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Question: The SAFE recently published preliminary data on China ’s balance of payments (BOP) in the first three quarters of 2012. Could you please introduce the current status of China ’s BOP? Answer: According to the preliminary data, China ’s BOP status continued to improve this year. First, receipts and payments under the current account maintained a basic equilibrium. In the third quarter, the current account surplus was USD70.6 billion. For the first three quarters, the cumulative surplus was USD147.8 billion, accounting for 2.6 percent of GDP during the same period, a drop of 0.3 percent compared with the same period of the last year, which continued to be within the internationally accepted reasonable level. Second, the capital account and financial account (including errors and omissions) was characterized by a net outflow. In the third quarter, the capital account and financial account witnessed a deficit of USD71 billion, after a deficit in the second quarter. For the first three quarters, the cumulative deficit was USD85.4 billion; however, the same period of the last year witnessed a surplus of USD234.1 billion. Third, growth of foreign exchange reserves slowed down significantly. In the third quarter, foreign exchange reserve assets calculated on the basis of the BOP coverage (setting aside the influence of changes in non-trade value, such as the exchange rate, and prices) increased only by USD0.3 billion. For the first three quarters, the total increase of such assets was USD64 billion, with the increment decreasing by 83 percent compared with the same period of the last year. Question: Both the second and third quarters of this year witnessed deficits in China ’s capital and financial account, and the first three quarters as a whole also witnessed a deficit. What is your opinion about this? Answer: From the beginning of this year, China ’s capital account and financial account witnessed deficits, which were mainly influenced by factors such as the international financial crisis and the slowdown in domestic economic growth. From the fourth quarter of 2011 to the end of the third quarter of this year, China ’s supply and demand in foreign exchange market witnessed a basic equilibrium, and foreign exchange reserves maintained basic stability. In such a situation, the current account surplus inevitably was accompanied by the deficits in the capital account and the financial account. At present, the deficits in the capital account and financial account of China have three major characteristics: First, the deficits reflect the process of “foreign exchange to be held by the people,” that is to say, the holder foreign exchange assets is shifted from the central bank to domestic institutions and individuals. For the first three quarters, the balance of foreign exchange deposits of market players such as enterprises increased by USD138.8 billion. The banks themselves increased the foreign exchange position by more than USD12 billion, part of which was used for domestic foreign exchange loans and the remainder of which was used by the banks for overseas loans and investments. Second, the deficits indicate an accelerating pace of the “Going Out” strategy by domestic enterprises. For the first three quarters, the amount of overseas direct investments by China ’s non-financial sector was USD52.5 billion, an increase of 29 percent compared with the same period of the last year. Third, the deficits reflect an orderly debt deleveraging process by the enterprises. For the past few years, domestic enterprises paid in foreign exchange for their imports as late as possible, by such means as the Import Bill Advance by Overseas Banks, and accumulated a lot of USD short positions under the trade account. The original strategy of incurring liabilities in foreign currency began to be adjusted after the bi-directional fluctuation of the exchange rate, and, in particular, under the regulation of relevant policies; with respect to the imports of enterprises, the debt balance under the Import Bill Advance By Overseas Banks dropped by more than USD40 billion. Question: Some media have recently said that USD200 to USD300 billion of capital has fled from China . Is this true? Answer: We think this is not true. The scale of capital flight referred to by some media is the estimated result of the reduction of such accounts as trade and direct investments due to changes in the foreign exchange reserves, and the concept and method for such calculations are not scientific. The capital account and financial account of the BOP statements are usually used internationally to measure the condition of cross-border capital flows. On the basis of such coverage, for the first three quarters of this year, the USD85.4 billion in deficits in the capital account and financial account of China (including errors and omissions) mainly due to the fact that under the recent basic stability of foreign exchange reserves, the assets in foreign exchange acquired by China from current account transactions such as trade were no longer held by the central bank. Rather, they were mainly held by domestic institutions and separate individuals, and such assets held by domestic institutions and individuals inevitably were used outside of China by such means as overseas investments, loans, and deposits, which presented an outflow of the capital account and the financial account but was not equal to capital flight. 2012-10-29/en/2012/1029/1073.html
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At the end of September 2012, China’s outstanding external debt (excluding that of Hong Kong SAR, Macao SAR, and Taiwan Province, the same below) reached USD770.833 billion. Specifically, the outstanding registered external debt totaled USD471.333 billion and the balance of trade credit between enterprises totaled USD299.5 billion. In terms of structure, the outstanding long- and medium-term external debt (with the remaining term) was USD198.017 billion and the outstanding short-term external debt (with the remaining term) was USD572.816 billion. Specifically, trade credit between enterprises and bank trade financing accounted for 52.29 percent and 21.12 percent respectively. Together, the two accounted for 73.41 percent of the outstanding short-term external debt (with the remaining term). In terms of type of debtor, the outstanding debt of Chinese-funded financial institutions was USD229.579 billion, accounting for 48.71 percent of the outstanding registered external debt; the outstanding debt of foreign-funded enterprises was USD 145.578 billion, accounting for 30.89 percent; the outstanding debt of foreign-funded financial institutions was USD53.316 billion, accounting for 11.31 percent. In terms of types of debt, the balance of international commercial loans amounted to USD404.921 billion, accounting for 85.91 percent of the outstanding registered external debt. The balance of foreign government loans and loans granted by international financial organizations amounted to USD66.412 billion, accounting for 14.09 percent. In terms of the currency structure, USD debt accounted for 77.45 percent, Euro debt accounted for 7.30 percent, and JPY debt accounted for 7.27 percent of the outstanding registered external debt; other kinds of debt including SDRs and HKD accounted for 7.98 percent of the outstanding registered external debt. In terms of the sectors in which the debt was invested, with reference to the Industrial Classification of the National Economy, the outstanding medium- and long-term registered external debt (based on contract terms) was mainly invested in the manufacturing sector, accounting for 28.92 percent, the transportation, warehousing, and postal sector, accounting for 14.01 percent, and the electric power, coal, gas, and water production and supply sector, accounting for 7.36 percent. In the first nine months of 2012, China newly borrowed USD30.987 billion of medium- and long-term external debt, repaid USD23.426 billion of principal of the long- and medium-term external debt, and paid USD1.749 billion of interest. Net inflows under the outstanding long- and medium-term external debt were USD5.812 billion, down 48.14 percent on a year-on-year basis. (End.) Addendum: Definitions of terms and explanations Classification of the term structure of external debt. There are two classification methods for the classification of external debt in terms of the term structure. First, classification on the basis of contract terms, i.e. classified as medium- and long-term external debt in cases of the contract term being over one year, and classified as short-term external debt in cases of the contract term being one year or less; second, classification on the basis of the remaining term, i.e., on the basis of the above classification method, the medium- and long-term external debt due within one year is classified as short-term external debt. For the convenience of differentiating between the two classification methods, in this news release indication of the classification method, i.e., contract term or remaining term, follows the medium- and long-term external debt and the short-term external debt. Trade credit between enterprises 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., debt incurred due to the difference between the time of payment and that of the transfer of the goods ownership. Trade credit between enterprises 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). Bank trade financing refers to loans extended by a third party (e.g., banks) related to trade with 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 between enterprises, it also includes other kinds of credits provided for trade activities. According to the definition, trade-related credit includes trade credit between enterprises, bank trade financing, short-term notes related to trade, and so forth. 2012-12-27/en/2012/1227/1075.html
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The SAFE recently released Preliminary Data on China’s Balance of Payments Statement for the Third Quarter of 2012. In the third quarter of 2012, the surplus under the current account totaled USD70.6 billion. Specifically, the surplus in trade in goods and current transfers reached USD102.7 billion and USD1.4 billion, respectively, whereas the deficit in trade in services and income amounted to USD29.9 billion and USD3.6 billion, respectively. Meanwhile, China’s deficit under the capital and financial account (including net errors and omissions) totaled USD71.0 billion. In particular, net inflows of direct investments amounted to USD37.2 billion. International reserve assets (exclusive of the influence of non-transaction changes in value, such as exchange rates and prices) registered a drop of USD400 million. Specifically, foreign exchange reserve assets registered an increase of USD300 million, and special drawing rights and the reserve position in the IMF experienced a drop of USD800 million. For the first three quarters of 2012, the surplus under the current account was USD147.8 billion and the deficit under the capital and financial account was USD85.4 billion, while international reserve assets registered an increase of USD62.4 billion. Balance of Payments1 (Preliminary Data) Unit: USD100 million Item 2 # Q3 of 2012 First 3 quarters, 20123 I. Current Account 1 706 1478 A. Goods and Services 2 728 1453 a. Goods 3 1027 2155 Credit 4 5434 15011 Debit 5 4407 12856 b. Services 6 -299 -702 Credit 7 475 1378 Debit 8 775 2080 1.Transportation 9 -118 -348 Credit 10 105 289 Debit 11 223 637 2.Tourism 12 -191 -409 Credit 13 122 360 Debit 14 313 769 3.Communication Services 15 -2 1 Credit 16 4 13 Debit 17 6 12 4.Construction Services 18 26 72 Credit 19 36 97 Debit 20 10 26 5.Insurance Services 21 -45 -129 Credit 22 6 23 Debit 23 52 152 6.Financial Services 24 -1 -2 Credit 25 2 6 Debit 26 2 8 7.Computer and Information Services 27 23 76 Credit 28 35 105 Debit 29 12 28 8.Royalties and Licensing Fees 30 -39 -123 Credit 31 2 6 Debit 32 40 129 9.Consulting Services 33 33 100 Credit 34 85 241 Debit 35 51 142 10.Advertising and Promotions 36 5 14 Credit 37 12 34 Debit 38 7 21 11.Movies, Audio-visual products 39 -1 -3 Credit 40 0 1 Debit 41 2 4 12.Other Business Services 42 12 52 Credit 43 64 196 Debit 44 52 144 13.Government Services, n.i.e. 45 -1 -1 Credit 46 2 7 Debit 47 3 8 B. Income 48 -36 -19 C. Current Transfers 49 14 44 II. Capital and Financial Account2 50 -710 -854 Of which, Direct investments 51 372 1272 III. Reserves Assets 52 4 -624 3.1 Monetary Gold 53 0 0 3.2 Special Drawing Rights 54 5 4 3.3 Reserves Position in the Fund 55 3 11 3.4 Foreign Exchange 56 -3 -640 3.5 Other Claims 57 0 0 Note: 1. This statement employs rounded-off numbers. 2. Other items refer to the differences, except for those marked by "Credit" and "Debit." 3. The preliminary data for the first 3 quarters of 2012 in this statement are the sum of the total of the official data for H1 2012 and the preliminary data for Q3 of 2012. 4. The data under the capital and financial accounts in this statement are the balance between the current account balance and the amount of change in reserve assets, including net errors and omissions. 2012-10-29/en/2012/1029/1074.html
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In order to promote facilitation of foreign exchange receipts and payments for trade in services, Yi Gang, administrator of the State Administration of Foreign Exchange (SAFE) and his entourage visited the Beijing Foreign Exchange Administrative Department and held a discussion with representatives from some banks, enterprises, and branches of the SAFE to investigate the relevant situation with regard to foreign exchange administration for trade in services. Yi Gang pointed out that during recent years the SAFE has made vigorous efforts to promote trade and investment facilitation in compliance with the general requirements of the CPC Central Committee and the State Council for accelerating the reform and opening-up, and has persisted in pursuing administration according to the law by streamlining administration and power delegation to serve the development of the real economy. In 2012, reform of the foreign exchange administration system for trade in goods was implemented on a nationwide basis; foreign exchange administration for direct investments was substantially streamlined, resulting in a significant improvement in trade and investment facilitation. Yi Gang said that the SAFE will further follow the relevant guidelines of the CPC Central Committee and the State Council to develop the service sector, proactively push forward the reform of foreign exchange administration for trade in services, vigorously promote facilitation of the services trade, strengthen communications and coordination with the relevant authorities, and provide policy support for the development of trade in services so as to enhance the role of foreign exchange administration in boosting the “going-global” process of the service sector. 2013-01-15/en/2013/0115/1077.html
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In order to further regulate and improve foreign exchange administration for overseas listings of domestic enterprises, the SAFE issued the Circular of the State Administration of Foreign Exchange on Relevant Issues Concerning Foreign Exchange Administration for Overseas Listings (HuiFa [2012] No.5) (hereafter the Circular). The Circular entered into effect as of the date of promulgation. The Circular integrates and improves foreign exchange administration policies for overseas listings of domestic enterprises by highlighting the following: First, with administration of registration as the core, examination of business procedures and materials is simplified significantly. As long as the enterprises complete the registration procedures related to overseas listings as required, they can handle relevant procedures at the banks, such as the opening of accounts and the exchange of funds, without further approval by the foreign exchange authorities. Second, the business of fund exchanges to increase (or decrease) the overseas shares of domestic shareholders is regulated, providing a definite basis for the relevant businesses to follow. Third, the ongoing capital account information system of the foreign exchange authorities is integrated, improving and perfecting the systems and means of data collection and statistics and monitoring with respect to overseas listings, improving scientific and effective regulation while enhancing facilitation of the business processes. 2013-02-07/en/2013/0207/1078.html
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Q: Sources report that the SAFE has made vigorous efforts to explore ways to carry out innovative utilization of foreign exchange reserves, and an office has been assigned to deal with the related tasks. Could you please brief us on the progress in this work? A: During recent years, China’s economy has been forging ahead steadily and national economic strength has witnessed significant growth. The capabilities of enterprises have also been on a steady rise and, on the whole, economic operations are now better off. Meanwhile, global economic integration has been further deepened and economic exchanges and ties have constantly been strengthened. The long-term development of the economy and society requires an acceleration in the transformation of economic development patterns and implementation of the “going-global” strategy, so as to further open up to the outside world and better capitalize on markets and resources both at home and abroad. The People’s Bank of China and the SAFE have attached great importance to the role of the foreign exchange market in sustaining national economic and social development. In recent years, in addition to doing a good job in regulating monetary policy and foreign exchange administration, we have constantly made innovations in the utilization of foreign exchange reserves to support the economic development of the service entities of financial institutions and the “going-global” strategy. In addition, we have established the SAFE Co-Financing Office within the foreign exchange reserves operations and administration organization to take charge of the work of making innovations in the utilization of foreign exchange reserves. Innovation in the utilization of foreign exchange reserves is an integral part of foreign exchange reserve operations and administration. The relevant operations are all conducted in compliance with market principles and conditions. Furthermore, all arrangements are in compliance with general industry practices, and we respect market choice and maintenance and promotion of fair competition in the market. Since the launch of the co-financing business, we have provided a sound foundation and financing environment for China’s financial institutions and players in the foreign exchange market by means of regulating fund supply and demand in the foreign exchange market. We have thus promoted national economic and social development, expanded the scope and fields of investment of foreign exchange reserves, and further facilitated the diversified operations and administration of the reserves. In addition, by prioritizing risk prevention we have maintained and increased the value of our foreign exchange reserves. 2013-01-14/en/2013/0114/1076.html
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According to statistical data released by the State Administration of Foreign Exchange (SAFE), in September 2012 the amount of foreign exchange settlement and sales by banks on behalf of clients amounted to USD137.4 billion and USD131.1 billion respectively. The surplus of foreign exchange settlement and sales amounted to USD6.3 billion. During the same period, the total amount involved in contracts for forward settlement of foreign exchange with banks on behalf of clients was USD13.3 billion, the total amount involved in contracts for forward sale of foreign exchange was USD18.9 billion, and net forward exchange sales equaled USD5.7 billion. In the first nine months of 2012, the cumulative amount of foreign exchange settlement and foreign exchange sales by banks on behalf of clients amounted to USD1137.8 billion and USD1107.8 billion respectively. The surplus of foreign exchange settlement and sales was USD30 billion. During the same period, the cumulative amount in contracts for forward settlement of foreign exchange with banks on behalf of clients was USD123.5 billion, the cumulative amount in contracts for forward sale of foreign exchange was USD139.1 billion, and the cumulative net forward sale of foreign exchange with banks on behalf of clients was USD15.7 billion. In September 2012, foreign-related receipts and payments of domestic banks on behalf of clients amounted to USD219.7 billion and USD228.6 billion respectively, and the deficit of foreign-related receipts and payments reached USD8.9 billion. In the first nine months of 2012, the cumulative foreign-related receipts and payments of banks on behalf of clients amounted to USD1887.3 billion and USD1808.1 billion respectively, and the cumulative surplus of foreign-related receipts and payments reached USD79.1 billion. 2012-10-22/en/2012/1022/1072.html
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Since 2012, in order to further promote reform and development of the domestic capital market, the foreign exchange authorities have accelerated the pace of approval of the investment quota for Qualified Foreign Institutional Investors (QFIIs). From January 1 to September 19 of 2012, the foreign exchange authorities approved a total investment quota of USD 9.178 billion (including additional investment quotas) for 72 QFIIs. As of September 19, 2012, the foreign exchange authorities approved a total investment quota of USD 30.818 billion for 157 QFIIs. During the next step, in light of the balance of payments situation, the foreign exchange authorities will continue to promote improvement in the QFII system and to support the reform and development of the domestic capital market. 2012-09-21/en/2012/0921/1071.html
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· Hu Kaihong: Good morning, ladies and gentlemen. Welcome to the press conference of the State Council Information Office. We are very pleased to have with us today Mr. Guan Tao, director from the Balance of Payments Department of the State Administration of Foreign Exchange(SAFE). He will first unveil the foreign exchange receipts and payments data for the first three quarters of 2014 and then will take your questions. Now let us welcome our old friend Mr. Guan to give the opening remarks. October 23, 2014, 09:43:08am · Guan Tao: Good morning, ladies and gentlemen. Welcome to today's conference. I am delighted to meet you again.This is the fourth time I have seen you this year.Today I am going to unveil the foreign exchange receipts and payments data for the first three quartersof this year and take your questions on behalf of the SAFE. In the first three quarters of this year, the global economy recovered slowly, but was imbalanced among countries, with different monetary policies in the major economies. Meanwhile, the domestic economy remained stable under the new normal, the marketization of the RMBexchange-rateformation achieved new progress and the foreign exchange administration reformsproceeded steadily. Overall, during this period China's cross-border capital flows were basically balanced amid oscillations. Banks settled foreign exchange totaling RMB 8.77 trillion (USD 1.43 trillion) and sold foreignexchange totaling RMB 7.71 trillion (USD 1.25trillion) in the first three quarters, with a surplus of RMB 1.05 trillion (USD 172.3 billion). Meanwhile, banks registered cumulative foreign-related income of RMB 15.10 trillion (USD 2.46 trillion) and made external payments of RMB 14.70 trillion (USD 2.39 trillion) on behalf of theirclients, with a surplus of RMB 405.5 billion (USD 66.2 billion). October 23, 2014, 10:00:15am · Guan Tao: China's foreign exchange receipts and payments are currently characterized by the following: First, China is witnessing net inflows of cross-border capital.Excluding the impact from foreign exchange rates (the same below), in the first three quarters the foreign exchange settled by banks was up 4 percent year on year and that sold by banks was up 4 percent year on year, representing an increase in the surplus of 3 percent. Meanwhile, the foreign-related income received via banks was up 14 percent year on year, and external payments made through banks were up 19 percent year on year, representing a decrease in the surplus of 52 percent. Second, the motivation of market players to settle foreign exchange was weakened while their willingness to buy foreign exchange was strengthened.Foreign exchange settled via banks as a percentage of total foreign-related foreign exchange income (or the foreign exchange settlement rate), which measures the willingness of companies and individuals to settle foreign exchange, was on thedecline, down from 77 percent in the first quarter to 68 percent in thesecond quarter and then 69 percent in the third quarter; foreign exchange sold via banks as a percentage of total foreign-related foreign exchange payments(or the foreign exchange selling rate), which measures the motivation to buy foreign exchange, was on the rise, up from 61 percent in the first quarter to 69 percent in thesecond quarter and 70 percent in the third quarter. Third, the supply and demand of foreign exchange has beenbasically balanced amid oscillations. The surplus in foreign exchange settled and sold by banks stood at USD 159.2 billion in the first quarter, decreasing to USD 29 billion in the second quarter, and becoming a deficit of USD 16 billion in the third quarter. The surplus in foreign-related receipts and payments via banks amounted to USD 45.5 billion in the first quarter, decreasing to USD 40.7 billion in thesecond quarterand becoming a deficit of USD 20 billion in the third quarter. Fourth, forward settlements and sales of foreign exchange by banks have changed from a significantsurplus to being basically balanced.Forward contracts for foreign exchange settlements and sales registered consecutive surpluses during the first five months of the year, but the monthly average surplus dropped from USD 24 billion in the first two months to USD 1.7 billion from March to May. Then, between June and September, the surpluses and deficits in the forward settlements and sales offoreign exchange alternated in a moderate absolute size, with a monthly average deficit of USD 600 million. October 23, 2014,10:00:39am · Guan Tao: Fifth, the foreign exchange market is voluntarily becomingbalanced. Excluding the performance of the forward contracts for foreign exchange settlements and sales, the undue net forwardforeign exchange settled increased by a cumulative USD 15.2 billion in January and February, and then underwent a correction during the seven months from March to September, dropping USD 50.6 billion on an cumulative basis, thus spurring banks to increase their foreign exchange position. The balance of spot and forward foreign exchange settled and sold by banks (or the balance of foreign exchange settled and sold by banks and the balance of the combined undue net forward settled foreign exchange), an indicator of the supply and demand for foreign exchange in the retail market, amounted to a surplus of USD164.9 billion in the first quarter, which dropped to USD 2.5 billion in the second quarter and then became a deficit of USD 30.5 billion in thethird quarter. These are the major statistics I want to disclose regarding the foreign exchange receipts and payments during the first three quarters of this year. You can also find the relevant data released on the SAFE's official Website. Now I would like to take any questions you might have. October 23, 2014, 10:00:52am · Hu Kaihong: Thank you, Mr. Guan. Now please raise your questions and remember to tell us where you are from before asking your questions. October 23, 2014,10:03:05am · Reporter from CCTV: China's foreign exchange reserves stood at USD 3.89 trillion at the end of the third quarter of this year, a decrease of nearly USD 100 billion from the end of the second quarter. Could you tell us the main reasons behind this significantdecrease? How should we regard this decrease? Thank you. October 23, 2014,10:03:33am · Guan Tao: Thank you for your questions. We also have noted thatthebalance of foreign exchange reserves as of the end of September, which was just released by the People's Bank of China, was about USD 100 billion less than that at the end of June. In our opinion, the main reason behind the decline was the change in the exchange-rate conversion due to the rise in the USD exchange rate in the international market. The US dollar index (USDX) picked up 7.7 percent in the third quarter. Of China's foreign exchange reserves, there are the US dollar-denominated assets and assets not denominated in the US dollarsthat have to be converted into US dollars before being announced, and anappreciation of the US dollar would lead to a decrease in the amount of those assets not denominated in US dollars when they are converted into US dollars. However, the change in thebalance due to such conversions is just a change in the valuation of the book value, not the actual loss, and it does not result in actual cross-border capital flows. Therefore, the change in the valuation of the book value is different from actual losses or profits. The fluctuations in the exchange rates of the major currencies in the international market will likely lead to changes in the balance of China's foreign exchange reserves, but the impact will be limited since China's foreign exchange reservesare nearing USD 4 trillion. It is commonplace that the exchange rates of the major currencies have ups and downs, and we do not need to overanalyze that. October 23, 2014,10:20:10am · Guan Tao: Regarding your second question, I'd like to make three points: First, the government has made it clear that it is not that the moreforeign exchange reserves, the better. The slowdown in the foreign exchange reserve growth during the first three quarters due to the fluctuations in the exchange rates in the international market also reflects that China's BOPis basically becomingmore balanced. The report on the work of the government unveiled at the beginning of this year states that one of our major tasks this year is to basically balance the BOP and we are now striving to achieve this goal. Second, new measures have been introduced in the reform of the RMB exchange-rate formation mechanism this year, expanding the bidirectional floating range of the RMB exchange rate, while the People's Bank of China has started to end normal interventions in the foreign exchange market. Under these circumstances, the self-balancing of the market and the slowdownin the growth of foreign exchange reserveswill become a new normal, which is in line with the goals of the reform.Third, China nowhas enormous foreign exchange reserves, which will enable it to experience a correction in its foreign exchange reserves sometime in the future due to the bidirectional fluctuations in cross-border capital flows. China can use this strong base to ward off external shocks. This is what I think about the decrease in foreign exchange reserves, and I want to stress that we need to look at the fluctuations in foreign exchange reservescalmly and rationally. October 23, 2014,10:27:16am · Reporter from the People's Daily: WhileChina's trade surplus has set new records and the RMB exchange rate has increased, the surplus between foreign exchangesettled and sold by banks has remained low since the beginning of the third quarter and even turned into a deficitduring some months. How do you look at this? Does this mean that China is at risk of capital flight? What are your ideasaboutfuture movements of the foreign exchange reserves? Thank you. October 23, 2014,10:43:16am · Guan Tao: Thank you for your questions. We have noted this as well. While the RMB exchange rate increased and the trade surplus was large, the foreign exchange market registered a slight shortfall in thethird quarter. Such a change in the supply and demand of foreign exchange is another result of the reform of the RMB exchange-rate formation mechanism that started in March. Since the bidirectional floating range of the RMB exchange rate against the US dollar was expanded in mid-February, or more accurately, on March 17, the unilateral movements of the RMB exchange rate have ended and there have been bidirectional fluctuations, with both ups and downs, which have somehow guided the market, making market players adjust their foreign exchange transaction strategies. The willingness of market players to buy foreign exchange has been strengthened and their motivation to settle foreign exchange has been weakened. Despite increases in the RMB exchange rate over the past several months, companies have been deeply impressed by the preliminary bidirectional fluctuations of the RMB exchange rate amidthe complex economic and financial environments in China and in the international markets, so they have continued the financial adjustments of increasing foreign exchange deposits and reducing foreign exchange loans and external liabilities. We have some data to explain this. October 23, 2014,10:44:59am · Guan Tao: First, foreign exchange settled by banks in the third quarter was up by 3 percent against the second quarter, while foreign exchange sold by banks was up by 14 percent. According to indicators that measure a company’s motivation to buy foreign exchange, the percentage of foreign exchange bought by companies to make payments reached 70 percent in the third quarter, up by 5 percentage points against the first half of the year, while the percentage of foreign exchange settled by companies as foreign exchange income was 69 percent, down by 3 percentage points from the first halfof the year. Second, companies' foreign exchange deposits rose by USD 3.8 billionin the third quarter, among which the combined increasein July and August amounted to USD 22.9 billion, while the growth was USD 38.7 billion in the first quarter and USD 65.2 billion in thesecondquarter. Foreign exchange loans dropped by USD 21.2 billion in the third quarter, compared with an increase of USD 62.6billion in the first quarter and a decrease of USD 2.3 billion in the second quarter. Thebalance of import trade financing fell by USD 36.5 billion in the third quarter, versus an increase of USD 24.1 billion and USD 18.7 billion respectively in the first and second quarters. These data show that companies were more willing to buy than to settle foreign exchange and in the third quarter they continued financialadjustments of increasing foreign exchange deposits and reducing foreign exchange loans and external liabilities. October 23, 2014, 10:50:40am · Guan Tao: As for how we look at this issue, we believe China is currently experiencing capital flight; however, this does not represent a risk or a problem. Customs statistics show China's trade surplus stood at USD 128.1 billion in the third quarter, up by 48 percent quarter on quarter and up 111 percent year on year. The short supply in the foreign exchange marketindicates net outflows under the capital account. However, this should not be regarded as a risk or a problem but rather it should be considered in the following three ways. First, in terms of the results of the adjustments, such a change is in line with the goal of the macro controls set at the beginning of this year that is, basically balancing the BOP. The current and capital BOP accounts both registered a surplus and foreign exchange reserves jumped by more than USD 100 billionin the first quarter,suggesting that balancing the BOP would be very challenging. But as the RMB exchange rate fluctuated bi-directionally amidincreased economic uncertainties both at home and abroad,companieshave made reverse financial adjustments since April. In thesecond quarter, although the trade surplus and the current account surplus increased, the capital account changed from a net inflow of USD 94 billion in the first quarter to a net outflow of USD 16.2 billion, and thegrowth of foreignexchange reserves in the BOP slowed down, dropping by 82 percent quarter on quarter from more than USD 100 billion in the previous quarter to more than USD 20 billion. Initial estimates indicate that Chinamaintainedan equilibrium in the BOP during the third quarter, that is, the current account was in surplus and the capital account was in deficit. This will be favorable for a voluntary balance in the BOP in China and for the People's Bank of China to improve macro controls and to expand the space for operation of its monetary policies. Second, from the perspective of the approach to the adjustment, the increase in companies’foreign exchange deposits, including their increase in external investments, has helped allocateforeign exchange to the marketinstead of to the government, which is in line with the reform goal of encouraging people to hold more foreignexchange. The reductionsin foreign exchange loans and external liabilities by companies are favorable for reducing the currency mismatch and exposure to external liabilities, thus cutting financial risks. During themarketization reform of the RMB exchange-rate formation mechanism, thecentral bank phased out its intervention in the foreign exchange market, which means that the trade surplus has a positive correlation with capital outflows, namely, the higher the trade surplus, the more capital outflows there are, which is also a goal of the reform. Our reform has delivered fruits and has achieved theexpected goals, which should not be regarded as a problem, but it still requires careful consideration. Third, in terms of the adjustment process, China witnessed a round of massive net capital inflows between the end of 2012 and the beginning of this year, but due to the bidirectional fluctuations of the RMB exchange rate and the complex domestic and international environments, capital inflows have recently been replaced bycapital outflows, suggesting a relativelyobvious pendulum effect, which is considered normal. A shortage ofUSD 20–30 billionin foreign exchange is not very serious and it is something that China can withstand. Moreover, the percentage of foreign exchange settled by companies as foreign exchange income was 69 percent in the third quarter, up by 1 percentage point from the second quarter.In particular, the percentage was 74 percent in September, 6 percentage points higher than that in August. All these indicate that at present the willingness of market playersto hold foreign exchange is stable and there is no reason to panic about speculation in foreign exchange. October 23, 2014, 10:59:23am · Guan Tao: China's cross-border capital flows will be basically balanced amid oscillations in the future. Currently receipts and payments under the current account are basically balanced and the RMB exchange rate is rationally balanced. Butdue to increased uncertainties both at home and abroad, bidirectional fluctuations in cross-border capital flows may become a new normal, which is also the case of the BOP under the economic new normal. There are stillfactors that may lead to inflows or outflows of China's cross-border capital. For example, stable economic growth, will increase demand for the allocation of RMB assets in theinternational market, and thepositive spread both at home and abroad and during thepeak season for consumption at the year-endtraditionalWestern holidayseason are all favorable for cross-border capital inflows. On the other hand, given the complex economic and financialenvironments both at home and abroad, the many uncertainties may increase the volatility of China's cross-border capital flows. But by deepening efforts on all fronts, promoting economic upgrading and transformation, and maintaining stable economic growth based on the plans of the Central Committee and the State Council, coupled with the high trade surplus and enormous foreign exchange reserves, China will be able to withstand such volatilities. October 23, 2014, 11:23:08am · Reporter from the Economic Daily News: Although the RMB exchange rate experienced obvious bidirectional fluctuations and the SAFE introduced relevant policies to develop foreign exchange derivatives since thebeginning of this year, we have learned that some companies have reduced their foreign exchange hedging businesses. What would you say about this? October 23, 2014, 11:37:33am · Guan Tao: The foreign exchange market has responded positively to the bidirectional fluctuations of the RMB exchange rate, but some issues still require our attention. First, significant changes have taken place in foreign exchange derivative transactions. On the one hand, the bidirectional fluctuations of the RMB exchange rate have endedthe single expectations of the RMB, making companies change their unilateral transaction strategies that only focus onforward settlements of foreignexchange and excludeforward purchases of foreign exchange. The monthly average of forward settlements of foreign exchange from March to September dropped by 48 percent from those of January to February, while the monthly average forwardsales of foreign exchange were up by 18 percent. On the other hand, derivative transactions have been more active since the end of June when the SAFE introduced foreign exchange market development measures that focus on foreign exchangeoptions with simplified market access. The number of foreign exchange option transactions set a record in August and was 1.8 times that in the previous month;the percentage of forward transactions during the same periodwas up from 8 percent in July to 21 percent. All these changes reveal the voluntary adjustments of the market and the effects of policy support. Second, providing risk education to companies is still a pressing issue. We have noted that some companies have not yet adapted to the bidirectional fluctuations of the RMB exchange rate. Due to the unilateral appreciation of the RMB, the RMB exchange rate seldom fluctuated sharply in the past, and the forward settlement price of foreign exchange was even higher than thespot settlement price of foreign exchange for a certain period of time. Given this, some companieshave used forward settlements offoreign exchange as a tool to make money, and some even believethat it is not necessary to hedge risks if forward transactions or other derivative transactions prove not to be profitable. On the other hand, some companies have formeda stereotypical routine in derivative transactions, that is, they only settle forward foreign exchange income and they do not hedge risks arising from foreign exchange spending or external liabilities. In other words, despite foreign exchange exposure arising from foreign exchange loans, they do not hedge foreign exchange- rate risks. Next, the SAFE will continue to promote the development of the foreignexchange market and support market players to use derivatives to manage exchange-rate risks so as to better serve the real economy. Banks should provide companies with hedging services in line with the principle of merchantability, improve the provision of risk education, and guide market players to build a proper sense of hedging. Meanwhile, under the new normal of bidirectional fluctuations of the RMB exchange rate, companies should have a correct sense of risks, create strict financial discipline,manage exchange-rate risks properly by using derivatives, and replace subjective judgments with market operations. October 23, 2014, 1:06:32pm · Reporter from NHK, Japan: What do you think of the impacton China's economy of the US withdrawalfrom its third round of quantitative easing?It is said that theprevious “hot money”inflowswere one of the reasons behind the increase in property prices and the year-on-year increase in real estate investments in China. What would you say about this and what areyour ideasabout the recent changes? Since most of China's foreign exchange reserves are used to buy US bonds, will the US withdrawal fromthe QE lead to a reduction in China’s holding of US bonds? October 23, 2014, 1:10:04pm · Guan Tao: We have already conducted interviews on investments in foreign exchange reserves, and you can review the relevant reports if you are interested. By the way, this issue is irrelevantto today's conference. Now I'd like to talk about the impact of the US withdrawal from the QE. The direction of US monetary policy has always been an important factor that has an impact on China's cross-border capital flows, and it is a variant we have closely watched since the beginning of this year. So far, the USwithdrawalfrom the QE, coupled with many other factors in China and the international market, has hada certain impact on China's cross-border capital flows. Companies have adjusted theirfinancialstrategies, not merely due to the US withdrawal from theQE but also due to factors such as the bidirectional fluctuations in the RMB exchange rate, domestic economic conditions, and differentiated exchange-rate expectations. As I have mentioned, the results of such impactsare beneficial and in line with the direction of the reform and the goal of macro control. We will continue to pay attention to the direction of US monetary policy in the future and make plans to respond. The market should watch out for the effects in the domestic and international markets and use proper tools and approaches to manage the cross-border capital flows and the risks arising from bidirectional fluctuations in the RMB exchange rate. Regarding the property market, the indicators we monitor show that there are no strong signs of outflows of foreign capital from China's property market. On the whole, we have witnessed more net inflows of foreign capital into China's property market. The inflows of capital from non-residents to buy housing in China stood at USD 520 million in the first three quarters, which was not huge but several ten times that during the same period from 2009 to 2013. Capital inflows of foreign-funded companies inthe property industry remain high, with the net amount totaling USD 20.1 billion in the first three quarters, the highest for the same period since 2009. October 23, 2014, 1:10:44pm · Reporter from CRI: The exchange rate of the RMB against the US dollar has been on the decline since the beginning of this year. Reportedly, companies such as those in the aviation, iron and steel, and property industries have reported significant exchange losses in the first half of the year. How would you look at this? October 23, 2014, 1:12:33pm · Guan Tao: First, we have noted this as well. It has been recently reported that the exchange losses that listed Chinese companiesdisclosed during the first half of this year amounted to RMB 11.7 billion. That is true. As the RMB exchange rate is on the decline, companies that have foreign-denominatedliabilities will suffer exchange losses. But this is a book loss in an accounting sense, not a real loss, provided that real liabilities arising from purchases of foreign exchange using RMBdo not occur. As the RMB exchange rate fluctuates bi-directionally, losses may be incurred as the RMB depreciates, but they will decrease as the RMB appreciates, just as what has been occurring recently, so such changes are dynamic rather than static. Second, many companies have foreign-denominatedboth liabilities and assets. Exchange-rate fluctuationsare a double-edged sword. When the exchange rate is declining, companies' foreign-denominatedliabilities will rise, but the returns fromtheir foreign-denominated assets will rise.Therefore, losses or gains should be analyzed based on the real situation. Given that the beneficiaries of the exchange-rate fluctuations constitute the silent majority, while the losers will be reported or be hyped by the media, the negative impact of the exchange-rate fluctuations may be exaggerated. Third, companies may have become used to the unilateral rises and low fluctuations of the RMB exchange rate. It is attractive in terms of accounting to have foreign-denominatedliabilities when the RMB interest rate is high. But this will not always be profitable after the RMB exchange rate begins to fluctuate bi-directionally. It is therefore suggested that companies adapt to the bidirectional fluctuations of the RMB exchange rate, reduce currency mismatches, and adopt the strategy of borrowing, collecting, and repaying foreign exchange. Moreover, companies should borrow foreign money based on their real needsand should not artificially magnify the lever and take this as a financing tool to make money. Therecently unveiled financing risks that are associated with commodity trading may entail a high leverage transaction ratio and companies using this financing tool to make moneywill face risks as the RMB exchange rate fluctuates bi-directionally. In addition, companies should properly hedge the risks associated with exposure to foreign-denominated liabilities and actively use tools such as foreign exchange derivatives to manage the exchange-rate risks. October 23, 2014, 1:13:11pm · Reporter from Global Times (English edition): Officials from the People's Bank of Chinasaid in September that the PBC will promote the building of a QualifiedDomestic Institutional Investormechanism, or the new QDII mechanism, to allow individuals to invest in overseas markets. What measures will the SAFE taketo support overseas investments by individuals?Will it further ease the limit of USD 50,000per person per yearfor foreign exchange purchases by individuals? October 23, 2014,1:16:24pm · Guan Tao: The relevant QDII policy has been developed by the People's Bank of China, so I recommend that you make enquiries of the relevant departments. The question regarding the limit of USD 50,000per person per year for individual foreign exchange purchases was raised at the SAFE press conference on September 25. To save your time, I will not repeat the answer. October 23, 2014,1:17:03pm · Hu Kaihong: This is the end of today's conference. Thank you for coming. October 23, 2014, 1:17:57pm The original text is available at www.china.com.cn 2014-11-26/en/2014/1126/1134.html
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Gain a Deep Understanding of the New Economic Trends in China —Learning and Implementing Xi Jinping's Ideas on the Economic New Normal Yi Gang, SAFE Administrator Since the 18th National Congress of the Communist Party of China, President Xi Jinping has summarized the success stories of China's reform and development, shared many of his thoughts and ideas, and made constructive statements and proposed new requirements, thus enriching and developing the theoretical system of socialism with Chinese characteristics. As we are entering a critical period for economic construction and development in terms of the pace of growth, the structural readjustments, and the stimulus policies, Xi proposed that we should adapt to the new normal state featuring the characteristics of the current development stage of the Chinese economy and remain calm while implementing the new strategies. This idea is of great theoretical value and of guiding significance to deepen the economic institutional reform, promote sustainable and healthy economic development, and achieve the two centennial goals (namely, to complete the building of a moderately prosperous society in all respects when the Communist Party of China celebrates its centennial in 2021, and to turn China into a modern socialist country that is prosperous, strong, democratic, culturally advanced, and harmonious when the People's Republic of China celebrates its centennial in 2049) and achieves the Chinese dream of the great renewal of the Chinese nation. Fully understand the grounds for the statement that China's economy is entering a critical period of slower growth, deepening structural readjustments, and absorption of the stimulus policies With an accurate understanding of the overall picture of China's economic growth, the CPC Central Committee led by Secretary General Xi Jinping has stated that in the long term China will see sound fundamentals in its economic and social development, but it is now facing a critical period as its economy is shifting from high-speed growth to mid-to-high-speed growth, its structural readjustments are under great pressures, and the preliminary stimulus policies are being absorbed. This statement shows that the CPC Central Committee is willing to face up to the reform and development challenges and is able to identify the principal contradictions and key links in economic development. Fully understanding the grounds for this statement is a prerequisite for delivering good performance in our economic work. The economic laws determine China's shift to slower economic growth. China's GDP has sustained an astonishing annual average growth rate of nearly 10 percent for more than thirty years since implementation of the reform and opening up, and our economic aggregates reached RMB 56.88 trillion in 2013. As the world's second-largest economy with huge economic aggregates, China is finding that it is difficult to maintain high-speed growth due to the constraints of production factors. Take labor factors as an example. China's population structure and supply and demand for labor have fundamentally changed. The number and share of the labor force dropped for the first time in 2012, and the aging population will continue to grow, making it difficult for China to achieve two-digit growth. International experience shows that economies decelerate to varying extents after reaching a certain stage. Japan and South Korea, for example, witnessed 23 and 36 years of high-rate growth after World War II, with their GDPs growing at an annual average rate of 9.7 percent and 8.02 percent respectively, but then their economies slowed down by nearly one-half. Facing an economic slowdown, we must thoroughly study and follow the economic laws and ensure that the range of adjustments is appropriate for improving the quality and efficiency of economic development. Accelerating the strategic readjustments of the economic structure is a very necessary approach to respond to the profound changes in the economic conditions. The manufacturing industry has long been the engine of China's economic growth and has played an important role in China's economic miracle. But the development model of China's manufacturing industry is relatively extensive, leading to many problems, such as a serious overcapacity. The capacity utilization of manufacturing companies in the first three quarters of 2013 was at the lowest level since 2006 and lower than the internationally recognized normal level. In particular, the capacity utilization of the main products in the iron and steel, cement, electrolytic aluminum, coke, shipping, photovoltaic, and so forth industries was lower than 50 percent. The overcapacity in the manufacturing industry led to decreases in the returns on capital and the marginal output. Moreover, the extensive development of the manufacturing industry has also caused many resource, ecological, and environmental problems, such as high energy consumption per unit of GDP, serious water, air, and soil pollution, and deteriorations in the ecological environment. If we are not determined and courageous today, we will pay a bigger price tomorrow. Given the profound changes in the development conditions, we must accelerate the strategic readjustments in the economic structure and combine economic growth with structural readjustments, improvements in the people's lives, and the construction of an ecological civilization to achieve sustainable development. Absorbing the preliminary stimulus policies is a prerequisite for safeguarding China's economic and financial security. To respond to the global financial crisis, China introduced a package of stimulus policies during the past few years, which contributed greatly to China's sound economic growth and the recovery of the world economy. However, these policies also had some negative effects, such as financial capital being off to a virtual reality, too many company debts, and the accumulation of potential risks in some areas and links, such as local financing platforms. Developing a high liability ratio and a high leverage ratio will compromise our future and may potentially endanger sustainable economic development. Therefore, we must take the initiative in economic development and properly handle the relationship between ensuring growth and guarding against risks to improve the efficiency and quality of economic development. Accurately understand the meaning of the economic new normal in China "China's development is entering a period of strategic importance. We must consolidate confidence to adapt to the new normal state featuring the characteristics of the current development stage of the Chinese economy and remain calm while making strategies," said Xi. This is a scientific analysis of the long-term economic trends in China, based on, among other things, a comprehensive analysis of China's economy during a period when economic growth is slowing down, structural readjustments are under great pressures, and the preliminary stimulus policies are being absorbed. We should accurately understand the meaning of the economic new normal, acquire good knowledge about the new economic trends, and promote the economy, reform, and development well to make sure that we will complete the building of a moderately prosperous society in all respects by 2020 and go on to fulfill further goals. China's economy is shifting from high-speed growth to mid-to-high-speed growth. After undergoing two-digit growth over the past thirty-plus years, China's economy is now gradually slowing down to mid-to-high-speed growth, which is an important sign of the new normal economic state. Such a speed is sustainable. "We must understand the relationship between sustainable and healthy development and GDP growth in an all-round way," stressed Xi. Ending the blind pursuit of high-speed economic growth is favorable for the optimization of resource allocations and for full utilization of resources, and for improvements in the quality and efficiency of economic development to ensure that the people can share in the fruits of the economic development. An economic slowdown means relatively slow economic growth compared with the previous high-speed growth, but this speed is still much higher than that in the developed economies and many emerging markets and this growth is more comprehensive, coordinated, and sustainable, featuring a more stable and rational structure. It is foreseeable that China's economic growth will contribute even more to global economic growth in the coming decade. The leading position of the manufacturing industry in the industrial structure is being shifted to the services industry. With its level being a key sign that measures the level of economic development in a modern society, the services industry is an important sector of the Chinese economy. But China's services industry was relatively immature in the past. The added value of this industry accounted for 46 percent of China's GDP in 2013, which outperformed that of the manufacturing industry for the first time, but it was still far behind the 70 percent which is the typical percentage of the services industry in GDP in the developed countries, indicating the boosting of the services industry on China's economic growth has yet to be unleashed. Under the new normal economic state, the position of the services industry in the industrial structure will further pick up. Since what we need is an economic growth speed that ensures improvements in the people's lives and full employment, the development of the services industry that can provide more job opportunities than the manufacturing industry is conducive to achieving the goal of full employment, enriching the provision of daily necessities, improving the people's lives, and achieving the growth of humanity. The development concept is being transformed from one-sided pursuit of GDP growth to humanitarian and environmental protection. Under the new normal economic state, efforts will be made to expand the reforms and to promote development based on the people-first philosophy and the principle of serving the fundamental interests of the overwhelming majority of the people rather than to seek GDP growth as the ultimate goal. "A good ecological environment is the fairest public good that is most beneficial to general well-being," Xi pointed out. The central government has been implementing an innovation-driven development strategy in recent years and regards energy-savings and emissions reductions as restrictive indicators for economic and social development to promote green, circular, and low-carbon development. People-first economic development means equal access to basic public services in urban and rural areas will be promoted at a faster pace, with an elimination of the urban-rural dual economic structure. China's urbanization has been accelerated in recent years. Its urban population exceeded its rural population for the first time at the end of 2011, accounting for 53.7 percent of the total population at the end of 2013, nearly equal to the world’s average. More and more migrant workers have access to basic urban public services. Meanwhile, new rural areas are being built, urban and rural development is becoming more balanced, and gaps between the rural and urban areas are being narrowed, indicating the fruits of development are being shared by more people in a more equitable way. Promote stable economic growth under the new normal state by deepening the reforms The critical period featuring slower economic growth, deepened structural readjustments and absorption of the stimulus policies, and the economic new normal are both an opportunity and a challenge. "To meet the people's new expectations, we must consolidate confidence in the reforms and promote the reform and opening up with more political courage and wisdom and more effective measures and methods," Xi stressed. During this critical period of strategic importance, we should remove the institutional and structural contradictions in economic development by deepening the reforms, give the market a decisive role in allocating resources by promoting the reforms in key areas and links, and allow the government to play a better role in the promotion of the sustainable and healthy development of the Chinese economy. Carrying out market-oriented reforms. First, streamline administration and delegate power to lower levels. Efforts should be made to minimize permissions, approvals, and qualification evaluations and to motivate market players to start businesses so as to continuously vitalize economic transformation. Second, accelerate improvements in the modern market system. We should develop open and transparent market rules and unified market access rules by formulating a negative list. We should deepen the reform of the factors market and establish a price system that can reflect scarcities and the supply-demand relationship to combine improving the efficiency of resource allocations and promoting economic growth. Third, energize micro units. We should ensure that diverse forms of ownership participate in competition in an open, fair, and just way and we should encourage non-public ownership to move into the services sector and high-technology areas. Fourth, expand internal and external opening up. We should promote bidirectional opening up of the capital market to increase the convertibility of cross-border capital and financial trade in good order. We should combine "inviting in" and "going out" to encourage foreign capital to participate in domestic M&As and integration, ease restrictions on domestic residents' overseas investments and establish the principal positions of companies and individuals in overseas investments. Carrying out innovation-oriented reforms. First, deepen the education reform to accelerate accumulation of human resources. We should make full use of the role of human resources as a source of innovations to a lay a solid foundation for the upgrading of the traditional industries and the development of industries such as new generation IT, new energy, and high-end equipment manufacturing and then to improve labor productivity and total factor productivity. Second, improve the systems and mechanisms of technology innovation. We should deepen the reform of technology systems and establish an open and transparent evaluation mechanism for national technological resource management and projects. We should uphold market-oriented technology innovations, strengthen the principal position of companies in technology innovations, and improve venture capital investment mechanisms and business models to promote the transformation of technology innovations into the dynamism of economic development. Third, promote the integration of technology and finance. We should increase the use and protection of intellectual property rights to make full use of the capital market to support innovations and the starting of businesses. Carrying out sustainability-oriented reforms. First, accelerate the building of mechanisms and systems for sustainable economic development. We should build a scientific indicator system, an assessment system, and a monitoring system for energy savings and emissions reductions, implement a target responsibility system regarding energy savings and emissions reductions and stress the restrictive roles of the indicators. Second, develop a green and circular economy. We should promote low-carbon technology, develop new and renewable energies, and enhance prevention and control of water, air, and solid waste pollution and traffic congestion. Third, protect the ecological environment. We should actively respond to global warming and continue to push ahead with ecological projects, such as natural forest protection, conversion of farmland to forests, and conversion of farmland to pastures, to promote coordinated development of the economy and the environment. Carrying out reforms that benefit all. First, build a reasonable and orderly income allocation pattern. We should adjust the distribution pattern of the national income by further increasing the proportion of labor remuneration in the initial distribution to synchronously enhance labor remuneration and labor productivity. We should improve the minimum wage and wage payment guarantee systems to bridge the income gaps between the rural and urban areas, between regions, and between industries. Second, establish a fair and sustainable social security system. We should integrate the basic pension and medical insurance systems for rural and urban residents, coordinate the minimum standard of living scheme for rural and urban residents, and accelerate the building of a basic public services system for all people. We should learn lessons from other countries regarding welfare policies and build a social security system that is appropriate for the level and stage of social and economic development in China, while avoiding welfare problems caused by overly high welfare or a failure to guarantee a minimum standard of living due to excessively low welfare. (The original text was released on page 7 of the People's Daily, dated November 3, 2014) 2014-11-26/en/2014/1126/1135.html