, 10% and 137% respectively, compared with 35%, 8.6%, 1.9% and 562% in China in 2014 (see table 2), indicating the sustainability of China's external debt measured by those indicators is high and the overall risk is modest. In terms of debt maturity, the percentage of China's short-term external debt by the end of this March was higher than 70%, but of the debt that matures within one year, more than half is credit associated with trade. Since China is a foreign trade giant, the percentage of credit associated with trade, such as inter-company trade credit, trade finance of banks, and debt for financing like short-term notes associated with trade, is also high. Of China's short-term external debt, this part of external debt has genuine trade background, indicating the solvency risk is limited. Moreover, given the small size of China's short-term external debt versus the sizes of foreign trade and foreign exchange reserves, the risks associated with short-term external debt are within control. Table 1 External Debt Position of Selected SDDS Subscribers by the End of December 2014: Debt in Foreign Currencies and Domestic Currency In USD 100 million Country Debt in foreign currencies Debt in domestic currency Total external debt Balance Percent Balance Percent Argentina 1440 96% 64 4% 1504 Bulgaria 477 97% 15 3% 492 Colombia 956 94% 56 6% 1012 Croatia 528 93% 39 7% 567 Georgia 126 94% 9 6% 134 Germany 15765 28% 40147 72% 55912 Hungary 1396 77% 423 23% 1819 India 3398 74% 1221 26% 4619 Kazakhstan 1372 97% 44 3% 1416 Republic of Korea 2973 70% 1282 30% 4254 Moldova 2778 66% 1439 34% 4217 Philippines 752 97% 24 3% 777 Romania 1015 89% 130 11% 1145 Russia 4911 82% 1061 18% 5973 South Africa 675 46% 776 54% 1451 Thailand 997 71% 410 29% 1407 Turkey 3740 93% 284 7% 4024 Ukraine 1242 98% 21 2% 1263 US 10493 7% 141879 93% 152372 Source: Quarterly External Debt Statistics of World Bank Table 2 Major Indicators of External Debt Risks in China by the End of 2014 Before the adjustment of external debt coverage (external debt in foreign currencies) Debt ratio (outstanding external debt/GDP) 8.64% External debt ratio (outstanding external debt/foreign exchange receipts) 35.19% Debt servicing ratio (external debt serviced/foreign exchange receipts) 1.91% Ratio of foreign exchange reserves to short-term external debt 562.43% Source: National Bureau of Statistics, State Administration of Foreign Exchange 2015-08-12/en/2015/0812/1165.html
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FILE: No. 1 of the Publicity Material Series on the Balance of Payments and International Investment Position Manual (Sixth Edition)——Overview of the Balance-of-Payments Statistics and the Revision of the Manual 2014-12-04/en/2014/1204/1136.html
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FILE: No. 3 of the Publicity Material Series on the Balance of Payments and International Investment Position Manual (Sixth Edition)—Relevant Requirements of the IMF and China’s Preparatory Work and Implementation Plan 2014-12-04/en/2014/1204/1138.html
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Q: How do you view the changes in the data on foreign exchange settlement and sales by banks in August? A: Despite fragile recovery of the world economy, China's economy has been growing slowly but stably and confidently since the beginning of this year, with positive factors on the rise. Due to the impact of multiple domestic and overseas factors, the short-term cross-border capital flows have been fluctuating more sharply as the supply of and demand for foreign exchange in China have been basically balanced. In August, banks recorded a deficit of RMB 274.5 billion (equivalent to USD 43.5 billion) between foreign exchange settled and sold. The factors that impacted this deficit include: first, market players were more willing to hold foreign exchange, with the USD deposits held by domestic residents and enterprises with domestic banks on the rise. Second, market players optimized the arrangements for assets and liabilities in domestic and foreign currencies. Companies adjusted the structure of foreign currency liabilities and RMB assets that was popular in the past few years, making the US dollars and the renminbi more matched in the assets and liabilities, thereby reducing the foreign exchange rate risk. Third, trading and investment activities resulted in the increase in external payment, including foreign trading companies accelerating foreign exchange payments and actively repaying debt incurred by trade finance as well as seasonal factors like purchase of foreign exchange for travel and for return on investment. August is the peak season for overseas travel and studying abroad by Chinese residents as well as for distributing dividends and purchasing foreign exchange by enterprises. Generally speaking, the recent changes in foreign exchange receipts and payments have been driven primarily by economic and market factors and show the bidirectional volatility of cross-border capital flows, which is normal and affordable. While continuing to vigorously facilitate trading and investment activities by market players that do business in compliance with laws and regulations, the SAFE will further enhance monitoring and warning of cross-border capital flows, accelerate building and improving the external debt and capital flow management system under the macro-prudential management framework, and increase counter-cyclical policy tools, so as to stick to its bottom line of guarding against systematic and regional financial risks. 2015-11-10/en/2015/1110/1174.html
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FILE: No. 2 of the Publicity Material Series on the Balance of Payments and International Investment Position Manual ( Sixth Edition)--Interpretation of the Changes in Balance of Payments Forms and Statistics 2014-12-04/en/2014/1204/1137.html
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In early 2009 the International Monetary Fund (IMF) published the revised sixth edition of the Balance of Payments and International Investment Position Manual (“BPM6” or “the sixth edition of the Manual”). BPM6 is the latest international standard for the balance of payments (BOP) statistics, and all member countries (economies) of the IMF are obliged to carry out BOP-related statistics and to prepare BOP statements in line with these standards. In order to facilitate the general public and the declaring entities to learn about and study the latest international standards and requirements regarding the BOP statistics, to recognize the significance of implementing the sixth edition of the Manual, to enhance awareness of the BOP statistical declaration, and to better support improved work in terms of the BOP statistical system and to carry out systemic construction to implement BPM6, the State Administration of Foreign Exchange (SAFE) has compiled a series of BPM6 interpretation materials: 1). A brief introduction to the BOP statistics and an overview of the revisions to the Manual;2.) Interpretations of the changes in the forms and data on the BOP statistics; and 3). Relevant requirements of the IMF and China’s preparatory plans and work for implementation. The major contents include: introduction to the basic concepts in the BOP statistics, background, major content, and the impact of BPM6 revisions; interpretations of the meaning of the latest forms, statistical changes in the statistical statements, as well as differences in the forms from the fifth edition; time arrangements and implementation schedule for BPM6 as determined by the IMF and the major economies, China’s preparatory work and work plan in all aspects for BPM6 implementation, and; answers to questions related to BPM6, and so forth. 2014-12-04/en/2014/1204/1139.html
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To make the release of foreign exchange administration data more transparent and facilitate the general public to obtain and use the balance of payments data and related data, the Timetable for the Release of Major Statistical Data 2015 is hereby published (see the appendix for details). FILE: Timetable of the SAFE for the Release of Major Statistical Data, 2015 2015-03-31/en/2015/0331/1151.html
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To further increase the transparency of the balance of payments data and make better use of the social benefits of statistics, the State Administration of Foreign Exchange (SAFE) will release the data under the two subitems of foreign-related receipts and payments by banks on behalf of customers, namely trade in goods (by the Customs statistical standard) and other investments, monthly data on trade in goods under China's balance of payments, and monthly data on the overview of transactions in the Chinese foreign exchange market, based on the standards and types of data released every month, and stop releasing the quarterly data on non-residents' RMB deposits starting from 2015. To facilitate the use of the time series data, the SAFE will update the historical data on foreign-related receipts and payments by banks on behalf of customers since 2010. 2015-03-31/en/2015/0331/1152.html
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In recent years, in order to adapt to the new situation and new requirements of China’s opening up, the foreign exchange authorities, in light of the changes in the balance of payments situation, has actively carried out policy adjustments and systemic innovations, with a focus on expanding capital outflow channels, and has introduced a series of policies and measures on foreign exchange administration reform, thus, significantly improving the capital account convertibility level. The convertibility for direct investment is basically realized, and the level of investment facilitation is significantly improved In recent years, the foreign exchange authorities, by deepening the reform, streamlining administration and instituting decentralization, and optimizing processes, have created a favorable policy environment for attracting foreign investors to make direct investments in China, and have effectively supported the “going global” efforts of various types of domestic institutions to participate in international competition and cooperation. In terms of overseas direct investments, since 2006 the foreign exchange authorities have gradually lifted limits on the amount of foreign exchange purchases for overseas investments, and, at present, have realized the “supply of foreign exchange on the basis of needs” for overseas direct investments throughout the country. In 2009, the foreign exchange authorities further deepened the foreign exchange administration reform of overseas investments, changed the two procedures for administrative examination and approval, i.e., that for the examination of the source of the foreign exchange funds for overseas direct investments and that for approval for outward remittances of capital, into the procedure of ex-post registration, expanded the source of foreign exchange funds for overseas direct investments by domestic institutions, and began to allow domestic institutions to remit early stage expenses during the preparatory stage before formal establishment of their overseas projects. After the above reforms, in terms of foreign exchange administration of overseas direct investments, there are no prior approval procedures and convertibility is basically realized, which significantly facilitates enterprise participation in international economic and technological cooperation and competition. In terms of direct investments in China , the main procedures are registration administration and authenticity examination. In recent years, the foreign exchange authorities have defined and regulated foreign exchange administration in such areas as settlement of the foreign exchange capital of foreign-invested enterprises, foreign capital utilization in the real estate industry, and return investments, and have promoted the reasonable and effective utilization of foreign capital. The international investment position statistical data from the foreign exchange authorities indicate that as of the end of September 2011, the asset balance for direct investments in China by foreign investors was USD 1625.6 billion, and the asset balance for overseas direct investments was USD 345.5 billion, an increase by 1.65 times and 2.81 times respectively compared with the end of 2006. The level of convertibility for securities investments has improved significantly, and cross-border securities investments have become active In 2002 and 2006, China introduced the Qualified Foreign Institutional Investor (QFII) system and the Qualified Domestic Institutional Investor (QDII) system respectively; the former allows qualified foreign institutional investors to make investments in the domestic securities market, and the latter allows qualified domestic institutions to make investments in overseas securities markets. In 2007, the total QFII investment quota was increased from USD 10 billion to USD 30 billion upon the approval of the State Council. Thereafter, the foreign exchange authorities issued a series of normative documents and further improved foreign exchange administration of cross-border securities investments. As of March 9, 2012, the foreign exchange authorities had approved a total of USD 24.55 billion in investment quotas to 129 QFIIs (excluding the 2 QFIIs whose quotas were cancelled), and a total of USD 75.247 billion in investment quotas to 96 QDIIs. The foreign exchange authorities actively promoted work related to the pilot program of domestic securities investments by RMB Qualified Foreign Institutional Investors (RQFII). In December 2011, on the basis of the formulation of the pilot measures related to the RQFII together with the relevant departments, the foreign exchange authorities timely issued supporting provisions on foreign exchange administration and allocated the RQFII investment quota in accordance with such principles as appropriately considering the level of operations and the type of product risks. As of January 2, 2012, the foreign exchange authorities had allocated the first batch of the RQFII investment quota, a total of RMB 20 billion. The steady implementation of the above system has preliminarily established a bidirectional flow mechanism for capital under securities investments, promoted the opening up and development of the domestic capital market, expanded the overseas investment channels for domestic institutions and individuals, and better met the objective requirements of domestic and overseas market players to make cross-border securities investments. Bidirectionally developing the cross-border claim and debt business, steadily promoting the convertibility of other investments In order to increase policy support for subsequent financing of enterprises established overseas, and to support those enterprises that have “gone global” to develop better and faster, in 2009 the foreign exchange authorities began to allow qualified enterprises of various types, upon approval, to use, within a certain limit, their self-owned foreign exchange, foreign exchange purchased with RMB and other permitted foreign exchange to grant overseas loans, and such matters as the opening of special foreign exchange accounts for overseas loans, the domestic transfer of funds, and foreign exchange purchases began to be directly handled by designated foreign exchange banks. In 2009, in order to support post-disaster reconstruction in Sichuan and to support Guangdong to continue to give play a forefront role in the reform, the foreign exchange authorities allowed Chinese-funded enterprises in Sichuan and Guangdong to borrow short-term external debt within a certain limit, and in 2010 promoted this policy nationwide on the basis of a summary of the pilot experience. In 2010, the foreign exchange authorities further simplified the management procedures for external guarantees, cancelled the approval procedures for the banks’ external guarantee performance, relaxed the qualification requirements for the debtor and the restrictions on financial indicators, and expanded the business scope of external guarantees. Implementation of the above policies relieved the problems of overseas investment enterprises, such as financing difficulties and insufficient working capital, and also steadily promoted improvement in the convertibility level of other investments. Streamlining administration and instituting decentralization, and further improving the level of convertibility under the capital account The foreign exchange authorities actively simplified the procedures for administrative examination and approval, and each year introduced multiple measures to simplify the business examination procedures. First, they adjusted the management methods of some businesses from examination on a case-by-case basis to aggregate control. For instance, in 2010 the policy for management of external guarantees was reformed, the previous management method of case-by-case approval was adjusted to annual balance control, and the enterprises may handle the business themselves without the approval of the foreign exchange authorities. Second, they granted more authority to the branches and sub-branches of the SAFE, and integrating the overlapping administrative functions. In recent years, the foreign exchange authorities simplified dozens of business examination procedures, such as those for opening capital accounts in other localities, transferring the property of individuals overseas, and partial market withdrawal under the securities investments, and simplified the materials required for business examinations. Third, some businesses which were originally examined by the foreign exchange authorities were authorized to be handled by the banks. For example, with respect to such businesses as those related to foreign exchange purchases or payments for the profits of foreign investors in some financial institutions with foreign capital participation, the foreign exchange to be used for payment of overseas listing expenses from China by the overseas listed domestic companies, and the record of the transfer of the foreign exchange capital gained through the reduction in state-owned shares in overseas listed companies to the National Social Security Fund are currently directly handled by the banks. These measures help reduce the costs to the enterprises and the burden on society, improve operating efficiency, and also further improve the level of convertibility under the capital account. The foreign exchange authorities will steadily and orderly promote capital account convertibility for the Renminbi in accordance with the relevant requirements of the Twelfth Five-Year Plan and the National Financial Working Conference. On the basis of the specifications, the foreign exchange authorities will expand the use of RMB in cross-border trade and investment. The foreign exchange authorities will gradually expand capital outflow channels, encourage qualified institutions in China to “go global,” and relax the restrictions on overseas investments by domestic residents. The foreign exchange authorities will gradually expand the opening up of the domestic financial market and establish a system and mechanism for guarding against the impact of bidirectional flows of cross-border capital. As an important content of the reform of China ’s foreign exchange administration system, capital account convertibility for the Renminbi is not the ultimate goal. The realization of capital account convertibility for the Renminbi is a gradual process and a systematic project involving many departments, and relevant reforms are required to promote coordination and an improved capability to cope with external impacts. During the process of promoting convertibility under the capital account, the foreign exchange authorities will keep a close eye on economic development at home and abroad and will take measures for promoting convertibility that are consistent with China’s stage of economic development, the level of market development, the tolerance of enterprises, the level of financial supervision, and the international financial environment. While relaxing some controls, the foreign exchange authorities will continuously improve and strengthen macro and prudential supervision, further improve statistics, monitoring, and early warnings of cross-border capital flows, effectively guard against the impact of capital flows, and safeguard the economic and financial security of China . 2012-06-07/en/2012/0607/1055.html
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Question: Please introduce China ’s balance of payments status in the first half of this year. Answer: According to the preliminary statistics, China ’s balance of payments status in the first half of this year continued to improve. First, receipts and payments under the current account more closely approached an equilibrium. In the first half of the year, the current account surplus was USD83.2 billion, a year-on-year decrease of 5 percent, and the proportion of the current account surplus to GDP was 2.3 percent, a decrease of 0.5 percentage points compared with that in the last year. Second, cross-border capital flows presented a bi-directional change. In the first half of the year, the deficit in the capital and financial account (including net errors and omissions, the same below) was USD20.3 billion. In the first quarter, as the international market environment recovered, international capital flowed back into China , and in terms of the capital and financial account, there was a surplus of USD51.1 billion compared with the USD48 billion deficit registered in the fourth quarter of 2011. In the second quarter, there was again a net outflow of USD71.4 billion due to the combined influence of domestic and foreign factors. Third, the increase in foreign exchange reserves slowed down. In the first half of the year, the capital account deficit and the current account surplus offset each other, reserve assets calculated on the basis of the balance of payments coverage (excluding the influence of changes in non-trade value, such as the exchange rate and price) only increased by USD62.9 billion, with the growth rate decreasing by 78 percent compared with the same period of the last year; of this foreign exchange reserve assets increased by USD63.6 billion, with the growth rate decreasing by 77 percent compared with the same period of last year. Question: In the first half of the year, there appeared to be a deficit under the capital account of China . Does this mean that a large volume of foreign capital was withdrawn from China ? Answer: In the first half of the year, China indeed experienced an outflow of capital to some extent, but this does not mean that there was a large-scale and collective withdrawal of foreign capital. Theoretically, the current account surplus exceeding the increment of foreign exchange reserves means that the capital of China ’s domestic institutions and individuals presented a situation of a net output (i.e., a capital account deficit in the Balance of Payments Statements) and an increase in net foreign assets. In terms of other statistical data reflecting cross-border receipts and payments of enterprises and individuals and the banks’ foreign exchange credit receipts and payments, the main change in the current foreign exchange situation is that the holder of assets in foreign exchange has shifted from the central bank to domestic institutions and individuals and that foreign exchange is to be held by the people; any sign of a proactive withdrawal of foreign capital is still not obvious. First, in terms of the banks’ data on cross-border receipts and payments on behalf of clients under the capital account, in the first half of the year China’s domestic enterprises and individuals still maintained a net inflow of capital of up to USD77.6 billion. Second, in terms of the banks’ data on foreign exchange settlement and sales on behalf of clients under the current account and capital account, in the first half of the year the surplus of foreign exchange settlement and sales by domestic enterprises and individuals was USD29.5 billion, far less than the cross-border receipts and payments surplus of USD79.1 billion. The main reason for the above difference is that under the influence of the market environment, at present domestic enterprises and individuals have shifted from short dollar to long dollar and have begun financial operations whereby they are “incurring liabilities in domestic currency and holding assets in foreign currency.” Third, in terms of bank data on foreign exchange credit receipts and payments, in the first half of the year there was a new increase of USD130.1 billion with respect to various types of foreign exchange deposits with banks; this was used for domestic foreign exchange loans as well as for international loans and external investments. Such uses are reflected in the increase in the banks’ net foreign assets during the same period, and in the balance of payments statements they are recorded as an “outflow” item under the capital account. Fourth, in terms of detailed data on cross-border receipts and payments, cross-border payments in the first half of the year increased by 24 percent compared with the same period of the last year, of which the capital outflows under overseas direct investments in which the Chinese parties have control increased by 74 percent, whereas the capital outflows through the main withdrawal channels for foreign capital, such as the withdrawal of foreign direct investments and securities investments, and remittances of investment earnings of foreign investors and so forth only increased by 15 percent. Question: How should we regard the changes in the current situation of China ’s balance of payments? Answer: The current situation for China ’s balance of payments should be comprehensively recognized on the basis of the following: First, the decrease in the balance of payments surplus and the slowdown in foreign exchange reserve growth conform to China ’s macro-control direction and are beneficial for maintaining China ’s balance of payments equilibrium. Second, against the background of the slow recovery of the global economy and the worsening international financial turmoil, the major new emerging markets are generally experiencing an outflow of capital, a decrease in reserves, and a depreciation of the domestic currency, and it is unavoidable that China ’s cross-border capital flows are affected. Third, after the balance of payments and the RMB exchange rate approach an equilibrium and a reasonable level, the bidirectional fluctuation situation whereby there are inflows and outflows of cross-border capital and increases and decreases in the RMB exchange rate are unavoidable. Fourth, notwithstanding the fact that the trend of a unilateral appreciation of the RMB exchange rate against the US dollar is ending, the RMB continues to become stronger against most currencies, the nominal effective exchange rate and the real effective exchange rate of the RMB published by the Bank for International Settlements for the first half of the year appreciated 1.6 percent and 0.9 percent respectively. Meanwhile, the RMB spot exchange rate differential between home and abroad has narrowed; the dollar premium indicated by the forward exchange rate mainly reflects the interest rate spread between the RMB and foreign currencies rather than any depreciation expectations, and also indicates that the current RMB exchange rate is at reasonable level accepted by domestic and overseas parties and by market clearing. Fifth, China is able to tolerate the impact of cross-border capital flows due to its relatively rapid economic growth, sound financial condition, continuous surplus of trade in goods, abundant foreign exchange reserves, and the fact that foreign capital mainly consists of direct investments with high stability rather than securities investments with high volatility. Question: In the second half of the year, will China be exposed to the risk of a capital flow reversal? Answer: The SAFE still maintains its basic judgment made at the beginning of the year that China ’s balance of payments hopefully will maintain a basic equilibrium this year. Notwithstanding the fact that there are many unstable and uncertain factors at home and abroad in the second half of the year, some positive factors in favor of China ’s balance of payments equilibrium are gradually accumulating. First, a series of recently issued pre-adjustment and fine-adjustment policies will help strengthen market confidence and help maintain steady economic growth. Second, in consideration of the depressed world economy and the fact that the drop in international bulk commodity prices depressed import costs of domestic parties, China ’s trade surplus may further expand in the second half of the year. Third, each of the major economies has placed high priority on the maintenance of economic growth, and the relevant countries and regions have certain resources and a determination to prevent the debt crisis from becoming worse. Overall, as long as there are no major emergencies at home or abroad, China ’s balance of payments hopefully will still achieve a basic equilibrium. Even though capital net outflows will occur, they are tolerable and they conform to policy goal of “foreign exchange to be held by the people,” which has always been advocated by China and remains a part of the scope of the basic equilibrium in the balance of payments. 2012-07-31/en/2012/0731/1063.html