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Question: At the end of last year, against the background of the more serious international financial turmoil, in the fourth quarter China experienced capital outflows, with a current account surplus but a capital account deficit in terms of the balance of payments. What is the situation this year? Answer: In the first quarter of this year, the situation of the fourth quarter of last year, whereby China had a current account surplus but a capital account deficit in terms of the balance of payments, was changed, and there was a return of the “twin surplus,” i.e., there was a current account surplus as well as a capital account surplus. However, the status of the overall balance of payments more closely approached equilibrium, mainly embodied in the following respects: First, the current account surplus was narrowed, accounting for a lesser proportion of GDP. According to preliminary estimates, the current account surplus in the first quarter was USD 24.7 billion, a decrease of 14 percent compared with that during the same period of last year, and the proportion of the current account surplus to GDP in the same quarter was 1.4 percent, a decrease of 1.4 percent compared with last year. Second, once again there was a capital account surplus. The size of net inflows of capital (including errors and omissions, the same below) in the first quarter was USD 49.9 billion, a decrease of 56 percent compared with the same period of last year, whereas there was a deficit of USD 48.1 billion in the fourth quarter of 2011. Third, the trend of increasing foreign exchange reserves further slowed down. After adjusting for the change in the exchange rate and asset prices, foreign exchange reserves calculated on the basis of the coverage of the balance of payments in the first quarter increased by USD 74.8 billion (including foreign exchange reserve earnings in the current period), a 46 percent decrease in the increment compared with the same period of last year. In other words, although since the beginning of this year net inflows of foreign exchange rebounded somewhat compared with the end of last year, there were still on a downward trend compared with the same period of last year. This is consistent with our earlier basic judgment that China ’s balance of payments was expected to maintain a surplus, but the size of the surplus would decrease significantly. Question: According to data published by the People’s Bank of China (PBC), there was a new increase of USD 123.8 billion in foreign exchange reserves in the first quarter of this year. Does this mean that China will again face pressures of massive capital inflows? Answer: This does not mean that China will again face pressures of massive capital inflows. First of all, although the data published by the PBC show there was a new increase of more than USD 120 billion in the balance of foreign exchange reserves in the first quarter, this was an increase in the book value of the reserve assets mainly arising from such factors as exchange rate and asset price changes, and it does not reflect actual cross-border capital flows. Second, the increment in the foreign exchange reserves included the operating earnings of the reserves. In view of the large size of operations and management of foreign exchange reserves in China, the operating earnings of the reserves play a significant role in the increase in the balance of foreign exchange reserves. Third, according to the data published by the PBC, in March there was a large increase in outstanding foreign exchange funds, but this does not lead to the conclusion that there is current a large net inflow of capital, mainly because there are differences in the concept and coverage between the outstanding foreign exchange funds and the increment in foreign exchange reserves. Fourth, net inflows of capital rebounded the first quarter, mainly because the environment for international markets improved, the appetite for global investment risks increased, and capital flowed back to the emerging markets. However, the net inflows of cross-border capital in the first quarter still decreased by more than 50 percent compared with the same period of last year. Finally, because the European sovereign debt crisis is still developing and evolving, and the world is still in the process of financial deleveraging, the risks of massive cross-border capital flows are increasing. Question: The PBC announced that the range of fluctuations in the RMB exchange rate against the USD would be expanded as of April 16. What effect will this have on China ’s foreign exchange situation? Answer: This is a major move to further deepen the reform of the RMB exchange rate formation mechanism under the circumstances that China ’s balance of payments situation has gradually improved, the RMB exchange rate has approached a reasonable equilibrium, and development of the foreign exchange market has matured. Since the expansion of the fluctuation range of the exchange rate, in terms of appreciation and depreciation expectations of market transaction participants and actual transactions, the RMB exchange rate fluctuated moderately, and therefore expectations were stable, foreign exchange transactions and investments became more active, and the self-balancing capability of the foreign exchange market was further strengthened. Overall, deepening the reform of the RMB exchange rate mechanism is conducive to allowing market supply and demand play a larger role in the formation of the exchange rate and allowing the RMB exchange rate to approach a reasonable equilibrium level, promoting China’s balance of payments status to develop toward an equilibrium, improving the self-balancing capability of the foreign exchange market, and slowing down the accumulation of foreign exchange reserves. 2012-05-15/en/2012/0515/1051.html
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According to statistics released by the SAFE, in the first quarter of 2012 inflows and outflows of direct investments by overseas investors in domestic financial institutions amounted to USD660 million and USD40 million respectively, resulting in a net inflow of USD620 million. Outflows and inflows of overseas direct investments by domestic financial institutions amounted to USD1.55 billion and zero respectively, resulting in a net outflow of USD1.55 billion (see table 1). As of the end of 2011, the stock of direct investments by overseas investors in domestic financial institutions amounted to USD68.43 billion, while the stock of overseas direct investments by domestic financial institutions amounted to USD52.66 billion (see table 2). To further increase the transparency of exchange statistical data, from the beginning of 2012 the SAFE will release the flow amount of direct investment by financial institutions on a quarterly basis, and the stock amount of direct investments by financial institutions on a yearly basis. Table 1: Direct Investment Flows by Financial Institutions (Quarterly) Unit: USD (100 mn) Item Q1, 2012 Net inflows of direct investments by overseas institutions 6.2 Inflows 6.6 Outflows 0.4 Net outflows of overseas direct investments 15.5 Inflows 0 Outflows 15.5 Table 2: Stock of Direct Investments by Financial Institutions (Annually) Unit: USD (100 mn) Item End 2011 Direct investments by overseas institutions 684.3 Direct investments by domestic institutions 526.6 Appendix: Glossary Financial institutions refer to the headquarters, branches, and sub-branches of institutions engaging in banking, securities, insurance, and other financial businesses which are established within the territory of China according to the law. Direct investments by financial institutions refer to equity investments by overseas investors in China’s domestic financial institutions or equity investments by China’s domestic financial institutions in overseas enterprises, which enable direct investors to have voting rights of 10 percent or more in the invested enterprises. The table of direct investment flows by financial institutions exhibits the amounts of capital flows of overseas direct investments by China’s domestic financial institutions and direct investments in China absorbed from overseas institutions. Specifically, inflows of direct investments by overseas institutions refer to the investment capital or increased investments by overseas investors in China’s domestic financial institutions, outflows refer to the investment capital decreased or withdrawn by overseas investors from China’s domestic financial institutions; capital outflows of foreign direct investments refer to capital investments or increased investments by China’s domestic financial institutions in overseas enterprises, inflows refers to decreased or withdrawn capital investments by China’s domestic financial institutions from overseas enterprises. The table of the stock of direct investments by financial institutions exhibits the stock amount of Chinese owners’ equity arising from foreign direct investments by domestic financial institutions and that of foreign owners’ equity arising from direct investments absorbed in China, including paid-up capital, undistributed profits, and so forth. 2012-07-13/en/2012/0713/1058.html
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The SAFE recently released preliminary data on China ’s Balance of Payments Statement for the first quarter of 2012. In Q1 of 2012 the current account and the capital and financial account posted a “twin surplus” and international reserves maintained a growing momentum. In Q1, the surplus under the current account totaled USD24.7 billion. Specifically, according to the statistical coverage of the balance of payments, the surplus in goods, income, and current transfers reached USD21.7 billion, USD18.5 billion, and USD2.7 billion, respectively, whereas the deficit in trade in services amounted to USD18.2 billion. Meanwhile, China ’s surplus under the capital and financial account (including net errors and omissions) totaled USD49.9 billion. In particular, net inflows of direct investments amounted to USD44.1 billion. International reserve assets posted an increase of USD74.6 billion. Specifically, transactions in foreign exchange reserve assets registered an increase of USD74.8 billion (exclusive of the influence of non-transaction changes in value such as exchange rates and prices), the reserve position in the IMF registered a drop of USD400 million, and special drawing rights registered a rise of USD200 million. Balance of Payments for Q1, 20121 (Preliminary Data) Unit: USD100 million Item # Q1 of 2012 I. Current Account 1 247 A. Goods and Services 2 35 a. Goods 3 217 Credit 4 4314 Debit 5 4097 b. Services 6 -182 Credit 7 436 Debit 8 618 B. Income 9 185 C. Current Transfers 10 27 II. Capital and Financial Account2 11 499 Incl. Direct Investments 12 441 III. Reserves Asset 13 -746 3.1 Monetary Gold 14 0 3.2 Special Drawing Rights 15 -2 3.3 Reserves Position in the Fund 16 4 3.4 Foreign Exchange 17 -748 3.5 Other Claims 18 0 Notes: 1. This statement employs rounded-off numbers. 2. The data under the capital and financial account in this statement represent the balance between the current account balance and the amount of change in reserve assets, including net errors and omissions. 2012-05-15/en/2012/0515/1050.html
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The SAFE recently released the formal data on China 's Balance of Payments Statement for the first quarter of 2012. In Q1 of 2012 the current account and the capital and financial account posted a “twin surplus” and international reserves maintained a growing momentum. In Q1 of 2012, the surplus under the current account reached USD23.5 billion. Specifically, according to the statistical coverage of the balance of payments, the surpluses in goods, income, and current transfers reached USD21.9 billion, USD17.3 billion, and USD2.5 billion, respectively, whereas the deficit in trade in services amounted to USD18.1 billion. Meanwhile, China 's surplus under the capital and financial account totaled USD56.1 billion in the first quarter of this year. In particular, net inflows of direct investments and portfolio investments amounted to USD48.9 billion and USD 9.3 billion respectively and outflows of other investments reached USD3.5 billion. China ’s international reserve assets from transactions increased by USD74.6 billion. Specifically, foreign exchange reserve assets registered an increase of USD74.8 billion (exclusive of the influence of factors due to non-transaction changes in value, such as exchange rates, prices, etc.), the reserve position in the IMF registered a decrease of USD400 million, and special drawing rights registered an increase of USD200 million. 2012-07-13/en/2012/0713/1059.html
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To further improve the quality and transparency of China's foreign-related data and fully embody the fruits of the RMB internationalization, the People's Bank of China (PBC) and the State Administration of Foreign Exchange (SAFE) have recently disseminated the data on China's foreign exchange reserves, gold reserves and full-scale external debt as required by the Special Data Dissemination Standards (SDDS) of the International Money Fund (IMF). China's external debt includes external debt in RMB after the adjustment of the coverage of the external debt. Responsible persons of the PBC and the SAFE took questions from reporters. I. What is the SDDS? A: SDDS stands for the Special Data Dissemination Standard of the IMF, a global benchmark established in 1996 by the IMF for disseminating countries' economic and financial statistical data. To enhance the transparency of the macroeconomic statistical data of its member countries, the IMF has established two data dissemination standards, namely, General Data Dissemination Standard (GDDS) and Special Data Dissemination Standard (SDDS). The two standards are under similar overall frameworks, but the SDDS imposes higher requirements on data coverage, periodicity, timeliness, and quality, as well as access by the public. Countries that subscribe to the SDDS should disseminate the data on five sectors, namely, the real economic, fiscal, financial, external and socio-demographic sectors, as required by the SDDS. At present, 73 economies have subscribed to the SDDS, including all developed economies and major emerging market economies such as Russia, India, Brazil and South Africa. China has been a participating country of the GDDS to disseminate its macroeconomic data before. II. Why would China subscribe to the SDDS? A: As economic globalization deepens, a consensus has been achieved on improving data quality, narrowing data gaps, increasing data comparableness and enhancing data transparency. China has actively responded to the initiatives to get aligned with the universal data standards worldwide. In November 2014, President Xi Jinping officially announced at the G20 Summit in Brisbane that China will subscribe to the Special Data Dissemination Standards (SDDS) of the IMF. The conditions for disseminating the data required by the SDDS have been met after technical preparations. Compliant with China's demand for further reform and opening up, subscription to the SDDS is conducive to improving the transparency, reliability and global comparableness of the macroeconomic statistical data to perfect the statistical methods, to developing a deeper understanding of the macro-economy to provide grounds for making macroeconomic decisions and guard against and address economic risks, and to China's active participation in global economic cooperation to boost the confidence of the international community and the public in China's economy. III. What data on foreign exchange reserves should be disseminated as required by the SDDS? A: The data on foreign exchange reserves disseminated as required by the SDDS contain two parts, namely, "official reserve assets" and "data template for international reserves and foreign currency liquidity". The former includes foreign exchange reserves, reserve position in Fund, SDR, gold and other reserve assets, of which the foreign exchange reserves refer to the size of foreign exchange reserves China usually unveils. The latter is comprised of four forms, respectively on official reserve assets and other foreign currency assets, expected net outflow of foreign currency assets in the short term, contingent net outflow of foreign currency assets in the short term and MOU. Regarding data periodicity, these data will be disseminated on a monthly basis, of which the "official reserve assets" for the previous month will be disseminated no later than the seventh day of each month and the "data template for international reserves and foreign currency liquidity" for the previous month will generally be released at the end of each month. Since this is the first time we have disseminated the data, we release both parts at the same time for your reference, and will disseminate them separately in the future, in their respective time frame. The statistics collection will be conducted in line with the uniform standards of the IMF. IV. What are the highlights of the data disseminated this time, compared with the size of foreign exchange reserves previously disseminated? A: The highlights are as follows: (1) The foreign exchange reserves disseminated this time are identical to the foreign exchange reserves previously unveiled in terms of data coverage. The foreign exchange reserves previously unveiled were collected based on the methodology and standards required by the SDDS. As at the end of June 2015, China's foreign exchange reserves amounted to USD 3.69 trillion. (2) Other foreign currency assets are also disseminated. As at the end of this June, the PBC reported USD 232.9 billion in other foreign currency assets. (3) The size of gold reserves is increased. As at the end of this June, China's gold reserves were 53.32 million ounces (or 1,658 tons). V. China's gold reserves increased by 604 tons from the end of April 2009, according to the gold reserves data disseminated this time. Why did China increase its gold reserves? A:Gold reserve has been a key part of countries' diversified international reserves and many central banks have gold as part of their international reserves. So does China. As a special asset with properties of financial assets and commodities, gold, together with other assets, is conducive to adjusting and optimizing the overall risk and return characteristics of the portfolios of international reserves.From the long-term and strategic perspectives, we will dynamically adjust the configuration of the portfolios of international reserves when necessary, to ensure the security, liquidity, value preservation and appreciation of international reserve assets. VI. The global gold prices have been fluctuating sharply in recent years. When and through which channels did China increase the gold reserves unveiled this time? Will China continue to do so in the future? A:The global gold prices go up and down like those of other commodities and financial assets. Over the past few years, gold prices have declined after climbing to its historical peak. Based on our assessment of the asset value and analysis of the price changes of gold, we accumulated these gold reserves through multiple domestic and overseas channels, while making sure the market was not impacted and influenced. The channels include purification of mixed gold in China, production and storage of gold, and domestic and foreign trade. With special risk and return characteristics, gold is a desirable investment category in a given period. But as the capacity of the gold market is smaller than the size of China's foreign exchange reserves, the market will be impacted if plenty of gold is bought in the short run using foreign exchange reserves. In China, the largest gold producer and a major gold consumer worldwide, it is a commonplace that people buy and keep gold. In the future, we need to take into consideration both private demand for investments and the requirements for allocation of international reserve assets and take flexible measures. VII. Will the SAFE further enhance the transparency of foreign exchange reserves information after disseminating the data required by the SDDS? A: The transparency of the foreign exchange reserve information has been enhanced in recent years. Foreign exchange reserve information has been disseminated through the SAFE's website, press conference, media interviews, forums with experts, as well as the annual reports and the balance of payments reports by the SAFE. Changing from participating in the GDDS to subscribing to the SDDS is also a new measure to further enhance the transparency of the foreign exchange reserve information in line with international standards. We will continue to take into consideration the security of foreign exchange reserve assets and the requirements for operations to ensure the continued enhancement of the transparency of the foreign exchange reserve information, in accordance with the national laws and regulations and international standards. VIII. What are the background and implications of this adjustment of external debt coverage? A: According to the Interim Measures for the Administration of the External Debt, jointly released by the NationalDevelopmentandReformCommission, the Ministry of Finance and the SAFE in 2003, external debt in China refers to the debt owed by a domestic institution to a non-resident, which are denominated in a foreign currency and exclude external debt in RMB, indicating the coverage of China's external debt is narrower than the international standard coverage. As the external debt in RMB has increased in recent years along with the boom of the cross-border RMB business, the SAFE classified and collected statistics on China's external debt in the early stage as per SDDS and disseminated the full-scale total external debt while unveiling the international investment position (IIP) form, in a bid to fully reflect the overall size of China's external debt. To adopt the SDDS in an all-round way, the SAFE has disseminated the full-scale data on China's external debt on a quarterly basis since the beginning of 2015, so that the public could understand China's external debt in more detail. Including the external debt in RMB in the overall external debt is just an adjustment of statistical method and does not increase the amount of external debt to be serviced. Given this, the adjustment of the data coverage of external debt will not change China's liabilities to service its external debt. With the above adjustment, the data coverage of the external debt China unveils to the public will be further improved and get aligned with the latest international standards, which will be conducive to improving the standards and international comparableness of the data on China's external debt. IX. Why does the balance of the full-scale external debt rise? A: As at the end of March 2015, China's outstanding full-scale external debt amounted to RMB 10.2768 trillion (equivalent to USD 1.6732 trillion), due to the adjustment of the statistical coverage of external debt. To be specific, the amount of outstanding external debt in RMB that was included in the statistical scope for the first time was RMB 4.9424 trillion (equivalent to USD 804.7 billion), accounting for 48.1% of the outstanding full-scale external debt. Calculated by the coverage (external debt in foreign currencies) before the adjustment, China's outstanding external debt was down by 3% from the end of 2014. X. What would you say about China's external debt in RMB accounting for nearly half of its full-scale external debt? A:China is a highly open economy that ranks No. 2 worldwide. Since the initiation of the RMB internationalization in July 2009, RMB cross-border settlement has grown rapidly in size, with the value settled rising from RMB 3.6 billion in 2009 to nearly RMB 10 trillion in 2014. The cross-border receipts and payments in RMB has climbed year by year as a percentage of the cross-border receipts and payments in RMB and in foreign currencies in China, say, from 1.7% in 2010 to 23.6% in 2014 and further to 27.7% in January to May 2015, and RMB has become the second most used currency in cross-border receipts and payments in China. Statistics of the Society for Worldwide Interbank Financial Telecommunication (SWIFT) show that RMB remained stable in its position as the world's No. 5 payment currency in May 2015, 14 places ahead of the ranking for the beginning of 2012; its market share was 2.18%, 8.7 times that of the beginning of 2012; and RMB also remained stable in its position as the second most used currency in trade finance. At the end of this March, non-resident deposits and external debt in RMB under trade finance constituted the majority of China's external debt in RMB, making up nearly 60% of the nation's total external debt. The non-resident deposits refer to the external debt incurred by the RMB deposits of overseas institutions in domestic banks. Considered as external debt in statistics, these deposits differ largely from the external debt directly owed by domestic institutions to overseas parties, indicating non-residents are very willing to hold RMB assets, which is conducive to pressing ahead with the RMB internationalization. Against the backdrop of import and export trade, external debt in RMB under trade finance refers to the external debt incurred by provision of financing products by a domestic financial institution to importers and exporters. In essence, the external debt is a natural result of the increased percentage of RMB settlement in China’s cross-border trade. As the international use of the RMB is expanding in terms of area and scope, which has injected new life into the global financial market, overseas players' demand for holding RMB assets is surging, thus improving the position of the RMB in the global market. This embodies the global confidence in China's economic development and confirms the results of China's reform and opening up, indicating that the RMB internationalization is speeding up. Along with the fast economic and financial development, and the deepening of the reform and opening up in China, especially the implementation of the One Belt and One Road strategy, the RMB internationalization will go deeper, and the external debt in the form of RMB assets held by non-residents will continue to grow. XI. What are the differences between external debt in RMB and that in foreign currencies? A:The external debt in RMB and that in foreign currencies are essentially different in quote currency and payment currency, and in impact on a country's foreign exchange reserves due to the sharp fluctuations of exchange rate and servicing of external debt, thus resulting in different impacts on the economic operation and financial system of the country. To be specific, external debt in foreign currencies is vulnerable to the fluctuations of exchange rate and may increase burden on the debtor to service debt amid a crisis, while the external debt in RMB is immune from the monetary mismatch risk and the foreign exchange rate risk, especially the risk associated with foreign exchange payments, and does not consume foreign exchange reserves directly. At the international level, since the currencies of developed economies such as Europe and the US are highly internationalized and have become the major international reserve currencies, their external debt in domestic currency takes up a large percentage. In US and Germany for example, their external debt in domestic currency accounted for 93% and 72% respectively in their total external debt as at the end of 2014. In other economies with a low level of currency internationalization, the external debt in foreign currencies constituted the majority of their external debt, with a low proportion of external debt in domestic currency. In comparison, the percentage of China’s external debt in RMB, 48.1%, is lower than those of developed economies such as Europe and the US but higher than the major emerging market economies in Asia. Given this, the external debt in domestic currency of a debtor, especially a developing debtor country, is less vulnerable to the changes in exchange rate, exposed to lower external uncertainties and less risky than the external debt in foreign currencies (see table 1). XII. How risky is China's external debt? Will the high percentage of China's short-term external debt expose China to a structural risk? A: According to the Global Development Finance 2012 and the Little Data Book on External Debt 2012 released by the World Bank, the average external debt ratio, debt ratio, debt servicing ratio, and the ratio of foreign exchange reserves to short-term external debt in middle-income countries in 2010 were 69%, 21%, 10% and 137% respectively, compared with 35%, 8.6%, 1.9% and 562% in China in 2014 (see table 2), indicating the sustainability of China's external debt measured by those indicators is high and the overall risk is modest. In terms of debt maturity, the percentage of China's short-term external debt by the end of this March was higher than 70%, but of the debt that matures within one year, more than half is credit associated with trade. Since China is a foreign trade giant, the percentage of credit associated with trade, such as inter-company trade credit, trade finance of banks, and debt for financing like short-term notes associated with trade, is also high. Of China's short-term external debt, this part of external debt has genuine trade background, indicating the solvency risk is limited. Moreover, given the small size of China's short-term external debt versus the sizes of foreign trade and foreign exchange reserves, the risks associated with short-term external debt are within control. Table 1 External Debt Position of Selected SDDS Subscribers by the End of December 2014: Debt in Foreign Currencies and Domestic Currency In USD 100 million Country Debt in foreign currencies Debt in domestic currency Total external debt Balance Percent Balance Percent Argentina 1440 96% 64 4% 1504 Bulgaria 477 97% 15 3% 492 Colombia 956 94% 56 6% 1012 Croatia 528 93% 39 7% 567 Georgia 126 94% 9 6% 134 Germany 15765 28% 40147 72% 55912 Hungary 1396 77% 423 23% 1819 India 3398 74% 1221 26% 4619 Kazakhstan 1372 97% 44 3% 1416 Republic of Korea 2973 70% 1282 30% 4254 Moldova 2778 66% 1439 34% 4217 Philippines 752 97% 24 3% 777 Romania 1015 89% 130 11% 1145 Russia 4911 82% 1061 18% 5973 South Africa 675 46% 776 54% 1451 Thailand 997 71% 410 29% 1407 Turkey 3740 93% 284 7% 4024 Ukraine 1242 98% 21 2% 1263 US 10493 7% 141879 93% 152372 Source: Quarterly External Debt Statistics of World Bank Table 2 Major Indicators of External Debt Risks in China by the End of 2014 Before the adjustment of external debt coverage (external debt in foreign currencies) Debt ratio (outstanding external debt/GDP) 8.64% External debt ratio (outstanding external debt/foreign exchange receipts) 35.19% Debt servicing ratio (external debt serviced/foreign exchange receipts) 1.91% Ratio of foreign exchange reserves to short-term external debt 562.43% Source: National Bureau of Statistics, State Administration of Foreign Exchange 2015-08-12/en/2015/0812/1165.html
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Since the Outline of the Plan for Social Credit System Construction (2014-2020) (Guofa No. 21 [2014], the “Outline”) was promulgated in June 2014, the State Administration of Foreign Exchange (SAFE) has conscientiously implemented the strategic plan of the CPC Central Committee and the State Council on the construction of the social credit system and vigorously pressed ahead with the credit system construction in the foreign exchange area, based on the situations of foreign exchange administration, so as to promote the healthy and orderly operation of the foreign exchange market. The major work is highlighted as follows: First, improving the work mechanism. The Plan Promotion Team was established, with administrator of the SAFE as head, and deputy administrator of the SAFE as deputy head, to take full charge of the organization, advancement and coordination regarding the credit system construction in the foreign exchange area. Second, strengthening top-down design. The Opinions on Credit System Construction in Foreign Exchange Area was introduced, expressly setting forth the general ideas and major tasks of the credit system construction in the foreign exchange area, and defining the top priorities and divisions of responsibilities for 2015, in a bid to lay a solid foundation for pressing ahead with the credit system construction in the foreign exchange area in an orderly manner. Third, conducting more promotion and education activities. The SAFE has actively carried out activities such as the “Promotion Month for Running Businesses with Integrity”, and published a byline story entitled Actively Pressing Ahead with Credit System Construction in Foreign Exchange Area to make a profound interpretation of the credit system construction in the foreign exchange area. Fourth, stepping up efforts to disclose violations of foreign exchange laws and regulations. The SAFE discloses violations of foreign exchange laws and regulations via inquires on a quarterly basis, and actively cooperates with relevant departments to integrate foreign exchange violations into the basic database of the People’s Bank of China on financial credit information and the comprehensive credit database of China E-Port Committee for importers and exporters. Fifth, investigating into and rigorously rectifying violations of foreign exchange regulations. In 2014, the SAFE investigated into and rectified 1903 foreign exchange cases, imposing administrative penalties of RMB 450 million; and cooperated with public security authorities to detect 32 foreign exchange illegal cases such as underground banks, involving RMB 222.4 billion. Next, the SAFE will continue to conscientiously implement of the plans of the CPC Central Committee and the State Council, further press ahead with the credit system construction in the foreign exchange area by strengthening top-down design, improving institutional arrangements, standardizing credit information records and use and improving classified management, so as to create a sound foreign exchange credit environment highlighting “incentivizing the creditable and punishing the discredited". (The end) Relevant links: 1. The Circular of the State Administration of Foreign Exchange on Issuing the Opinions on Credit System Construction in Foreign Exchange Area (Huifa No. 16 [2015], see Appendix 1) 2. Actively Pressing Ahead with Credit System Construction in Foreign Exchange Area (See Appendix 2) FILE: Opinions on Credit System Construction in Foreign Exchange Area FILE: Actively Pressing Ahead with Credit System Construction in Foreign Exchange Area 2015-07-24/en/2015/0724/1164.html
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The State Administration of Foreign Exchange (SAFE) has recently held the 2015 Advanced Workshop for Branch Directors in Zhengzhou, Henan. Following the plans of the CPC Central Committee and the State Council and the spirit of the Workshop of the People's Bank of China with Branch and Sub-branch presidents, participants at this workshop studied and analyzed both domestic and overseas financial and foreign exchange positions, with training and discussions conducted based on the priorities of foreign exchange administration. Based on the current foreign exchange position, panel discussions on monitoring and analysis of trade in goods, ongoing and ex-post regulation of the capital account, monitoring and warning of cross-border capital flows, and new framework for foreign exchange regulation were held and experts and scholars were invited to give lectures at this workshop. Due to complex and changing economic conditions both at home and abroad, China has witnessed sharper short-term fluctuation of cross-border capital flows but basic equilibrium of supply of and demand for foreign exchange since the beginning of this year, said Yi Gang at the workshop. Foreign exchange authorities have been persistent in pressing ahead with reforms while guarding against risks. To be specific, they deepened the reform of capital account convertibility, further promoted trade and investment facilitation, paid close attention to ongoing and ex-post regulation, and guarded against impacts from cross-border capital flows, thereby improving their capabilities to support economic restructuring, transformation and upgrading. It was unanimously agreed that since the SAFE proposed the "five shifts" in concepts and approaches of foreign exchange administration in 2009, foreign exchange authorities have achieved tremendous fruits in administration streamlining and power delegation, management transformation, monitoring and warning, and system integration, thereby laying a solid foundation for giving the market a decisive role in allocation of foreign exchange resources. To deliver a good performance in the subsequent reform of foreign exchange administration, Yi Gang stressed that foreign exchange authorities need to adapt to the changes in the foreign exchange position, identify the breakthrough point of the foreign exchange administration reform and continue to enhance the management and service quality based on administration streamlining and power delegation, so as to speed up building a macro-prudential policy framework for foreign exchange administration. In the next step, Yi Gang proposed that foreign exchange authorities should implement the plans of the CPC Central Committee, the State Council and the CPC Committee of the People's Bank of China, taking a holistic approach to reform and innovation, proactively adapting to the new normal of economic development, pressing ahead with the reforms of administration streamlining and power delegation, combination of deregulation and regulation, and service optimization, and innovating ongoing and ex-post regulation, so as to fully discharge the responsibilities granted by the state. First, continuing to streamline administration and delegate power, deepening the reform in the key areas of foreign exchange administration, and pressing ahead with capital account convertibility to support the development of the real economy. Second, improving monitoring, analysis and warning of cross-border capital flows and reinforcing the basis of data system, while cracking down on foreign exchange irregularities and intensifying risk prevention. Third, further strengthening operation and management of foreign exchange reserves to ensure the security, liquidity and value preservation and growth of foreign exchange reserves. Fourth, intensifying analysis and study, and further enhancing party building in the SAFE offices, cleaning up work styles and upholding integrity, teambuilding and internal management, so as to support the work priorities of foreign exchange administration. 2015-09-16/en/2015/0916/1170.html
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The State Administration of Foreign Exchange (SAFE) recently issued the Circular of the State Administration of Foreign Exchange Concerning Foreign Exchange Administration for Domestic Residents Conducting Overseas Financing and Round-trip Investments via Special Purpose Companies (Huifa No. 37 [2014], hereinafter referred to as the “Circular”) so as to support implementation of the “going-global” strategy, to fully utilize international and domestic resources and markets, to promote the facilitation of cross-border investments and finance, practically serve development of the real economy, and to increase the convertibility of cross-border capital and financial transactions in an orderly manner. The Circular mainly includes the following: First, optimizing the administration process: Rationally defining the scope of foreign exchange administration for round-trip investments based on the role and objectives of foreign exchange administration. Transforming foreign exchange administration of round-trip investments and optimizing the relevant administration process based on the concept of “administering cross-border outflows against overseas direct investments (ODI) and cross-border inflows against foreign direct investments (FDI).” Second, streamlining the administration processes: Adjusting the scope of registration of overseas special purpose companies and only registering those companies directly set up or controlled by domestic residents (first level). Abolishing the established procedures, such as the set-up registration, financing registration, registration for changes in financing of foreign special purpose companies, and simplifying changes in the content of the registration. Third, simplifying the business materials. Domestic residents carrying out foreign exchange registration for outward investments in person are only required to submit a standard application form in a fixed format, a commitment regarding the legitimacy of the funds, and identification and relevant supporting authenticity evidence. Fourth, expanding the channels for capital: Allowing purchases and payments in foreign exchange by domestic residents to be used to establish overseas special purpose companies and overseas working capital and, at the same time, eliminating the restrictions on domestic companies’ overseas lending to special purpose companies. Fifth, relaxing restrictions on the utilization of funds from overseas financing, abolishing the mandatory rules on the repatriation of funds, i.e., “profits, dividends, and foreign exchange earnings brought about by capital changes derived from special purpose companies by domestic residents shall be repatriated within 180 days from the day of receipt,” and allowing funds from overseas financing and other related funds to be retained for overseas use. Sixth, clearly incorporating incentive plans for employee rights and benefits in non-listed special purpose companies into the scope of registration to better satisfy the reasonable individual demands of domestic residents. Seventh, strengthening the idea of risk prevention and control. Intensifying responsibility investigations of violations by putting more efforts into statistics and monitoring and focusing on regulation during the course and ex-post regulation as well as decentralizing to promote the facilitation of cross-border investments and financing. This Circular will be implemented as of the date of issuance. 2014-08-01/en/2014/0801/1123.html
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To further deepen the foreign exchange administration system reform, and better satisfy the requirements for and facilitate operations and capital operations of foreign-invested enterprises, the State Administration of Foreign Exchange (SAFE) recently issued the Circular of the State Administration of Foreign Exchange Concerning Reform of the Administrative Approaches to Settlement of Foreign Exchange Capital of Foreign-invested Enterprises (Huifa No. 19 [2015], “the Circular”). The Circular is highlighted as follows: firstly, the settlement of foreign exchange capital of a foreign-invested enterprise is conducted on a voluntary basis, allowing enterprises to freely choose the timing for settlement of foreign exchange capital; secondly, the use of capital and funds from foreign exchange settlement of foreign-invested enterprises shall conform to relevant regulations on foreign exchange administration, with a negative list approach adopted for the use of capital; thirdly, efforts shall be made to facilitate domestic equity investment with RMB funds acquired from exchange settlement by foreign-invested enterprises; fourthly, the management of the payments with funds from foreign exchange settlement will be further standardized to make sure banks conduct authenticity review in line with the three principles of business development; fifthly, management of the settlement and utilization of funds in the foreign exchange accounts under other direct investments are clarified and streamlined; sixthly, the SAFE shall strengthen ongoing and ex-post administration to further reinforce ex-post monitoring and investigation and punishment of violating activities. The release of the Circular is a key move by the SAFE to implement the relevant requirements of the State Council on promoting the replicable pilot reform experience of China (Shanghai) Pilot Free Trade Zone and to transform foreign exchange administration concepts and approaches. The implementation of the Circular will give the full decision-making power and the right of choice on foreign exchange capital settlement to enterprises, thus providing policy spaces for enterprises to avoid the risk of exchange rate fluctuations and helping reduce social costs to further facilitate trade and investment and serve the development of the real economy. The Circular shall come into force on June 1, 2015. (The End) 2015-06-11/en/2015/0611/1160.html
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To further promote the smooth assessment of the performance of banks in implementing the regulations on foreign exchange administration, and to make sure the performance assessment is more scientific and equitable, the State Administration of Foreign Exchange (SAFE) has recently released the Circular of the State Administration of Foreign Exchange on the Amendment to the Measures for Assessment of Banks' Implementation of Regulations on Foreign Exchange Administration (Huifa No. 26 [2015], "The Circular"). The amendment is highlighted as follows: first, refining assessment items. Based on the streamlining and adjustment of the original assessment indicators, efforts have been made to further refine the assessment criteria and scoring methods, making sure relevant requirements are more concise and easier to understand and implement. Second, stressing advancement with the times. The assessment items are updated based on the foreign exchange situations and the developments of regulatory requirements, with the assessment mechanism for bidirectional adjustment of cross-border capital flows introduced to enhance the effectiveness of foreign exchange regulation and control. Third, optimizing assessment process. The impact of differences in business category and size between banks on assessment outcomes has been fully considered to make sure the assessment and rating are more equitable and reasonable. Fourth, highlighting assessment of internal control management in banks. The specific requirements have been proposed to assess head offices' and branches' internal control of foreign exchange business, forcing banks to better implement the principles of "knowing your customers, understanding your business and exercising due diligence". Fifth, improving implementation mechanism of violation rectification. A bank feedback and rectification reporting system is built to urge banks timely implement the violation rectification measures and give feedback on rectification results while subsequent tracking is enhanced to effectively improve the effectiveness of the assessment. The Circular shall come into force as of the date of release. 2015-08-18/en/2015/0818/1166.html