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To push forward the rule of law in finance and support the policy measures of stabilizing reform, promoting reform, readjusting structure and improving people's living standards, the State Administration of Foreign Exchange (SAFE) has continued to increase legislations and streamline regulations in key areas since the beginning of 2016. Legislations mainly concern settlement of foreign exchange under the capital account, investment in interbank bonds markets by foreign institutional investors, domestic securities investment by qualified foreign institutional investors (QFIIs), foreign currency exchange agency and self-service currency exchange machines, declaration of the balance of payments statistics and refinement of authenticity review requirements. Regulations streamlining is to abolish or nullify regulations on foreign exchange administration that cannot adapt to the requirements for business development and reform. To facilitate public enquiry and application, the SAFE then upgraded the Catalogue of Major Existing Laws and Regulations in Effect on Foreign Exchange Administration (Catalogue) and released it at its official website. The upgraded Catalogue contains 213 policies, laws and regulations on foreign exchange administration released as of June 30, 2016, which fall into 8 categories including general foreign exchange administration, foreign exchange administration under the current account, foreign exchange administration under the capital account, regulation of the foreign exchange business of financial institutions, the RMB exchange rate and the foreign exchange market, balance-of-payments and foreign exchange statistics, foreign exchange inspections and application of the laws and regulations, and the scientific administration of foreign exchange, and several sub-categories by specific business type. This is the seventh straight year that the SAFE has regularly updated and published the list of currently effective regulations. The SAFE will continue to implement a long-term mechanism for regulations streamlining, step up efforts with regard to power delegation, centralization and services, regularly streamline and update the Catalogue, to help market players understand and use foreign exchange administration laws and regulations, so as to serve the development of the real economy. 2016-11-08/en/2016/1108/1220.html
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To further promote trade and investment facilitation and support the policy measure of "stabilizing growth, promoting reform, adjusting restructure and benefiting people", with a vision to streamline administration, delegate powers, combine decentralization and regulation, and optimize services, the State Administration of Foreign Exchange (SAFE) has been committed to law-based administration and sorting out regulations, to abolish, nullify or modify selected regulations on foreign exchange administration that cannot adapt to the requirements for business development and reform. More than 700 documents on foreign exchange administration have been abolished and nullified since 2009. To further streamline the effective regulatory documents on foreign exchange administration, the SAFE has recently released the Circular of the State Administration of Foreign Exchange on Announcing 14 Regulatory Documents on Foreign Exchange Administration Abolished and Nullified and One Modified (Huifa No. 13 [2016]) Specifically, one was modified, 3 were abolished including one that was announced abolished with the Ministry of Finance through negotiation, and 11 were nullified. The documents mainly concerned management of individual foreign exchange settlement under trade, foreign exchange administration under the capital account, balance of payments and foreign exchange statistics, foreign exchange administration for financing institutions and construction of foreign exchange system. Bearing in mind the whole picture of reform and development, the SAFE will continue to implement the long-term mechanism for regulation streamlining, and attach equal importance to establishment, modification, nullification and interpretation of regulations, so as to enhance policy transparency and serve the real economy. 2016-11-08/en/2016/1108/1217.html
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To deepen the foreign exchange administration system, better serve and facilitate domestic players' demand on operations and capital operation, and boost cross-border investment and financing to serve the development of the real economy, the State Administration of Foreign Exchange (SAFE) recently published the Circular of the SAFE on the Policies for Reforming and Standardizing Management of Foreign Exchange Settlement under the Capital Account (Huifa No. 16 (2016), "Circular"). The highlights of the Circular are as follows: First, managing discretionary settlement of foreign exchange under external debt in an all-round way, allowing companies to choose the time for foreign exchange settlement under external debt at their discretion. Second, unifying the policy for discretionary settlement of foreign exchange receipts under the capital account by domestic institutions. Third, clarifying that domestic institutions' use of foreign exchange receipts and settlements under the capital account should be in conformity with the regulations on foreign exchange administration, a "negative list" approach will be adopted to the use of receipts under the capital account, and relative negative lists will be deeply cut. Fourth, further standardizing the payment management with regard to receipts and settlements under the capital account, and clarifying banks should take responsibility for authenticity review under the three-point business principle. Fifth, the SAFE will strengthen ongoing and ex-post management, with focus on strengthening ex-post regulation and punishments arising from violations. The Circular will come into force as of the date of issuance. (End) 2016-11-08/en/2016/1108/1218.html
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Q: The State Administration of Foreign Exchange has provided window guidance to selected commercial banks with regard to a higher deficit in bank's sales and settlement of foreign exchange, requiring them to take proper measures to narrow the deficit, according to recent media reports. What would you say about this? A: This is not true. Foreign exchange authorities have not taken any new regulatory measures for currency exchanges or cross-border receipts and payments thus far, except to require banks to observe the existing foreign exchange regulations, implement the self-regulatory requirements and intensify authenticity and compliance reviews. The foreign exchange administration policies remain consistent with the previously published ones, with no change made. The foreign exchange purchase, payment, receipt and settlement are handled as usual. Next, foreign exchange authorities will systematically press ahead with the reform in key aspects, further enhance the level of trade and investment facilitation, intensify early warning with regard to monitoring of cross-border capital flows, help banks to improve the self-regulatory mechanism, and to implement the business requirements and responsibilities in authenticity and compliance reviews, while maintaining a tough stance on foreign exchange irregularities, in a bid to safeguard China's economic and financial security. 2016-12-19/en/2016/1219/1234.html
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The State Administration of Foreign Exchange (SAFE) has recently published the 2016 list of enterprises surveyed for trade credit. According to the Statistics Law of the People's Republic of China, and the Measures for the Declaration of Balance of Payments Statistics, enterprises are obligated to cooperate with the survey and liable for the accuracy of the data reported. China's trade credit survey system came into force in 2004. In January 2016, the SAFE revised the system and released the Circular on the Issuance of the Trade Credit Survey System (Huifa No.1 [2016]）, effective August 1, 2016. Based on the foreign trade volume and receipts and payments under trade, 16,439 enterprises participated in the survey in the year, consistent with the figures of past years. To be specific, 11,851 enterprises participated in the annual survey, and 4,588, monthly survey. These two types of enterprises were required to report data by the month or per annum, so as to find an equilibrium between the improvement of the quality of statistical data and reduction of reporting burdens. To make it easy to enquire, the list is categorized by the foreign exchange authority located in the registration places of the enterprises surveyed. The list may be subject to minor adjustments as the survey goes on. 2016-11-08/en/2016/1108/1223.html
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The SAFE has recently published the Circular of the State Administration of Foreign Exchange on Foreign Exchange Administration for Overseas Institutional Investors Participating in China's Interbank Bond Market (Huifa No. 12 [2016], "Circular") to facilitate the opening-up of the interbank bond market and standardize foreign exchange administration for overseas institutional investors participating in the interbank bond market. The highlights of the Circular are as follows: (a) overseas institutional investors are subject to registration management, and shall perform foreign exchange registration via a settlement agent; (b) no quota will be set for an individual institution or no total quota will be set. An overseas institutional investor may go through without authorization or approval of the SAFE the procedures for inward and outward remittances, or settlement and purchases of foreign exchange with a bank directly, based on relevant registration information; (c) the currencies in outward and inward remittances shall be the same, i.e., the proportion of domestic and foreign currencies in an outward remittance by an investor shall be consistent with that of an inward remittance, with the difference no higher than 10%. The Circular will come into force on the day of release. (The end) 2016-11-08/en/2016/1108/1219.html
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Q: It has been recently reported that China, in order to crack down on capital flight, has introduced measures to constrain cross-border financing instruments and impact imports. What would you say about this? A: The State Administration of Foreign Exchange (SAFE) has not introduced recently any measures to intensify foreign exchange management with regard to import financing. For the authentic and legitimate foreign exchange receipts and payments under trade, relevant documents could be presented to a bank for direct handling. Cross-border guarantees such as overseas loans under domestic guarantees will continue to be handled in accordance with the Regulations on Foreign Exchange Administration for Cross-border Guarantees. The cross-border guarantees with authentic trade and investing backgrounds and relevant products will not be affected. 2017-01-25/en/2017/0125/1246.html
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——A Transcript [Wang Yungui]: I would like to welcome all of you here this morning at the formal start of the press conference of the State Administration of Foreign Exchange, or the SAFE, on its policies for the third quarter of this year. I am also happy to see many familiar faces of media friends in the audience. [10:11] [Wang Yungui]: My name is Wang Yungui and I am director of the General Affairs Department. With us here today are Du Peng, director of the Current Account Department, and Ye Haisheng, deputy director of the Capital Account Management Department. You may not have met Mr. Ye before, but he has been working at the Capital Account Management Department for many years and is highly experienced. We also have here with us Cao Liqun, deputy director of the Administration Inspection Department. She has been working for the Inspection Department for many years and is very familiar with the inspection work. We will be taking questions later. [10:11] [Wang Yungui]: On behalf of the SAFE, I would first like to unveil the latest policies of the foreign exchange administration. Since the beginning of this year, China's economy has grown slowly but steadily, which is assuring. Despite various difficulties and downward pressure, the stable economic fundamentals have remained unchanged. Following the work plans of the CPC Central Committee and the State Council, the SAFE has pressed ahead with reforms while preventing risks, accelerated administration streamlining and power delegation and the "five shifts" in foreign exchange administration, deepened the capital account convertibility reform, and improved monitoring, warning, ongoing and ex-post management, thus effectively preventing the impact of cross-border capital flows and improving its capability to serve economic restructuring, transformation and upgrading. Below are the reform measures introduced in the quarter: [10:12] [Wang Yungui]: First, deepening the administration of centralized operation of foreign exchange funds by MNCs [10:12] [Wang Yungui]: The SAFE started a pilot program for the administration of centralized operation of foreign exchange funds by MNCs in 2012. Since the second half of 2014, the SAFE has promoted nationwide the upgraded version of the administration of centralized operation of foreign exchange funds by MNCs. The SAFE piloted facilitation reform measures with more than 200 MNCs, allowing MNCs to receive, pay, settle and sell foreign exchange under the current account, and to use external debt quota and overseas loan quota through the cash pool account in a centralized manner. The past year's pilot program shows that the pilot companies' costs of funds have dropped remarkably, the efficiency of their use of funds has been improved significantly, and the local governments' demand for developing the headquarters economy to promote structural transformation has been satisfied. [10:13] [Wang Yungui]: On this basis, the SAFE adjusted and optimized the policy for the centralized use of foreign exchange funds by MNCs in August, providing more measures for trade and investment facilitation for eligible MNCs. These measures include: first, simplifying the requirements for account opening and use. Eligible host enterprises for MNCs are allowed to open domestic and international master funds accounts at locations outside of their local jurisdictions. Second, simplifying foreign exchange receipts and payments procedures. MNCs can go through the procedures of foreign exchange receipts and payments under the current account with banks by presenting electronic instruments, and are allowed to purchase and pay foreign exchange under the current account and the capital account with different banks. Third, adopting the proportioned self-discipline management policy on MNCs borrowing external debt on a trial basis. Based on the pilot external debt reform in China (Shanghai) Pilot Free Trade Zone, MNCs are allowed to borrow external debt within the quota. Fourth, focusing on risk prevention. The high access threshold is maintained and MNCs that apply for participation are required to have more than USD 100 million in foreign exchange receipts and payments in the previous year; financing leverage ratio, macro-prudential adjustment parameter and risk warning mechanism are introduced in the proportioned self-discipline management for enterprise external debt, while ongoing and ex-post management are strengthened. [10:14] [Wang Yungui]: Second, the pilot program for cross-border foreign exchange payment through payment institutions has taken shape. [10:14] [Wang Yungui]: Based on the experience from the pilot program that has been in force in Shanghai, Beijing, Chongqing, Zhejiang, and Shenzhen since 2013, the SAFE rolled out nationwide the pilot program for cross-border payment business among payment institutions in January 2015, further relaxing the restrictions on business scope, elevating the limit on single transaction for online shopping to the equivalent of USD 50,000 and delegating the power to approve pilot payment institutions to SAFE branches. [10:14] [Wang Yungui]: As business advances, the pilot cross-border foreign exchange payment program has taken shape in terms of volume, facilitating cross-border electronic transactions such as “haitao” shopping. As of August 2015, 26 payment institutions across the country have participated in the pilot program for cross-border foreign exchange payment, handling USD 5.19 billion in cross-border receipts and payments, and settling and selling USD 5.26 billion in foreign exchange. From January to August 2015, the transaction volume of cross-border receipts and payments through pilot institutions accounted for 67% of the total transaction volume since 2013, and was 2.2 times the total transaction volume through pilot institutions in 2014. Since March 2015, the cross-border receipts and payments per month have exceeded USD 300 million for 6 consecutive months. For the moment, many payment institutions are still applying to the foreign exchange authority in the place where they are registered for joining the pilot program. [10:15] [Wang Yungui]: Third, the reform of foreign exchange administration under direct investment has been successfully implemented [10:16] [Wang Yungui]: On June 1, 2015, the measures for the foreign exchange administration reform such as delegation of registration of foreign exchange under direct investment to banks and discretional settlement of foreign exchange capital by MNCs were rolled out nationwide. Effectively, this means almost all the administrative approval items for the administration of foreign exchange under direct investment have been canceled, thus further facilitating cross-border direct investment. These measures are well received among market players and have produced positive policy results. For example, for enterprises, delegating the registration of foreign exchange under direct investment to banks helps simplify the business process, reduce enterprises' cost of going to and from foreign exchange authorities and banks, and facilitate cross-border investments by enterprises to provide concrete support to the development of the real economy. The policy for the discretional settlement of foreign exchange capital provides enterprises with options of independently mitigating foreign exchange risks, enhancing the flexibility of capital management and helping enterprises to reduce financial cost. [10:16] [Wang Yungui]: Generally speaking, the implementation of the two reforms has been well received in society and the policies have been carried out stably. For example, preliminary statistics of the foreign exchange funds settled across the country since the discretional settlement policy for foreign exchange funds show that from June to the end of August, foreign exchange funds of USD 19.3 billion were settled between foreign-funded enterprises and banks, including USD 4.2 billion of foreign exchange funds settled in a discretional manner, which accounted for 22% of total foreign exchange funds settled. No significant increase in foreign exchange settled or sudden settlement was identified in the period. Nor was centralized inflow of foreign exchange under direct investment or large-scale abnormal settlement identified either. [10:17] [Wang Yungui]: Fourth, stably pressing ahead with the pilot policy for the macro-prudential regulation of external debt [10:19] [Wang Yungui]: In February 2015, a pilot reform of macro-prudential administration of proportioned self-discipline of external debt in special economic areas including Zhongguancun of Beijing, Qianhai of Shenzhen and Zhangjiagang of Jiangsu, allowing enterprises to borrow external debt that is within a certain multiple of net asset. This pilot policy has produced positive results, and estimates show that this helps some pilot enterprises to save 2-3 percentage points of capital cost. [10:19] [Wang Yungui]: Based on the experience in the preliminary pilot program, the SAFE upgraded the pilot policy for Zhongguancun of Beijing in August 2015, expanding the use of external debt, loosening the administration of special accounts for external debt, and providing minimal quota for external debt to selected high-tech enterprises with small net assets, strong demand for financing and strong profitability. As a beneficial attempt in further exploring and improving the pilot program for macro-prudential administration of external debt, this can better address the financing difficulties that enterprises face and meet the requirements for "mass entrepreneurship and innovation". [10:19] [Wang Yungui]: Fifth, supporting the liberalization of the domestic commodity futures market and trade facilitation. [10:19] [Wang Yungui]: After China Securities Regulatory Commission released the methods for allowing overseas traders and brokers to engage in trading of futures of special categories, the SAFE released a circular in July 2015, clarifying the foreign exchange administration policies on overseas investors participating in domestic commodity futures trading to facilitate market operations. The circular is highlighted as follows: first, it is made clear that the foreign exchange accounts of traders will be regarded as special accounts for management and the funds will be under closed operation to reduce trading risks. Second, it is also clarified that the funds of overseas investors for futures trading will not account for the short-term external debt quota for a bank. Third, facilitating capital exchange. Overseas investors are allowed to go through foreign exchange settlement and sales with their own banks, after which, the funds can be directly transferred. Fourth, simplifying data submission. The trading data such as foreign-related receipts and payments involved in futures trading will be uniformly submitted by the opening banks and stock exchanges via their systems. As scheduled, the crude oil futures will be traded on Shanghai International Energy Trading Center. The SAFE is currently preparing for the listing. [10:20] [Wang Yungui]: Sixth, cracking down on activities in violation of foreign exchange laws and regulations. [10:20] [Wang Yungui]: Since the beginning of this year, the SAFE has been focusing on pressing ahead with reforms while preventing risks, allowing market players that do business in compliance with laws and regulations to enjoy investment facilitation, and cracking down on foreign exchange irregularities to effectively prevent risks arising from abnormal cross-border capital flows and to safeguard its bottom line while ensuring regional and systematic financial risks do not occur. First, the SAFE continues to work with the People's Bank of China, the Ministry of Public Security, the Supreme People's Court and the Supreme People's Procuratorate to crack down on the transfer of illegal income through offshore companies and underground banks. More than 30 major cases have been solved thus far, indicating this effort has produced positive results. Second, the SAFE has made centralized efforts to deal with the irregularities identified in the special inspection of banks' compliance with laws and regulations on foreign exchange business, enhance internal control and external regulation of banks, in order to boost the overall level of legal compliance of banks involved in foreign exchange business. Third, the SAFE has organized special inspections of financing and leasing companies in 15 regions regarding foreign exchange business, helping them improve internal management and raise their awareness of doing business in compliance with laws. Fourth, the SAFE has made known the penalties for some institutions and individuals that have engaged in foreign exchange business in violation of regulations, and intensified warning and education of foreign exchange traders to safeguard transactions in the foreign exchange market. [10:21] [Wang Yungui]: Generally speaking, the SAFE has continued to streamline administration and delegate power to lower levels, combine regulation and deregulation, and optimize services to fully facilitate normal trade and investment activities by enterprises and individuals and relevant foreign exchange receipts and payments, with the measures for the foreign exchange administration reform implemented in an orderly way. We have policies in place to safeguard the purchase and use of foreign exchange by enterprises and individuals with legitimate transaction backgrounds, which have fully satisfied their needs in this respect. While striving to serve the real economy, the foreign exchange authorities have successfully stuck to the bottom line of guarding against the risks arising from abnormal cross-border capital flows. [10:21] [Wang Yungui]: Now we will take your questions and please remember to tell us the name of your organization before you ask your question. [10:21] [Economic Daily]: It was reported that the SAFE has recently intensified regulation of split purchases of foreign exchange by individuals. Is this true? If yes, what is the purpose of restricting such purchases? And what measures will be taken? [11:13] [Wang Yungui]: This question has drawn wide concern. Let's invite Mr. Du to answer this question. [11:33] [Du Peng]: Thank you for your question. We have also taken note of the relevant media reports. Foreign exchange authorities fully ensure that all true, normal, legal, and reasonable demand for the utilization of foreign exchange by individuals will be satisfied and that the level of facilitation will not decrease. The SAFE launched the annual aggregate management system for individual settlement and sales of foreign exchange in 2007, stipulating that individuals can purchase or pay foreign exchange of no higher than USD 50,000 within the facilitated limit, by presenting a valid ID card. In the case that the amount exceeds the equivalent of USD 50,000, individuals can go through relevant procedures with banks by presenting personal ID cards and relevant supporting materials indicating the transaction amount, provided that the transaction background is true. This policy has satisfied individuals' rational demand for use of foreign exchange and strongly facilitated their use of foreign exchange. [11:36] [Du Peng]: Meanwhile, to guard against capital flow risks associated with individuals, we have developed relevant regulations. For example, individuals are not allowed to settle or sell foreign exchange in a split way in order to avoid quota management, which is a principled regulation. Past practices find that a limited number of individuals or even enterprises used others' quotas to settle and sell foreign exchange for cross-border capital flows in violation of regulations. Based on the characteristics of split settlement and sales of foreign exchange by individuals, the SAFE released in 2009 the Circular on Further Improving Management of Individuals' Sales and Settlement of Foreign Exchange (Hui Fa [2009] No. 56), or Circular 56. This Circular further clarifies the behaviors of split settlement and sales of foreign exchange by individuals and specific regulatory measures. Such behaviors include, for example, that more than 5 individuals purchase foreign exchange on the same day, every other day or many days in a row and remit the foreign exchange outward to the same individual or institution, and that an individual withdraws foreign currency banknotes that are worth the equivalent of USD 10,000 from the same foreign exchange savings account 5 times within 7 days, and that the same individual transfers the deposits under his/her foreign exchange savings account to more than 5 immediate relatives. Moreover, we require banks not to handle foreign exchange settlement and sales with individuals if it is confirmed or highly likely that the settlement and sales are split transactions. We have also noted that the media coverage is mostly regarding Circular 56 of 2009 and not about the new regulation. Based on local situations, some SAFE branches have reaffirmed Circular 56, urging banks to improve the level of compliance and requiring them to intensify authenticity review, which is necessary for day-to-day foreign exchange regulation and is a normal measure to ensure the quality of our job. [11:37] [Du Peng]: Media coverage also gave the example of Xiaoming, which is a vivid story but not an exact reflection of reality: individuals on the watch list will not be prohibited from conducting foreign exchange transactions or remitting money, but instead will not be allowed to enjoy the facilitation measures of "settling and selling foreign exchange through e-banks" for a period of two years. [11:38] [Du Peng]: Even if an individual is on the watch list, if their demand is found to be true, legal, and rational, they can still handle relevant transactions at bank counters by presenting the required supporting materials and ID certificates, but have to go through a more vigorous authenticity review by the bank. [11:38] [Du Peng]: Last but not least, I want to reaffirm that the legal and rational demand for use of foreign exchange by individuals is guaranteed by policy. To prevent the risks arising from cross-border capital flows, the SAFE will always emphasize the management of split settlement and sales of foreign exchange. If an individual is found borrowing others' quota for split settlement and sales of foreign exchange, banks should follow laws and regulations and refuse to handle it for them. If such a transaction is found afterwards, the SAFE will track and deal with it in accordance with laws and regulations. Thank you. [11:38] [Financial Times]: The SAFE recently announced the punishments for some institutions and individuals handling foreign exchange transactions in violation of regulations. What are your considerations when doing so? Will you make further announcements in the future? Can you brief us on the SAFE's crackdown on underground banks since the beginning of this year? [11:47] [Cao Liqun]: Let me answer the question on punishments first. Given the complex and changing economic conditions both at home and abroad since 2014, the SAFE has always been encouraging the promotion of investment and trade facilitation, as Mr. Wang talked about just now, and improving the monitoring of cross-border capital flows to prevent relevant risks. The SAFE has thus intensified monitoring and investigation of the main channels for abnormal cross-border capital flows and key entities involved and did find that some enterprises and individuals remitted outwards or purchased foreign exchange through false documents, invalid documents, repeated use of documents, fabricated or fraudulent transactions, or split outward remittance. At the same time, some banks failed to strictly perform their obligation of authenticity review and violated regulations in handling settlement, sales, receipts and payments of foreign exchange. [11:53] [Cao Liqun]: As a result, the SAFE announced punishments for institutions and individuals violating foreign exchange regulations on August 25, for the purpose of intensifying warning and education of players in the foreign exchange market, deter illegal behaviors and guiding social entities to handle foreign exchange receipts and payments in compliance with laws and regulations. In the future, the SAFE will further promote trade and investment facilitation and better serve the market players who abide by laws and regulations. Meanwhile, the SAFE will continue to intensify investigation into violating behaviors, exposing irregularities that are severe and involve a large amount of money, and build an effective punishment mechanism against violating and discredited behaviors. [11:54] [Cao Liqun]: For the question on crackdown on underground banks, the People's Bank of China, the Ministry of Public Security, the Supreme People's Court, the Supreme People's Procuratorate and the SAFE took a nationwide special action against transfer of illegal income through offshore companies and underground banks in mid-to-late April, and have solved some major underground bank cases, thus strongly intimidating lawbreakers. To support this action, the SAFE cooperated with the Ministry of Public Security and relevant departments, and made use of its advantages in monitoring and regulating cross-border capital. To be specific, the foreign exchange authorities screened abnormal transaction leads across the country, tracked the trajectory of illegal transaction funds, intensified investigation into customers involved in underground banks, tracked where the illegal funds came and went, investigated the illegal foreign exchange behaviors and upstream criminal behavior, thus threatening the survival of underground banks. Next, the SAFE will continue to work closely with relevant departments to crack down on irregularities such as underground banks, in an effort to achieve greater victories in this special action. [11:54] [Wang Yungui]: I would like to add two points. First, the announcement is not the first one the SAFE has made. For examples of irregularities previously announced by the SAFE, please visit our website. The purpose of announcing irregularities is to warn other foreign exchange transaction entities. Some banks and enterprises have failed to abide by the foreign exchange regulations in handling cross-border capital flows in recent years. After identifying the irregularities, we criticize, educate and even fine the violators. By punishing a small number of violators, we have taught many people a lesson. We have continued to announce example cases where laws and regulations have been violated in the past few years, which has been a common practice among regulators. [11:55] [Wang Yungui]: Second, the SAFE has maintained high pressure on underground banks. To be specific, the SAFE cracks down on cross-border transactions through underground banks with illegal funds and works with public security authorities and other regulators to enhance the results of the crackdowns. Anyone who conducts cross-border transactions through underground banks are faced with heavy risks associated with violation of regulations, and we also want to remind enterprises that do business in compliance with laws and regulations that foreign exchange should be handled through normal channels. [11:55] [China Daily]: We have observed that the People's Bank of China has recently allowed overseas central banks and international financial organizations to invest in the interbank market using the RMB and analysis says this will accelerate the approval of QFII and RQFII. What's your opinion on this? [11:57] [Ye Haisheng]: To promote the liberalization of the interbank market, the People's Bank of China began to allow overseas central banks and international financial organizations to invest in the interbank market using the RMB in June or July, with quite simple steps for those who wish to do so. This marks an important step in liberalizing China's capital market. Is this directly related to the quota approval for QFII and RQFII? Personally, I don’t think so. Overseas central banks and international financial organizations can invest in the interbank market either directly using the RMB after filing with the People's Bank of China or through channels such as QFII and RQFII, which are the two channels for overseas institutions to invest in China's capital market, including the exchange market and the interbank market. China's approval of QFII and RQFII is also based on the payments of balance, the demand of institutions and the development of the capital market. [11:58] [Phoenix Satellite TV]: We observed that the RMB has been depreciating since August. The FED will announce whether to increase interest rate on Friday, Beijing time. What impact do you believe the FED's decision will have on the RMB exchange rate? Will this increase the pressure from capital outflows? Thank you. [11:59] [Wang Yungui]: It is highly possible that the FED will increase the interest rate of US dollars, which is widely expected in the market. Interest rate rise will lead to appreciating US dollars, or depreciating RMB against USD, which is normal in the marketization process. [12:07] [Wang Yungui]: The pressure from capital outflows depends on the stability of the RMB exchange rate. The RMB exchange rate has been stabilized, without market basis for heavy capital outflows. Let me explain this in three aspects: First, since August, the central parity rate of the RMB against the USD has depreciated by 4% and by a different margin against the EUR, the JPY and the GBP, and the pressure from the RMB depreciation has been released since August 11. As you can see, the RMB nominal effective exchange rate rose by 4.9% and the RMB real effective exchange rate rose by 4.6% in the first seven months of this year. After the RMB depreciated against other currencies in August, it is expected that the rises in RMB nominal effective exchange rate and the RMB real effective exchange rate in the month would slow down and the imbalance of exchange rate would be adjusted. [12:09] [Wang Yungui]: Second, let's look at the basis for the formation of the RMB exchange rate. Countries look at balance of payments, especially foreign trade surplus and foreign direct investment, when assessing whether the exchange rate rises or falls. In the first eight months, China witnessed a foreign trade surplus of USD 365.5 billion and utilized foreign investments of more than USD 80 billion. Generally speaking, there was a basic balance of payment surplus of about USD 50 billion each month in the period, which basically guaranteed that the RMB exchange rate would not fall. [12:09] [Wang Yungui]: Third, let's look at China's economic growth rate. China has sustained a 7% economic growth rate, indicating it remains one of the world’s high-growth countries. What does the high growth rate mean? It means a high return on investment, which is favorable for retaining domestic funds and attracting overseas funds to flow in. [12:10] [Wang Yungui]: Therefore, when judging the movement of foreign exchange rate and of capital flows, we should be reasonable. The three pieces of data mentioned previously are very important for judging the current exchange rate and capital flows. [12:10] [CBN]: Since the launch of the reform of the central parity rate on August 11, the RMB exchange rate has fallen, and capital outflows have drawn wide concern recently. The data disseminated by the central bank for this week show that the funds outstanding for foreign exchange dropped remarkably. Did the foreign exchange reserves fall dramatically too? [12:12] [Wang Yungui]: The central bank has published a press release on the fall of foreign exchange reserves recently, so I won’t be explaining further. But I would like to say something more on capital flows. [12:13] [Wang Yungui]: It is said that China is currently witnessing capital outflows. Let's make a detailed analysis of relevant issues based on the data. The current situation can be summarized by three "increases": first, increase in net foreign exchange sold by banks. According to the spot and forward foreign exchange settlement and sales, banks sold foreign exchange of USD 56.1 billion in total in July, which increased to more than USD 90 billion in August. But foreign exchange reserves dropped by more than USD 90 billion, which also confirmed the net sales of foreign exchange by banks. Second, increase in foreign currency deposits absorbed by financial institutions. The balance of foreign currency deposits of financial institutions amounted to USD 667.4 billion as at the end of August, up by USD 93.9 billion from the end of 2014 and USD 27 billion from the end of July. Third, increase in net outflows of cross-border capital. The net outflows of cross-border foreign exchange of institutions and individuals through banks reached USD 14 billion in July and rose to more than USD 70 billion in August. The three increases show that the net sales of foreign exchange by banks have increased, and the foreign exchange deposits of enterprises and individuals have also risen, suggesting a growing number of people are holding more foreign exchange, and foreign exchange reserves are being transferred from the government to the public. China's overall foreign exchange is being fragmented and diversified, which is in line with the reform direction of market-based allocation of foreign exchange resources. As for the increase in foreign exchange outflows, our data shows that foreign trading companies do have accelerated payments of foreign exchange and actively paid debt under finance of foreign trade, in order to mitigate foreign exchange risks, but the outflows are supported by the real economy. In our opinion, foreign trading companies' acceleration of paying debt under trade finance is favorable for reducing external debt risks facing China and significant for maintaining the macroeconomic stability. Overall, cross-border capital flows have been fluctuating recently, but not abnormally. Capital inflows and outflows are stable and orderly, without large-scale capital flight. Our recent monitoring shows that sales or payments of foreign exchange by banks are shrinking remarkably, indicating the market sentiment is being recovered. [12:19] [CBN]: One more question: has the SAFE taken any measures to slow down or ease capital outflow pressures? [12:21] [Wang Yungui]: It is the SAFE's responsibility to monitor and manage cross-border capital flows. Given the fluctuations of cross-border capital flows in July and August, we have taken some measures. Most market judgments may hint that the recent capital flows are caused by fluctuations of foreign exchange. The one-month reform of improving the central parity rate has indeed strengthened the market's role in foreign exchange rate formation. The pressure from RMB depreciation was indeed released in the early stage of the foreign exchange rate reform, which is expected. Given the slight fall in foreign exchange rate, some enterprises and individuals who have been used to rising or stable foreign exchange rate panicked in the early stage of the reform and thus accelerated purchases and payments of foreign exchange, which is normal too. But what is abnormal is that a small number of enterprises and individuals purchased a large amount of foreign exchange that exceeded their real demand for the use of foreign exchange to engage in arbitrage, or even spread rumors that the foreign exchange rate was going to drop drastically or that regulators were going to restrict purchases of foreign exchange, thereby increasing market panic. [12:25] [Wang Yungui]: The SAFE's responsibilities are both to facilitate the use of foreign exchange by the real economy for trade and investments, and to prevent financial risks at the same time. These two goals do not conflict with each other. Some foreign trading companies will tell you that all they want is to run their businesses well, but are at a loss for what to do given the fluctuations in the foreign exchange rate. To avoid sharp ups and downs of the RMB, which will impact the normal operations of trading and investment companies, the SAFE has intensified monitoring of the foreign exchange market and cross-border receipts and payments since August 11, requiring some of its branches to increase the frequency of data monitoring and reporting. Traditionally, we require a report to be submitted on a monthly basis. But now, we accelerate the frequency of data reporting, and organize ex-post investigation and verification of big enterprises that have bought a significantly larger amount of foreign exchange in the short term. Meanwhile, we require our branches to urge banks and enterprises to enhance the levels of authenticity operation and compliance, in accordance with the existing laws and regulations. To speak truthfully, the SAFE has not introduced any new measures to restrict purchases and payments of foreign exchange thus far. Just as Mr. Du said a moment ago, the regulatory measures against split settlement and sales of foreign exchange by individuals, which have sparked heated discussion, are not new, but part of a policy document of the SAFE released in 2009. We require our branches to conduct law-based administration during monitoring to effectively ensure true and legal purchases and payments of foreign exchange. The SAFE ensures that all true and legitimate demands for the purchases and payments of foreign exchange will be efficiently satisfied. [12:33] [Wang Yungui]: Therefore, I would like to take this opportunity to tell everyone that there is no need for any enterprises that are conducting their businesses in an honest way and individuals with true and legitimate demand for use of foreign exchange to be panicking, and their demand for the purchases and payments of foreign exchange will be satisfied as always. However, to prevent speculators from fishing in troubled waters, we have to check and inquire of enterprises or individuals, just as security staff do to travellers during security checks at the airport; so we hope they can understand it if and when they are checked. Our examination and inquiries are ex-post and on a sample basis. Only by eliminating speculators and arbitragers can we provide an easy and convenient environment for individuals that want to focus on doing business and have rational demand for use of foreign exchange to use foreign exchange. [12:33] [Economic Information Daily]: Premier Li Keqiang proposed to promote capital account liberalization at the World Economic Forum in Davos. What measures are the SAFE going to take next in order to do so? Will market fluctuations have some impact? In addition, how is the revision of the foreign exchange administration regulation going? Could you brief us on that? [12:39] [Wang Yungui]: The two questions are closely related. Premier Li Keqiang addressed many issues to the world at the World Economic Forum Annual Meeting in Davos, including achieving the capital account convertibility in a stable manner. We believe the current fluctuations in cross-border capital flows are normal. Under such an environment, reform and opening up is all the more necessary to boost system building, including capital account convertibility. We will work to promote the capital account convertibility as always. In this process, we will continue with reforms, but not blindly. Allowing for relevant risks, we will design reform steps to ensure orderly and stable reforms. Therefore, the capital account reform will continue. [12:39] [Wang Yungui]: For example, we will continue to study and explore easier ways of foreign exchange administration in the external debt reform, and will be more prudent and careful in designing relevant reform measures for capital account liberalization. Studies are being conducted for the foreign exchange administration regulations, the key regulations to support the capital account convertibility, and the regulations are being drafted. Given that the regulations involve many people's interests, we are very careful and prudent, and are working with the People's Bank of China to solicit ideas for relevant provisions. We will follow the requirements of the CPC Central Committee and the State Council and make revisions in an active and prudent way. [12:39] [CBN Daily]: You say that more measures will be taken for capital account liberalization with respect to external debt. Besides these debt measures, will new measures be taken to promote foreign assets? [12:42] [Ye Haisheng]: As a matter of fact, the channels for domestic institutions to issue loans overseas are running quite smoothly. First, from the perspective of foreign exchange administration, there is no regulation on overseas lending by banks. Second, the reform of overseas lending by enterprises started 5-6 years ago, stipulating that an enterprise only has to register, rather than having to obtain approval as it did in the past, in order to provide capital support for overseas entities where it holds a majority or minority stake in proportion to its net assets. This is a significant measure to address difficulties in overseas financing by enterprises going global. Next, we will continue to improve these measures. In Zhongguancun and the old industrial base in Northeast China, an innovative pilot reform for cross-border M&As and financing support is being carried out. [12:43] [Ye Haisheng]: Mr. Wang briefed us on the overall situation of overseas investments by enterprises. Full convertibility has been achieved under direct investment. The process for making overseas investments by enterprises is very simple. An enterprise only needs to register with the SAFE and obtain its quota, and then can remit outward its funds, with the registration power being delegated to banks since June 1. But relevant competent authorities, such as the Ministry of Commerce, require the entities they charge or administer to register, file or obtain approval, which should be observed. [12:43] [Ye Haisheng]: As for overseas investments by individuals, there is no specific policy that says yes or no. What does this mean? Commercial departments are governing overseas investments by enterprises. Although no law or regulation has prohibited overseas investments by individuals, no specific regulations on operations are available, and this involves not just the SAFE. [12:44] [Wang Yungui]: This is the end of today's press conference. We will be holding another one on the foreign exchange situation at the State Council Information Office in October, to which all of you are warmly welcome. And on that note we will end today’s conference. [12:45] 2015-11-11/en/2015/1111/1175.html
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— A Transcript · [Wang Yungui]: Good morning, friends from the press. Welcome to today's press conference of the State Administration of Foreign Exchange, or the SAFE, on its policies for the fourth quarter of this year. I am Wang Yungui, director of the General Affairs Department. Today we have with us Wang Chunying, deputy director of the Department of Balance of Payments, Du Peng, director of the Current Account Management Department, Guo Song, director of the Capital Account Management Department, and Zhang Shenghui, director of the Management and Inspection Department. I am happy to see many familiar faces in the audience. We have discussed various problems many times together. [10:19] · [Wang Yungui]: Since the beginning of the fourth quarter of this year, the SAFE has deepened the foreign exchange administration reforms under the guidance of the work plans by the CPC Central Committee and the State Council and boosted trade and investment facilitation in accordance with the requirements of the "five shifts". While promoting the foreign exchange administration reforms, the SAFE has strengthened monitoring early-warning and ongoing and ex-post management, thereby effectively guarding against and addressing cross-border capital flow risks and actively serving the sustainable and healthy development of the economy and society. [10:19] · [Wang Yungui]: Now I would like to brief you on several key reformative measures adopted in the fourth quarter. [10:20] · [Wang Yungui]: First, deepening the centralized operation of foreign exchange funds by MNCs. [10:20] · [Wang Yungui]: In August, the SAFE further optimized the policy on centralized operation of foreign exchange funds by MNCs, offering convenience to more qualified companies, especially private companies, in optimizing the use of foreign exchange funds, while underscoring the importance of risk control. Specifically, the policy measures include simplifying the requirements for opening and using of foreign exchange accounts, and the procedures for receipts and payments of foreign exchange, and adopting self-discipline of the proportion of external debt borrowed by MNCs. So far, more than 50 MNCs have conducted self-disciplinary management of external debt proportion, and borrowed external debt of nearly USD 1 billion, effectively reducing the financing cost. This policy runs stably for the moment, with pilot companies' financing cost dropping remarkably and the efficiency of their use of funds rising significantly. Moreover, local governments' demand for developing the headquarters economy to promote structural transformation has been satisfied. What's more, banks swapped trade credit to large and medium companies for SMEs to benefit SMEs. As a result, these policies have been well-received among banks and companies. [10:21] · [Wang Yungui]: Second, allowing franchise institutions to provide domestic and foreign currency exchange services for individuals through the internet. [10:21] · [Wang Yungui]: The SAFE has always supported franchise institutions to innovate business in a good order. In September 2015, the SAFE issued an announcement, specifying that qualified franchise institutions can provide domestic and foreign currency exchange services for individuals through the internet. Domestic residents can place an order with a franchise institution for foreign currency banknotes or electronic traveler's checks through electronic channels such as the internet and mobile terminals and withdraw foreign currency banknotes or electronic traveler's checks at an offline outlet. By combining internet technologies with traditional domestic and foreign currency exchanges, this business can help reduce operating costs of franchise institutions, improve the service level of franchise business, provide more convenient exchange services for domestic residents and facilitate the development of "internet +". [10:21] · [Wang Yungui]: Third, strengthening management of overseas withdrawals with UnionPay RMB cards. [10:22] · [Wang Yungui]: Since 2003, the SAFE has been active in introducing policies to support cross-border use of bank cards including UnionPay RMB cards. But our monitoring showed abnormalities that some UnionPay cardholders withdrew a large sum of money too frequently overseas, which were reminded by overseas financial regulatory authorities, too. To guard against the money-laundering risk and safeguard the image of Chinese cardholders, the SAFE issued a notice to China UnionPay in September that China UnionPay should intensify management of overseas withdrawals of banknotes with UnionPay RMB cards. To be specific, China UnionPay should impose an annual limit on overseas withdrawals of banknotes with UnionPay RMB cards, in addition to the daily limit of RMB 10,000 or the equivalent per card. [10:22] · [Wang Yungui]: Starting from January 1, 2016, the annual amount of money withdrawn per card should be no higher than RMB 100,000 or the equivalent. From October 1 to December 31, 2015, the cumulative amount of money withdrawn per card should be no higher than RMB 50,000 or the equivalent. The limit will be imposed by China UnionPay through technical means, without adding cost to the card issuing banks and cardholders. The limit is intended to contain large cash withdrawals by a limited number of persons and will not impact normal overseas withdrawals of the absolute majority of cardholders. Our monitoring showed that the withdrawals of October were down by 21% month on month, as compared with the monthly average of the first three quarters, suggesting the new policy has taken effect as expected while ensuring rational and normal use of cards by cardholders. [10:22] · [Wang Yungui]: Fourth, the policy for Mainland-Hong Kong Mutual Fund Connect was officially launched. [10:22] · [Wang Yungui]: In November 2015, the People's Bank of China and the SAFE jointly issued the Operating Guidance on the Management of Cross-border Issuance and Sales of Funds by Mainland and Hong Kong Securities Investment Funds, clarifying the quota management rules and relevant operations of the Mutual Fund Connect scheme to facilitate exchanges and inflows and outflows of funds involved in the cross-border issuance and sales by Mainland and Hong Kong funds. The Guidance is highlighted as follows: first, an aggregate quota control approach will be adopted in the Mainland-Hong Kong Mutual Fund Connect scheme, with the investment quota of RMB 300 billion or the equivalent imposed respectively for entry and exit in the early stage. Second, the SAFE will simplify the approval process by monitoring the use of aggregate quota, rather than approving the quota on a single institution or a single product. Third, no limitation will be imposed on the currencies for outward or inward remittances of funds under the cross-border issuance and sales and on the exchanges of funds within the quota. Fourth, institutions should make sure that the funds issued in other location by each fund should be no more than 50% of the total assets of the fund. Fifth, registration will be required for cross-border issuance and sales by funds, with the procedures to be gone through by their custodians or agents. Meanwhile, the SAFE should improve the approaches to collecting statistics on and monitoring the cross-border capital flows, and understand and control the use of aggregate quota through the registration of funds mutually connected. [10:23] · [Wang Yungui]: The release of the Operating Guidance means the official implementation of the Mainland-Hong Kong Mutual Fund Connect policy, which opens new channels for securities investments by Mainland and HK investors and eliminates stringent limitations on "overseas issuance or sales by residents" and "domestic issuance or sales by non-residents" under "capital and monetary capital tools — securities for collective investments" in the capital and financial account transactions, a new breakthrough for the capital account convertibility. Fund managers in the Mainland and Hong Kong have lodged applications to China Securities Regulatory Commission and the Securities and Futures Commission of Hong Kong respectively and foreign exchange registration procedures can be gone through after they are registered. Relevant documents and systems of the SAFE are ready, too. [10:23] · [Wang Yungui]: Fifth, continuing to improve quota management of qualified institutional investors. [10:23] · [Wang Yungui]: In October 2015, the SAFE simplified quota management of QFII to provide more convenience to cross-border securities investments under the existing policy framework. First, the SAFE reformed the way of quota classification to unify quota management by adjusting the previous three types of quotas into quotas for open-end funds and quotas for other products or funds. Second, the SAFE simplified quota adjustment filing management by allowing voluntary adjustment of quotas for the same types of products and requiring ex-ante filing of the adjustments of quotas for open-end funds and for other products or funds. Third, the SAFE eased restrictions on the inward remittance period of the quotas for QFII, which can be extended to 6 months once at a time after filing. Fourth, the SAFE simplified the outward remittance procedures of principal by replacing approval with ex-ante filing. [10:23] · [Wang Yungui]: Sixth, cracking down on activities against foreign exchange laws and regulations. [10:24] · [Wang Yungui]: In the year-to-date, the SAFE has organized inspections of banks, financial leasing companies and rubber manufacturers, especially the major channels for abnormal cross-border capital flows, and stepped up efforts to crack down on behaviors against foreign exchange laws such as underground banks. Preliminary statistics show that more than 1,900 foreign exchange irregularities cases have been investigated and dealt with, with administrative fines of RMB 410 million imposed. First, the SAFE worked with the People's Bank of China, the Ministry of Public Security, the Supreme People's Court and the Supreme People's Procuratorate to crack down on the transfers of illegal income through offshore companies and underground banks, and has assisted public security authorities in solving more than 60 cases that involved illegal purchases and sales of foreign exchange through underground banks. The SAFE also has stepped up efforts to punish institutions and individuals that conducted transactions through underground banks in violation of relevant foreign exchange regulations. The SAFE has investigated and dealt with more than 100 such cases, imposing administrative fines of RMB 120 million. Second, the SAFE investigated banks for cross-border arbitrages and abnormal outflows. It organized foreign exchange compliance inspections of 7 banks with a large volume of cross-border receipts and payments, investigating more than 900 cases and imposing fines of over RMB 53 million. Third, the SAFE organized foreign exchange inspections of financial leasing companies. The SAFE inspected 160 financial leasing companies with large volumes of foreign exchange business, abnormal operations and many leads of irregularities, which involved cross-border receipts and payments of USD 15.45 billion, and found 19 companies suspected of irregularities and imposed fines of RMB 8.934 million on them. Fourth, the SAFE organized inspections of trade finance in the natural rubber industries. 14 typical companies were inspected and 7 were found to have violated foreign exchange regulations, with USD 130 million involved. Fifth, the SAFE worked with various departments to step up efforts to inspect evasion of large amounts of foreign exchange and illegal foreign exchange margin trading, thereby effectively safeguarding the foreign exchange market order. [10:24] · [Wang Yungui]: Overall, the SAFE played its due role in foreign exchange administration during the fourth quarter of this year, focusing on boosting reforms and guarding against risks. Thanks to the SAFE's efforts, the foreign exchange reformative measures ran stably, giving decisive roles to the market and facilitating cross-border trading and investment activities of market players, while effectively guarding against cross-border capital flow risks and ensuring the basic equilibrium of the balance of payments. [10:24] · [Wang Yungui]: Now please ask your questions on the policies unveiled just now. [10:25] · [Economic Daily]: Mr. Wang said just now that the People's Bank of China and the SAFE recently introduced a series of policies to cope with cross-border capital flow risks, including imposing a limit on overseas withdrawals with UnionPay cards and collecting from commercial banks the risk reserves for forward sales of foreign exchange. What are the effects of these policies? Is it likely or do you have any plan to adjust these policies in the future? Thank you. [10:59] · [Wang Chunying]: Compared with the third quarter, the supply and demand pressure does have relaxed since October, which, we believe, should be attributed to a combination of the policies, the market and seasonal factors. [10:59] · [Wang Chunying]: First, the policies do have taken effect. Since mid-August, the People's Bank of China and the SAFE have introduced some policies. Without changing the basic landscape of the reform and opening up, these pertinent policies indeed have eased the pressure from cross-border capital outflows and stabilized expectations while containing speculations. [10:59] · [Wang Chunying]: Second, compared with the third quarter, risk aversion in global financial markets has been weakened remarkably, and domestically, the economy has remained stable, the market sentiment has recovered and the willingness to buy foreign exchange has further declined among market players. Foreign exchange purchased by companies and individuals as a percentage of foreign-related foreign exchange payments by non-banking sectors, or the foreign exchange sales rate, was 76% in October, down by 25 percentage points from 101% in August and 14 percentage points from 90% in September. [11:00] · [Wang Chunying]: Third, as for the seasonal factors, the demand for purchasing foreign exchange for overseas travel has been on the decline since October. [11:00] · [Wang Chunying]: For the risk reserves for forward sales of foreign exchange to be collected from commercial banks, the People's Bank of China answered this question from a reporter on September 8, which is a macro-prudential management measure. Recent data show that contracts on forward sales of foreign exchange via banks of USD 78.9 billion were signed in August, 2.9 times the monthly average of January to July, but the amount dropped drastically to USD 17.6 billion and USD 5.3 billion in September and October. This remarkable difference shows that there were speculations in the market in the past, and macro-prudential management was effective, containing irrational and speculative behaviors in the market and helping the market return to rationality and get stabilized, which is favorable for guarding against macro financial risks and bolstering robust operations of financial institutions. Next, we will continue to observe the effects of the policies and the market. [11:03] · [Wang Chunying]: I would like to say something more on limit on overseas withdrawals with UnionPay cards, which you also mentioned. Our monitoring shows that overseas withdrawals in October were down by 21% from the monthly average of the first three quarters, and the ratio of failed withdrawals to successful withdrawals due to the annual limit was 4.34:100. This low ratio suggests that the new policy has taken effect as expected while ensuring the normal and rational demand of cardholders. It is worth noting that the focus of this policy is to guard against money-laundering risks, and unlike macro-prudential management policies, this policy will remain unchanged. Next, the SAFE will continue to support normal cross-border payments with bank cards for travel consumption, facilitate international communication, and implement the policy regarding domestic purchases of foreign exchange to pay for overseas consumption, but will not encourage large-sum cross-border withdrawals by cardholders. [11:03] · [CCTV-2]: My question is about how to promote two-way opening of the capital market, as is put forward in the Proposal of the 13th Five-Year Plan. I wonder what new policies or measures the SAFE will introduce to promote the two-way opening, such as changes or reforms of the domestic and overseas investment quotas. Thank you. [11:09] · [Guo Song]: We have studied the Proposal of the 13th Five-Year Plan and understand the overall direction, as the Proposal clearly says that the target is to achieve the capital account convertibility in an orderly manner. Just now Mr. Wang briefed us on the reformative measures in respective of the capital market, such as the Mutual Fund Connect, and I would here like to explain why the Mutual Fund Connect is reformative. First, there is an overall limit on the size, which is similar with what we did in the past, but the quota for a single institution has been removed and the approval from the SAFE has been canceled, which is significant progress. What's more, the data reporting and the overall process have been simplified, which is progressive from the perspective of canceling administrative approval or liberalization. [11:09] · [Guo Song]: We also introduced two other measures, which you might have ignored. One is the management measure for specific commodity futures trading, which refers to crude oil futures trading that might be launched in Shanghai in the near future. In designing this system, we took a step forward without imposing any quota or limiting the size of a foreign investor. In addition, we approved foreign investors to trade on two local carbon emissions exchanges this year and last year respectively, without imposing any quota. President Xi Jinping announced that we would establish a national carbon emissions exchange sometime in the future, but we have liberalized some local carbon emissions exchanges, making it easier to further liberalize this market in the future. [11:09] · [Guo Song]: The other is what Mr. Wang just mentioned, the QFII reform. This reform does not involve quota management, but we have simplified the process, such as quota classification by adjusting three classes into two classes and changing approval of outward remittance of funds into ex-ante filing. These seemingly petty changes will offer great convenience to institutions. Previously, it might take half to one month to issue a document, but now it only takes about one week to make ex-ante filing. We have conceived of some future reforms and may press them forward during the 13th Five-Year Plan Period. These reforms may include the liberalization of quotas and the adjustment of the ceiling of the quota for a single institution, and I am sure such reforms will be launched soon. Thank you. [11:10] · [Financial News]: I've learned that the monitoring system for individual foreign exchange business will be launched on January 1, 2016. I wonder what impact the system will have on purchasing and settling foreign exchange by residents. Will the annual USD 50,000 quota on foreign exchange settlement and sales be relaxed? Thank you. [11:32] · [Du Peng]: Thank you for your questions and your attention to the individual foreign exchange business under the current account. We plan to launch a new monitoring system for the individual foreign exchange business on January 1, 2016. Compared with the existing system, this system has some changes as follows: [11:33] · [Du Peng]: First, this system can effectively save banks from inputting for the second time and thus will greatly facilitate information inputting. Previously, much information was input manually. [11:33] · [Du Peng]: The launch of the system will significantly simplify banks' work. [11:34] · [Du Peng]: Second, while maintaining the function of collecting statistics on individual sales and settlement of foreign exchange, the new system will have functions of "foreign exchange receipts and payments" and "banknote deposits and withdrawals". This means that this system will collect and monitor all the data involved in individual foreign exchange business, including sales and settlement of foreign exchange, foreign-related receipts and payments, and deposits and withdrawals of banknotes. [11:35] · [Du Peng]: Third, the new system underscores the management and offsite monitoring analysis of the watch list. In the past, such a watch list for individuals was made by a single bank based on the standards for split settlement and sales of foreign exchange issued by the SAFE, and not applicable to all banks across the country. After the launch of the new system, these data will be acquired, analyzed and disseminated nationwide by the SAFE in a centralized manner. In the future, when an individual go to a bank for sales and settlement of foreign exchange, the bank will be able to know whether this individual is on the watch list of other banks or other regions. [11:35] · [Du Peng]: Fourth, the new system will run more stably. [11:36] · [Du Peng]: Overall, the launch of the new system will offer more convenience for individuals and banks in relevant businesses, while the foreign exchange administration policies for individuals remain unchanged. [11:36] · [Du Peng]: We are also monitoring and watching out for the adjustment of the USD 50,000 quota on individuals for the sales and settlement of foreign exchange. Our statistics show that more than 96% of foreign exchange purchases by individuals are within USD 50,000, and the amount of foreign exchange purchases per capita has been on the decline over the past two years, which justifies that the USD 50,000 quota is enough to satisfy individuals' demand for use of foreign exchange. On the other hand, there is actually no ceiling on the sale and settlement of foreign exchange in the amount more than USD 50,000: individuals are required to go through relevant procedures with a bank by presenting their ID cards if the amount is below USD 50,000; if the amount is higher than USD 50,000, individuals are also required to go through relevant procedures with a bank by presenting relevant authenticity evidencing materials with the transaction amount on them. In a word, individuals' demand for use of foreign exchange, if true, can be generally satisfied. Thank you. [11:36] · [CBN Daily]: Mr. Wang said just now that the pressure from foreign exchange flows relaxed in October. But the foreign exchange reserves data for November released by the Central Bank recorded a significant negative growth. Will this be reflected on the foreign exchange data for November? Does the SAFE have any specific measures to ease the capital outflow pressure? Will there be a policy on the Tobin Tax previously mentioned? Thank you. [12:10] · [Wang Yungui]: You have noticed the reserves data disseminated by the Central Bank and are concerned about what the fall of USD 87.2 billion in foreign exchange reserves mean. As the statistics on the foreign exchange sales and settlement for November are not fully available, we made a preliminary judgment and believe that there are several reasons behind the fall. First, the book losses incurred in the conversion from reserved non-USD currencies to the US dollar. Under the principles of security, flows and value maintenance and increase, the SAFE has been committed to pushing diversified operation of foreign exchange reserves in recent years. Under diversified operation, it is unlikely to reserve all our foreign exchange in the US dollar, but also in the euro, the pound sterling and the Japanese yen. As the US dollar strengthened, these currencies depreciated significantly against the US dollar in November. At the end of November, the euro against the US dollar dropped 4% month-on-month, the pound against the US dollar, 2.4%, and the Japanese yen against the US dollar, 2%, which led to book losses in dollar terms in the non-dollar reserve currencies. On the contrary, our reserve assets rose as the dollar depreciated in the past few years. Foreign exchange reserves will vary with the changes in other currencies to US dollar exchange rates. [12:11] · [Wang Yungui]: Under the Belt and Road Initiative, the Chinese government has strengthened the policy support to projects going global since the beginning of this year. Foreign exchange reserves have been used to finance some "going global" projects. According to the definition of foreign exchange reserve by the IMF, such foreign exchange reserves will be adjusted out, which is normal. Based on our observations, a good result is that external assets held by society rise while a country's foreign exchange reserves fall. As the foreign exchange reserve assets held by the Central Bank decrease and move to society, they become external assets held by domestic enterprises, which is in line with China's national strategy and favorable for the smooth operation of the national "going global" strategy. [12:11] · [Wang Yungui]: As the dollar strengthened recently, the yuan has become relatively weak. Some enterprises and institutions mitigated risks through hedging and buying more foreign exchange to pay debt or repay loans. Overall, these were all within tolerance of the foreign exchange administration policies. Since the current national strategic arrangements are to promote trade facilitation as well as investment facilitation, proper adjustments of foreign exchange reserves will be favorable for the national strategic layout, and we are glad to witness the transformation and adjustments of China's external economic structure. [12:12] · [Wang Yungui]: As for Tobin tax, this is a very broad concept and is designed to slow down the turnover of cross-border capital flows primarily by levying tax or collecting fees. The risk reserve to be collected on forward sales of foreign exchange by banks starting from September is similar to the Tobin tax in a broad sense. Conceptually, the Tobin tax is in line with the overall reform direction that administrative and quantitative regulation will be reduced and price control will be intensified. Since the size and speed of cross-border capital flows are acceptable for the moment, the Tobin tax is just a research tool in the policy toolkits and no policy solution has been made available. Since the global financial crisis in 2008, the international community has studied the macro prudential policy tools, including Tobin tax, and China is following the international way to study relevant policy measures. [12:12] · [21st Century Business Herald]: My question is about the balance of payments. The balance of payments has sustained a surplus for 6 consecutive quarters. What's your prejudgment of the future? Will this surplus put some pressure on the RMB in the short term? [12:29] · [Wang Yungui]: Thank you for your attention to this issue. Over the past few years or the past few quarters, China's balance of payments has stayed robust. For example, the share of the current account surplus in GDP, a universal measurement of the robustness of the balance of payments, was 2.7% in China in the first three quarters, despite depreciation of the RMB and fluctuations of cross-border capital flows. This figure was within a reasonable range, as universally recognized. The basic parts of the balance of payments include trade in surplus and direct investments. Trade in surplus exceeded USD 500 billion in the first 11 months of this year, and China's use of foreign funds surpassed USD 100 billion in the first 10 months. [12:29] · [Wang Yungui]: The most important measurement of exchange rate volatility as universally recognized is the balance of payments. Whatever projection is made, we will look at the structure of the balance of payments in the end. Overall, China's balance of payments remained robust this year, which is the foundation for the unlikelihood of substantial RMB depreciation. The Latin America's debt crisis or Asia's financial crisis in the last century was the result of the problematic structure of the balance of payments. Currently, China's balance of payments, either under trade or under capital and finance, is robust. Current account surplus and capital account deficit make a balanced structure. The robust balance of payments can shore up stable exchange rate in the long term. Thus far, we have not seen any depreciation of the exchange rate due to an unhealthy structure of the balance of payments. Any analysis should be made under the traditional balance of payments framework. [12:30] · [China Daily]: What is the latest progress the SAFE has achieved in cracking down on underground banks? What adjustments would the SAFE make in the way of thinking in the crackdown in the future? Thank you. [12:30] · [Zhang Shenghui]: Cracking down on underground banks has always been a priority of the SAFE, especially this year. Since April, the SAFE, the People's Bank of China, the Ministry of Public Security, the Supreme People's Procuratorate, and the Supreme People's Court have been cracking down on the transfers of illegal income through offshore accounts and underground banks. In this operation, the SAFE made full use of its advantages and worked closely with the departments, achieving significant progress in the crackdown on underground banks. Relevant figures have been released to the media recently by the Ministry of Security and the People's Bank of China. We concluded more than 60 foreign exchange cases including some specially important cases. Next, the SAFE will continue to maintain a tough stance on underground banks. At the end of this year and in 2016, these departments will continue to work together to intensify crackdown on financial and foreign exchange irregularities, such as underground banks, and transfers of illegal income through offshore accounts. Thank you. [12:31] · [The Economic Observer]: What impact do the strong expectations of the Fed's interest rate hike in December and of the depreciation of the CNH recently have on China's cross-border capital flows? Is it true that China has temporarily suspended handling applications from institutions for RQDII? Thank you. [12:43] · [Wang Yungui]: I will answer the first question and Mr. Guo will answer the second question. [12:43] · [Wang Yungui]: The US interest rate hike has drawn global concern. The interest rate hike will have certain impact on the global cross-border capital flows, which is also an important issue in the economic and financial world today. We have underscored in the previous press conferences that the interest rate hike would impact China's cross-border capital flows to some extent, but not remarkably. Along with the interest rate hike, the dollar may appreciate, leading to the pressure of depreciation of other currencies against the dollar, including those of emerging countries like the yuan. Under this circumstance, some cross-border capital may flow in a bilateral way both at home and abroad, which is a rational choice of the market. [12:43] · [Wang Yungui]: Overall, whether the Fed will increase the interest rates in December or not, that would be a gradual process. During this process, China's reform and opening up will go deeper. Meanwhile, its trade and investment competitiveness remain strong, and the current account surplus is huge, such as the trade surplus, which has exceeded USD 500 billion in the year-to-date. Therefore, the US interest rate hike will interrupt the short-term cross-border capital flows but in the long run, the balance of payments and cross-border capital flows will remain robust. What will impact the cross-border capital flows is China's reform and opening up. Along with the two-way opening of China's economy, Chinese enterprises' competitiveness will stand more tests of global markets and the structure of China's balance of payments is supposed to remain relatively stable in the long term. In a word, the US interest rate hike will have some, but not remarkable, impact on cross-border capital flows. [12:44] · [Guo Song]: The SAFE has never released any document on RQDII, and please consult the department that released relevant documents for this issue. [12:44] · [Economic Information Daily]: The yuan depreciation pressure has recently concerned the market. What are the monitoring results of cross-border capital flows since November, including recently? Are there any new findings? Thank you. [13:06] · [Wang Chunying]: The data disseminated are those as of October and the November data are not fully available yet. Our monitoring shows that the pressure from supply and demand in the market is heavy, which is also shown in the movement of the foreign exchange rate. [13:06] · [Wang Yungui]: Currently, there are many voices on the RMB exchange rate, and I would like to say something more: First, since November, the yuan has been depreciating against the US dollar, primarily because the US dollar appreciated against the pound sterling, the Japanese yen and the euro as it strengthened in the month. In fact, the yuan also appreciated against the euro and the Japanese yen in the month. Second, a rational approach should be adopted to look at the RMB exchange rate fluctuations. The People's Bank of China and the SAFE have conducted many reforms in the marketization of the RMB exchange rate in recent years, including the expansion of the fluctuation range of the RMB exchange rate and the improvement of the central parity rate formation regime. As a result, it is normal that the RMB exchange rate fluctuates in the process, which reflects the domestic supply and demand and the changes in global financial markets. Third, the market supply and demand and the balance of payments are the indicators of the fluctuations of the RMB exchange rate. For the moment, China's balance of payments is robust, with a trade surplus of more than USD 500 billion and FDI of over USD 100 billion throughout the year, which is the basis for our analysis. As was mentioned earlier, foreign exchange sales and settlement were much better in October than in the third quarter, with the deficit dropping to USD 20 billion in October from nearly USD110 billion in September. Moreover, China witnessed net inflows of foreign exchange in October, compared with net outflows of more than USD 70 billion of foreign exchange in September. Therefore, the fundamentals of China's economy and market are robust, and there are no grounds for the long-term depreciation of the RMB exchange rate. [13:07] · [Wang Chunying]: As for the relation between pressure and exchange rate, I would like to share with you two observations: to observe the RMB exchange rate, we should not just look at the bilateral exchange rate of the yuan against the US dollar, but also the multilateral exchange rate and the mid and long-term movements. Of the 63 currencies monitored by the BIS, the RMB nominal and real effective exchange rates appreciated in the first ten months this year, while more than half of other currencies depreciated. The RMB fluctuation rate remains low now, but the market tolerance of the RMB exchange rate fluctuations is low too. As such, even a slight fluctuation of the RMB, such as weakening against the US dollar for a couple of days, would concern people about the depreciation of the RMB, which would have a certain impact on the market players' expectations of the RMB exchange rate and their transactions. [13:07] · [Wang Chunying]: Therefore, we do not advise that the short-term fluctuations of the bilateral rate of the yuan against the dollar be regarded as the trendy appreciation or depreciation of the yuan. Instead, we suggest that more attention should be paid to the multilateral exchange rates of the yuan to a basket of currencies and the longer term trajectory. [13:08] · [Wang Yungui]: Thank you for attending today's press conference and you are welcome to a foreign exchange data release press conference slated for the first quarter of next year. Thank you. [13:11] (The original text is available at www.people.com.cn) 2015-12-25/en/2015/1225/1178.html
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The Way Forward for Reform and Opening up of Foreign Exchange Administration Yi Gang, PBC Deputy Governor and SAFE Administrator China’s economic development over the past 36 years has been miraculous. The key to this miracle is reform and opening up. Through reforms, China has built a financial system that is fit for the socialist market economy and improved the financial industry's capabilities to allocate resources and serve the real economy. Through opening up, China has further liberalized its financial industry, both to the inside and the outside, and optimized the industry's capability to allocate resources both horizontally and vertically. Reform and opening up are the two wheels that drive China's economic development. With the deepening of the reform of foreign exchange administration in recent years, we have focused on boosting the "five shifts" in foreign exchange administration, the implementation of administration streamlining and power delegation, and profoundly changing the functions of foreign exchange administration, with administrative interference in micro-level events on the decline. At the same time, we have optimized public services through enhancing ongoing and ex-post management. As a result, foreign exchange administration has played significant roles in maintaining economic and financial stability and ensuring fair competition, with a stronger ability to promote sustainable economic development. Reform and opening up of foreign exchange administration has achieved significant progress Following the uniform plans of the CPC Central Committee and the State Council, we have focused on promoting the "five shifts" in foreign exchange administration over the past few years, i.e., shifting from approval to monitoring analysis, from ex-ante regulation to ex-post management, from behavioral management to player management, from assuming people are guilty until proven innocent to assuming people are innocent until proven guilty, and from “positive list” to “negative list”. In so doing, we have improved our capabilities of coping with complex situations, and coordinated facilitation and risk prevention, thus making better use of the roles of foreign exchange administration while giving a decisive role to the market. New breakthroughs have been made in the reform of foreign exchange administration for trade in goods. Foreign trade development is an important part of China’s reform and opening up, of which trade in goods is of critical significance, accounting for nearly 80% of the total value of current account. In the past, foreign exchange receipts and payments under trade in goods needed to be verified transaction by transaction, involving tedious procedures. To improve trade facilitation and regulatory efficiency of foreign exchange, the State Administration of Foreign Exchange (SAFE) rolled out nationwide the import and export verification reform in August 2012, upon the approval of the State Council. The reform canceled transaction-by-transaction verification of foreign exchange receipts and payments under trade in goods, simplified certificates required and processes, and promoted aggregate review, dynamic monitoring and classified management, facilitating foreign exchange receipts and payments under trade in goods by 95% of enterprises doing business in compliance with laws and regulations and focusing regulation on a minority of enterprises with abnormal receipts and payments, thus ensuring trade facilitation and effective regulation. After the reform, enterprises can, on average, reduce labor costs by more than RMB 70,000 per year and banks can shorten time spent on handling business transactions from more than 20 minutes to just 9 minutes per transaction. New progress has been achieved in the reform of foreign exchange administration for trade in services. In the past, ex-ante approval was required for the receipts and payments of foreign exchange under trade in services, requiring enterprises to prepare a large quantity of materials and go to many authorities, which inhibited efficiency. In September 2013, the SAFE universally canceled ex-ante approval for trade in services and delegated the management of all foreign exchange receipts and payments transactions under trade in services to banks, requiring no approval of documents for transactions below the equivalent of USD 50,000 and simplifying instruments for approval for transactions above the equivalent of USD 50,000, with a dozen kinds of instruments simplified and consolidated. The strengthening of offsite monitoring and analysis enabled us to stick to our bottom line of guarding against systematic risks. After the reform, documents approval for nearly 15 million transactions of foreign exchange receipts and payments under trade in services has been canceled every year, which has significantly reduced processing costs and the total number of instruments to be approved by banks. Enterprise operating efficiency has been enhanced remarkably, with the time spent on processing shortened from 20 minutes to 5 minutes per transaction. Direct investment convertibility has reached a new high. Direct investment is a key channel for introducing foreign capital and supporting Chinese companies to go global. Previously, opening of foreign exchange accounts and entering an item in an account under direct investment had to be verified by a foreign exchange authority, and law firms were required to go through review and registration procedures of capital verification confirmation with a foreign exchange authority for foreign direct investment, thus having a negative impact on a company's investment efficiency. In recent years, foreign exchange administration for direct investment has been significantly simplified, with 35 administrative approval items canceled and 14 items simplified or merged, whereby facilitating capital operation in cross-border investments by enterprises, and achieving basic convertibility. For overseas direct investment, for example, the ex-ante approval for capital source and outward remittance verification has been replaced with ex-post registration, and the time spent on business processing has been shortened from 20 working days to 5 working days. In some provinces, such business services can even be processed on the day of application. New breakthroughs have been made in the two-way opening up of portfolio investment, an important area for global resource allocation. In the past, due to limited channels for cross-border portfolio investment, the level of facilitation was low. To promote orderly liberalization of the securities market, the SAFE captured the opportunity of a balanced foreign exchange situation, followed the logic of balanced regulation and two-way flows and improved the QFII and QDII schemes, on which basis, the SAFE launched the RQFII scheme. As of August 28, 2015, the SAFE had approved an investment quota of USD 76.703 billion to 276 QFIIs, USD 89.993 billion to 132 QDIIs and RMB 404.9 billion to 138 RQFIIs. At the same time, the SAFE has expanded channels for the two-way opening of capital and made institutional arrangements for facilitating the buying of public funds in Hong Kong by domestic investors and sales of public funds in mainland China to Hong Kong. In the future, "sales or issue of securities for collective investment overseas by residents" or "sales or issue of securities for collective investment domestically by non-residents" will no longer be restricted, suggesting the level of capital account convertibility will be further enhanced. A new chapter has been opened up for external debt administration to serve the real economy. External debt is an important channel for expanding financing sources for domestic entities. Previously, balance indicator management was adopted for a financial institution's external debt, with foreign-funded enterprises managed based on the difference between investment and registered investment and Chinese enterprises subject to strict regulations and having to go through tedious approval procedures. To further facilitate enterprise financing, the SAFE has vigorously pressed ahead with the external debt and cross-border guarantee management reform. The ex-ante approval for external debt and cross-border guarantee has been canceled, and banks are empowered to handle such business services directly, with the time span from opening of an external debt account and settlement of foreign exchange shortened by 3 working days, and thus essentially building an external credit and debt management framework focused on ex-post registration. A macro-prudential proportioned self-discipline management approach to external debt has been explored and a pilot program has been carried out in Zhongguancun of Beijing, Qianhai of Shenzhen, and Zhangjiagang of Jiangsu, allowing enterprises to borrow external debt that is within a certain multiple of net asset, and equalizing the external debt management policies for Chinese companies and foreign-funded companies. Estimates show pilot enterprises can save on capital cost by 2-3 percentage points. In terms of management concepts, efforts have been made to promote the shift from super-national treatment to national treatment, allowing eligible Chinese enterprises to use short-term external debt to support foreign trade. The foreign exchange market has reached a new high. The foreign exchange market is a key carrier for international economic communication and capital flows. Previously, the players and products in China's foreign exchange market were simplistic, and the infrastructure was not sound. In recent years, the SAFE has been consolidating the fundamentals of the foreign exchange market and optimizing the foreign exchange market services. Firstly, it has been enriching transaction products to satisfy diversified demand for management of foreign exchange rate risks. The type of transaction products has been expanded from spot transactions and forward transactions of some pilot banks to foreign exchange swaps, current swaps and futures products, thus establishing a basic product system that is popular in the international market. The transaction currencies also increased from the original USD, EUR, JPY and HKD to 14 other currencies regularly involved in cross-border receipts and payments in China. Secondly, the SAFE has been increasing market players to build a diversified market player hierarchy. As of the end of 2014, there were 465 institutions in the inter-bank foreign exchange market，of which 53 were non-banking financial institutions, 1 was non-financial company and 8 were overseas financial institutions. Thirdly, the SAFE has been involved in improving infrastructure to promote market operation, improve efficiency and prevent risks. The interbank foreign exchange market began centralized netting of over-the-counter trading in 2009 and officially launched central counterparties in 2014, which have actively helped reduce clearing risks and improve trading efficiency. Combining regulation and deregulation is a banner of the reform and opening up of foreign exchange administration In recent years, the SAFE has focused on the provision of services, and equal importance has been attached to pressing ahead with reforms and preventing risks, with the reform approach stressing ‘balance’ and the reform direction being guided by experience gained during trials and pilot programs that can then be widely adopted. After several years of exploration, the foreign exchange administration has taken on a new look. In order to promote the transformation of foreign exchange administration, focus must be placed on streamlining administration and delegating power. First of all, this means adhering to law-based administration in order to further streamline and integrate regulations on foreign exchange administration. As at the end of 2014, more than 700 invalid regulations were abolished and less than 300 regulations were retained. Secondly, focusing on major enterprises and easing control over small ones and classified management, with aggregate verification and dynamic monitoring adopted to promote the shift from ex-ante regulation to ex-post regulation. For the current account, for example, offsite monitoring allows us to identify violating companies at a lower cost and is a more targeted approach. In 2014, through offsite monitoring and analysis, we homed in on 1,774 abnormal enterprises that engaged in export but did not receive foreign exchange, with the export value accounting for 6% of the country's total. After verification, violating enterprises were either forced to close, be downgraded to class-B or C enterprises, or be transferred to procuratorate authorities for further investigation. Thirdly, shifting from behavioral regulation to player regulation. Full-coverage monitoring of foreign exchange receipts and payments by market players has been strengthened to better identify abnormal or violating behaviors; classified management has been adopted to facilitate enterprises that do business in compliance with laws and regulations and restrict violating players to improve the level of compliance among market players. Strengthening the capability of foreign exchange administration to support the development of the real economy, with focus on trade and investment facilitation. Improving the level of services is the basis for foreign exchange administration. We have always interwoven administration in services when launching a reform measure, and actively adjusted foreign exchange administration measures that are not in line with the market operation laws in recent years. For foreign-invested enterprises, we have introduced the discretional foreign exchange settlement policy, giving them the power to discretionally settle foreign exchange funds to lower their financial cost. This policy has been rolled out nationwide. For MNCs, we have introduced the administration policy for the centralized operation of foreign exchange funds by MNCs, with the number of pilot companies increasing from 250 to 570 in the first half of 2015, and facilitated the optimization of foreign exchange funds by more excellent companies, especially private companies. In cross-border e-commerce, efforts have been made to ease regional restrictions, delegate approval power, elevate the limit on a single transaction and expand the scope of payment. In January 2015, the pilot program was rolled out nationwide and as of the end of June, had generated funds totaling USD 4.181 billion. Strengthening the capability of preventing cross-border capital flow riskswith focus on safeguarding the risk bottom line. One of the key functions of foreign exchange administration is to prevent the internalization of external risks. In recent years, preventing risks has been our top priority. To this end, we have improved the regulatory system, administrative methods, technical means, and intensified team building, with a focus on building the capability of monitoring cross-border capital flows, and thus successfully guarding against systematic and regional financial risks, which we consider to be the bottom line of our efforts. To this end, we first intensified monitoring analysis to lay a solid foundation for preventing risks. Situational changes were closely tracked and the focus of monitoring analysis was shifted from monitoring of inflows to monitoring of both inflows and outflows, making prejudgment of situations more scientific and timely. We have built a monthly reporting system for cross-border capital monitoring analysis, and intensified analysis and judgment of macro trends, with dynamic fine-tuning and modification made on a monthly basis, whereby making monitoring analysis more comprehensive and precise. The second measure was accelerating data and system integration to provide technical support for risk prevention. We built a basic database for full-coverage cross-border capital flows, integrating data from different business systems for centralized sharing. We also built a cross-border capital flow monitoring and analysis platform, with focus on improving the system's functions of comprehensive analysis and data mining. We improved the warning system for balance of payments, monitoring the risks arising from imbalance of payments in a two-way manner, to provide data guarantee and system support for comprehensively monitoring the foreign exchange operation by market players and immediately identifying abnormal cross-border capital volatility. Thirdly, we improved foreign exchange inspection to provide effective means of risk prevention. We built and promoted the offsite foreign exchange inspection system, replacing the previous large-scale dragnet investigation with big data analytics, to identify clues to irregularities, thereby enhancing the relevance and effectiveness of regulation. We have focused our efforts on investigating cases involving serious violations and conducting special inspections of banks' foreign exchange transactions, to crack down on flows of hot money by key players and through key channels. From 2009 to 2014, we investigated and solved 17,000 cases that violated foreign exchange laws and regulations, confiscating illegal gains and imposing fines of about RMB 2.2 billion in total. Continuing to deepen the reform and opening up of foreign exchange administration Foreign exchange administration has entered a new normal, with continued net inflows of foreign exchange changed to balanced flows, ex-ante approval changed to ongoing and ex-post regulation, and current account convertibility changed to capital account convertibility. Developing a comprehensive understanding of and accurately grasping the foreign exchange new normal is a starting point for conducting the subsequent foreign exchange administration reform. Next, foreign exchange authorities will closely follow the new normal and accelerate the "five shifts", with focus on promoting the RMB capital account convertibility, to effectively perform their responsibilities for foreign exchange administration and make foreign exchange administration more scientific. Changing the philosophy and method of foreign exchange administration is the principle and the direction of foreign exchange reform. Efforts will be made to press ahead with the administrative approval system reform to comprehensively improve administrative efficiency, based on the relationship between the government and the market. Firstly, the SAFE will continue to streamline administration and delegate power. We plan to further slash administrative approval items, and sort through and simplify existing regulations on foreign exchange administration, making sure foreign exchange administration regulations are reduced, simplified and easier to operate, to facilitate market players and regulation. Secondly, the SAFE will comprehensively advance law-based administration. Following the requirements for the "five shifts" in the philosophy and method of foreign exchange administration, we will adapt to the needs of capital account convertibility in China, and build a forward-looking legal framework systemfor foreign exchange administration, with focus on changing from behavioral regulation-based legislation to player regulation-based legislation and switching from ‘positive list’ to ‘negative list’. Thirdly, the SAFE will diversify means for ongoing and ex-post regulation. For the current account, for example, we will enhance cross-departmental cooperation and deepen the administration of capital flow risks under the current account. Promoting trade and investment facilitation is both the starting point and the action plan. In terms of administrative mentality, we will raise the sense of service and put ourselves in others' shoes in order to promote the linkage between policy adjustment and the commercial operating models of market players and provide a favorable policy environment for market players that do business in compliance with laws and regulations. We will optimize processes and formalities, deepen reforms through improving services, effectively improve the level of facilitation for trade and investment, and reduce the social cost for foreign exchange administration, with the aim of improving administration through services. For administration objects, we will promote the change from behavioral regulation to regulation of key entities and from ex-ante approval to ex-post monitoring and analysis. For example, we will implement the upgraded version of the administration of centralized operation of foreign exchange funds by MNCs to further enhance MNC's efficiency in capital operation. Pressing ahead with the reform and opening up in key areas is the focus and the priority. Based on the building and improvement of the market mechanism and administration mechanism that adjust the balance of payments, we will further improve the middle and long-term working plan for the foreign exchange administration reform, determining the implementation steps, time frame and division of labor, as well as the roadmap and the timetable. In the capital market, we will promote the orderly two-way opening of the capital market, further improve the qualified institutional investor scheme, and implement the Mutual Fund Connect scheme to accelerate the RMB capital account convertibility. In the foreign exchange market, we will promote the opening of the foreign exchange market, expand the scope of trading, increase the number of trading entities, enrich the products for risk aversion and value preservation, and improve the building of a diversified and competitive trading platform that is subject to effective regulation, so as to build a sophisticated, advanced and multi-layered foreign exchange market system. Guarding against abnormal cross-border capital flow risks is the foundation and the guarantee of an effective foreign exchange system. In the long run, foreign exchange authorities should make risk prevention their top priority. To enhance warning, we will accelerate the building of a warning platform for cross-border capital flows, complete cross-border capital flow data integration and data warehouse construction to cover cross-border capital flows that involve different trading currencies, projects and entities such as domestic and foreign currencies, trade and investment, institutions and individuals, in order to provide regulatory authorities with reliable tools. Meanwhile, we will continue to improve the warning indicator system and offsite inspection indicator system for cross-border capital flows to immediately assess and prejudge the pressures from capital outflows and inflows. In addition, we will flesh out policy plans focused on counter-cyclical adjustment, study and introduce price adjustment means such as Tobin tax, URR and foreign exchange trading fees to contain the inflows and outflows of short-term speculative and arbitrage funds. To optimize the operation of foreign exchange reserves, we will encourage diversified and scattered investments and efficient management and use of foreign exchange reserves, enhance allocation of quality assets, and improve the abilities to manage and operate foreign exchange reserves, with the aim of ensuring the security and flows of foreign exchange reserves and the value maintenance and growth. (The original text is available in the 19th issue 2015 of China Finance) 2015-10-29/en/2015/1029/1172.html