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On February 3, 2016, Pan Gongsheng, deputy governor of the People's Bank of China and administrator of the State Administration of Foreign Exchange (SAFE), met with Andrew Rashbass, chief executive of Euromoney Institutional Investor, and Tony James, president of Blackstone, in Beijing. The current economic conditions in China should be viewed in an all-round and objective way, said Pan Gongsheng. Overall, China's economy is running in a reasonable range. Against the backdrop of the slowing world economy and global trade, and heightened fluctuations in the international financial markets, China maintained a mid-to-high growth rate of 6.9 percent in 2015, which was no easy job as China's economic aggregate had exceeded the basis point of USD 10 trillion and was relatively high compared with other countries. Pan stressed that China's slowing economic growth is attributed to the sluggish global economic growth as well as the Chinese government's active policy adjustment, and will be conducive to China's achievement of more sustainable and higher quality growth and to global economic rebalance. Going forward, China will focus on advancing the structural reform, especially the supply-side structural reform, to better balance economic growth, structural adjustment and risk prevention to achieve sustainable and stable economic development and make great contributions to global economic growth and rebalance. According to Pan, China's balance of payments stays stable, the cross-border capital flow risk is within control, and the RMB exchange rate remains stable against a basket of currencies, indicating there is no ground for sustainable depreciation of the RMB. While vigorously promoting trade and investment facilitation, China focuses on risk prevention, stressing the requirement of reviewing the authenticity and the level of compliance and cracking down on foreign exchange violations, and will not resort to capital controls as it did before. They also exchanged ideas on the current global economic and financial conditions. 2016-03-14/en/2016/0314/1190.html
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To support the implementation of the Measures for the Declaration of Balance of Payments Statistics, and further improve the data quality and efficiency of trade credit survey, the SAFE has recently released the Circular on the Issuance of the Trade Credit Survey System (Huifa No.1 [2016], the “Circular”) to amend the trade credit survey system. The Circular strikes a balance between improvement of statistical data quality and reduction of reporting burden, with the amendment as follows: 1. Simplifying survey indicators. Corporate credit and bank credit, and short and long terms will no longer be differentiated. The statistical and reporting methods and dimensions will be basically consistent with the Accounting System for Business Enterprises (ASBE). 2. Improving the timeliness of surveys. Surveys will be conducted on a monthly rather than quarterly basis, and both monthly and annual surveys will be conducted, but on different companies. Data will be reported on a monthly and annual basis respectively. 3. Focusing on key enterprises. Enterprises above designated size will be the targets of surveys. The total number of companies to be surveyed will be consistent with the number in the past surveys, but most enterprises will participate in the annual survey and limited ones in monthly surveys. The Circular will come into force on August 1, 2016. 2016-02-14/en/2016/0214/1188.html
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On March 22, 2016, Pan Gongsheng, deputy governor of the People's Bank of China and administrator of the State Administration of Foreign Exchange (SAFE), met with Leo Melamed, lifelong chairman emeritus of CME Group in Beijing. Yang Guozhong, deputy administrator of the SAFE, was present at the meeting. Both sides exchanged ideas on issues such as macroeconomic conditions in the US and China, China's balance of payments and the prospects for cooperation between the US and China in foreign exchange markets. 2016-08-30/en/2016/0830/1203.html
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On February 18, 2016, Pan Gongsheng, Deputy Governor of the People's Bank of China and Administrator of the State Administration of Foreign Exchange (SAFE), met with Colm Kelleher, President at Morgan Stanley, in Beijing. The two sides exchanged ideas on various issues, such as the world economy, China's economy, recent fluctuations in the global financial markets and monetary policies of major economies. 2016-03-16/en/2016/0316/1197.html
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On February 28, 2016, Pan Gongsheng, Deputy Governor of the People's Bank of China and Administrator of the State Administration of Foreign Exchange (SAFE), met with Nathan Sheets, Under Secretary of the US Department of the Treasury, in Beijing. The two sides exchanged ideas on various issues, such as macroeconomic conditions, capital flows, and monetary policies in China and the US. 2016-03-16/en/2016/0316/1196.html
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Historical Transformations in the Foreign Exchange Administration Model Yi Gang, PBC Deputy Governor and SAFE Administrator It was made clear at the 18th CPC National Congress and the Third Plenary Session of the 18th CPC Central Committee that the core issue in the economic institutional reform is to handle well government-market relations by allowing the market to play a decisive role in allocating resources, significantly reducing the direct allocation of resources by the government and focusing on addressing the issues of excessive government intervention and weak regulation. In 2009 the State Administration of Foreign Exchange (SAFE) proposed the "five shifts" in foreign exchange administration, including a shift from approval to monitoring and analysis; a shift from ex-ante oversight to ex-post administration; a shift from behavioral management to management of market players; a shift from a presumption of guilt to a presumption of innocence; and a shift from a "positive list" to a "negative list." Over the past five years, under the guidance of the "five shifts," the SAFE has accumulated experience by prompting reform on all fronts, starting out by streamlining administration and delegating powers to lower levels. Further streamlining administration and delegating powers to lower levels. Streamlining administration and delegating powers to lower levels and combining delegation and regulation are the first steps in the self-targeted revolution in government and macro controls. To facilitate trade and investments, the SAFE in recent years has delved deeper to tap the potential, streamline administration, and delegate powers to lower levels, thus providing more opportunities for starting and expanding businesses, easing burdens on enterprises as they develop, helping to increase employment, and creating a new dynamism for social and economic development, and enabling the market players to share the fruits of the reform. Substantially slashing administrative approval items to improve the efficiency of market players in allocating foreign exchange resources. Since 2009, the SAFE has canceled 27 administrative approval items, noticeably reducing ex-ante oversight. In the foreign exchange administration of trade in goods under management of the current account, aggregate verifications have replaced the previous case-by-case cancellations upon verification of the receipts and payments of the foreign exchange for imports and exports, which have reached an annual average of 45 million transactions. Administrative approval items have been reduced to two major items and four sub-items, which are retained primarily to manage class-B and class-C enterprises. Approvals are no longer needed to manage purchases and payments of foreign exchange under trade in services, which now can be handled directly at financial institutions, and examinations of documents for nearly 15 million receipt and payment transactions of foreign exchange under trade in services, with a value of less than USD 50,000 each, have been removed. Cross-border receipts and payments of foreign exchange under trade in goods and trade in services account for 96 percent of the aggregate receipts and payments under the current account, indicating that the absolute majority of current account transactions have enjoyed the dividends of the reform unleashed by the streamlining of administration and the delegation of powers to lower levels. In terms of capital account management, to accelerate the building of a registration-based management framework, unnecessary administrative approval items under direct investments, external debts, and cross-border guarantees have been removed, saving enterprises from going to the SAFE for administrative approvals on some 50,000 occasions. The number of administrative approval items under the capital account has been reduced by nearly 70 percent, from 59 sub-items in 2009 to 20 sub-items this year. These measures have greatly energized the market and have significantly benefited market players, thus they are a great boost to the growth of the Chinese economy and to an increase in the global competitiveness of Chinese businesses. With the reform of foreign exchange administration for trade in goods, the need for enterprises to go to the SAFE for approvals of purchases and payments of foreign exchange has been reduced by about 5,000 times, the average time for each case of receipts and payments of foreign exchange has been cut by 70 percent and 85 percent respectively, human resource inputs by enterprises have been saved by one-third, and annual transportation and labor costs of enterprises have been reduced by nearly RMB 4.8 billion. With the reform of foreign exchange administration for trade in services, the time enterprises spend on processing such businesses has been reduced from more than 20 minutes to five minutes. The measures to streamline administration and to delegate powers to lower levels with respect to direct investments have helped to reduce the time required for foreign exchange registration of foreign-invested enterprises and for registration of the confirmation of the foreign investors' contributions by 16.7 percent and 66.7 percent respectively. The removal of the approvals with respect to external debts, external guarantees, and sub-loans of external debts has increased the independence of enterprises in terms of cross-border investments and financing and has been favorable for enterprises to rationally utilize both domestic and international markets and resources, and therefore has been conducive to overcoming financing difficulties and to lowering the costs of financing. Streamlining regulatory documents on a broad scale to provide transparent and concise market rules for market players. The tedious and complex regulatory documents confuse market players, making it difficult for them to understand and execute the rules, thus they represent yet another obstacle to the development of market players. Therefore the SAFE has regarded the removal of the administrative approval items and the transformation of the management models as an opportunity and in recent years it has accelerated the streamlining and integration of its management regulations with those of its branches and business lines. For example, it annulled 123 regulatory documents regarding the reform of foreign exchange administration for trade in goods and built a regulatory system for the administration of foreign exchange under trade in goods, which consists of guidelines, rules, and regulations. Another example is the recently released Management Measures for Banks Handling Foreign Exchange Sales and Settlements, which establishes a regulatory system for foreign exchange sales and settlements via banks, consisting of one departmental regulation plus five regulatory documents. The SAFE has annulled and declared invalid more than 700 regulatory documents, accounting for 60 percent of the total, and its branches have annulled or declared invalid more than 20,000 regulatory documents, with only over 180 regulatory documents currently remaining in force. Exploring an innovative functional transformation. Streamlining administration, delegating powers to lower levels, and canceling approvals do not indicate a laissez-faire foreign exchange administration but rather a shift to more flexible and more restrictive ongoing and ex-post oversight. Over the past five years, under the guidance of the "five shifts," the SAFE has carried out audacious explorations and has achieved enormous results from the reforms that have stood the test of time. Stressing monitoring and analysis as a foundation for decision making in ongoing and ex-post oversight Enhancing integration between the business system and data to provide a data foundation for monitoring and analysis. Before 2009, there were 31 business systems for foreign exchange administration, including seven systems for banks and companies respectively, but these systems were not compatible with one another and could not share information, resulting in repeated data acquisition and mixed standards. Through years of hard work, the situation of multiple and scattered business systems for foreign exchange administration has changed. The systems have been integrated into multiple applications on three platforms and the number of systems for banks and companies has been reduced to four and three, respectively. With uniform standards established for data acquisition and BOP data, current account and capital account management can now be realized at one time. The integration of the application portals enables companies and banks to access the same portal and enjoy one-stop services, thus dramatically increasing the level of convenience. During the past year, nearly 40 percent of the declarations for corporate and individual foreign-related income and domestic income were completed online, significantly relaxing the burden on the declarers to go to the banks to make a declaration. Meanwhile, the SAFE can quickly identify abnormal transactions through monitoring and analyzing several hundred thousand foreign-related companies using Big Data and cloud computing technology that provide data and clues for on-site verifications and inspections. Improving monitoring and analysis methods to monitor cross-border capital flows in all respects. The SAFE has introduced new monitoring tools, such as the Sensitive Sample Enterprise Library and the Company Financial Data Analysis Method, for trade in goods and has explored an off-site monitoring management system connecting the macro, meso, and micro levels, in order to achieve the results of judging the situation at a macro level, ensuring the structure at the medium level, and focusing on violations at the micro level. The SAFE also optimized monitoring and analysis of foreign exchange administration for the capital account in three respects, i.e. monitoring real transactions, identifying clues of violations and abnormalities, and laying a solid foundation for subsequent off-site verifications or handovers to the inspection departments. To facilitate foreign exchange inspections, the SAFE has established an off-site indicator system for receipts and payments of foreign exchange for banks and MNCs, enabling the inspection departments to conduct cross-regional, cross-subject, and cross-business monitoring via cross analysis and in-depth data mining, thus increasing the precision of crackdowns. Enriching the monitoring and analysis products to make monitoring and analysis regular tasks. While increasing the authority and relevance of the China BOP Report, since 2010 the SAFE has produced a series of monitoring and analysis products, including the Monitoring Report on Cross-border Capital Flows in China, the Operational Report on Regional Receipts and Payments of Foreign Exchange in China, the Monthly Monitoring and Analysis Report on Cross-border Capital Flows, and the Analysis Report on Foreign Exchange Inspections. These products serve the needs of both situational analysis and of monitoring and thus are key tools for the normalization of monitoring and analysis. Exploring macro-prudential regulatory approaches to foreign exchange administration based on monitoring and analysis. By monitoring and analyzing the reasons for and the channels of significant inflows of foreign exchange funds across the board in May 2013, the SAFE introduced a counter-cyclical response measure focused on managing macro-level issues, such as enhancing management of the overall position of foreign exchange settlement and sales via banks. By aligning the position floor with the loan-to-deposit ratio of foreign exchange in banks to adjust the banks' behavior via economic levers, banks are encouraged to seek a new balance between foreign exchange deposits, foreign exchange loans, and their overall positions for foreign exchange settlement and sales and to gradually adjust their operating models to adapt to the macro controls, thus producing positive results. Innovating ongoing and ex-post administration tools to benefit "law-abiding companies." Introducing a company owner conversation system. As part of the reform of foreign exchange administration for trade in goods, the SAFE has built a company owner conversation system for suspected situations, which is favorable for verifying the situation of the companies that it has been watching. This system plays a guiding role, raising company managers' awareness of running their businesses in compliance with the laws. Issuing risk warning letters. For example, the SAFE issues risk warning letters to import and export companies whose goods flows do not match their cash flows and requests an explanation. If the company does not respond or fails to make a convincing explanation within ten days, the SAFE will rate it as a class-B or class-C company in accordance with the laws. This has enhanced the seriousness of compliance with foreign exchange administration, embodying the characteristics of administration by law. Promoting classified management. Based on monitoring and analysis, the SAFE has dynamically adjusted the classification of companies specializing in trade in goods, fundamentally changing the previous undifferentiated management model and shifting the focus of regulation to class-B and class-C companies, which has effectively helped encourage law-abiding companies, and has constrained suspects and punished violators. After the reform for trade in goods, the SAFE has shifted its focus of regulation from the original 500,000-plus import and export companies to 80,000–90,000 companies, particularly the more than 4,000 class-B and class-C companies, and has written off 3,793 shell corporations. Building a rational management "gate." After the reform of foreign exchange administration for trade in services, the SAFE will no longer examine documents on the receipt and payment of foreign exchange below the equivalent of USD 50,000, but will continue to require that the banks keep these documents for five years in case of requiring an inspection, thus setting up a management gate while increasing conveniences. Optimizing and upgrading the cross-departmental regulatory mechanism. With the information exchange mechanism, the SAFE will take into full consideration the company classification by the tax and customs authorities to support its regulation, and vice versa. The increasingly close cooperation among departments with respect to regulation provides an additional tool for the SAFE to conduct ongoing and ex-post administration. Stepping up monitoring and inspection. Based on the changes in the situation, the SAFE has conducted special foreign exchange inspections of key channels and entities, such as entrept trade and banks, cracked down upon underground money shops, online foreign exchange margin trading, and other law- and regulation-violating behaviors. The SAFE dealt with 9,617 criminal cases and issued fines in the amount of RMB 1.35 billion between 2011 and 2013, more than doubling that between 2008 and 2010. The ex-post intimidating effect of foreign exchange inspections and the effectiveness of foreign exchange administration have thus been consolidated and improved. Exploring approaches to regulation to urge market players to reduce costs and improve efficiency. Shifting from behavioral regulation to regulation of market players is a systematic project that involves the adjustment and reengineering of the business and institutional functions, thus a multifaceted approach is required. In terms of business regulation, the SAFE has begun to explore a market players targeted administration reform for the business lines of the current account and the capital account. It takes into full consideration the cross-border receipts and payments, foreign exchange, assets, and liabilities of the market players by integrating business, data, and systems for focused administration. For example, the foreign exchange administration reform for trade in goods breaks through the constraints of separate regulation of imports and exports and builds a new model for market-player regulation. As part of the reform, the SAFE has verified the correspondence between goods flows and capital flows for imports and exports by market players, canceled the trade credit registration system and replaced it with monitoring of the match between trade credits and the volume of imports and exports so as to comprehensively assess and judge the authenticity of a company's trade balance. In the pilots for the centralized operation and management of the foreign exchange of the MNCs, companies are allowed to centrally use current and capital account funds under the same account, thus members of an MNC can share the limits of the external debts and facilitate exchanges for investments and financing. These measures have significantly reduced the costs of trade and financing among members of MNCs, making a growing number of MNCs elevate the position of China from being a global manufacturing and R&D center to being a profit and fortune center. In terms of institutions and functions, many branches and sub-branches of the SAFE have explored position restructuring, process reengineering, and personnel transition. For example, optimizing responsibilities and re-planning institution and position-setting based on the type of market player; conducting full-scale classified management of the current account and the capital account for banks, companies, and individuals; providing one-stop services at the front office, and conducting full-scale monitoring and inspections and comprehensive assessments and classified management in the middle and back offices. These measures have promoted a shift in the focus of regulation from all market players to some players and have helped to build a regulation service model that integrates analysis, regulation, and services. Leading the reform with the "presumption of innocence" and a "negative list" to further facilitate trade and investment. A “negative list" and the "presumption of innocence" require the adoption of a more open and more inclusive administrative model and an adjustment in the regulatory pattern and the legal and regulatory systems. With years of hard work by the SAFE, the "negative list" and the "presumption of innocence" have become concrete policies rather than mere concepts. The design of the reform reflects the concept of the "presumption of innocence." The reform of foreign exchange administration under the current account that has been carried out in recent years basically reflects this concept, as does the liberalized capital account. For example, as part of the foreign exchange administration reform for trade in goods, the SAFE will no longer verify in advance the authenticity of the receipts and payments of foreign exchange under trade in goods of class-A companies and will give adequate ex-ante conveniences to those that have signed the Business Handling Confirmation as a commitment of operational compliance. During the trials of the centralized operation and management of the foreign exchange of MNCs, relevant pilot businesses can be handled after the bank and the company sign a compliance confirmation and the companies will be regulated through ex-post verification, risk warnings, and inspections, which are focused on identifying law breakers and violators of the regulations. Exploring a "negative list" approach to foreign exchange administration. In terms of current account management, the concept of administration based on a "negative list" is reflected in the administration of foreign exchange receipts and payments for class-B and class-C companies engaged in trade in goods and individual spin-offs of foreign exchange settlements and sales. This concept has also been followed in the capital account reform. For example, in terms of direct investment management, the SAFE has implemented a pilot program to reform the management model for the settlement foreign exchange capital of foreign-invested companies in 12 areas, such as the China (Shanghai) Pilot Free Trade Zone, prescribing that foreign exchange capital settlements may be handled directly if the foreign exchange is not used to invest in equities or to extend entrusted loans, and foreign exchange can be settled directly for non–real estate companies if the foreign exchange is not used to buy non-freehold real estate. Foreign exchange under the external debts can be settled with the presentation of valid evidence that it is not used for purposes that are clearly forbidden. Foreign exchange under cross-border guarantees can be directly settled if there is no conflict with the existing regulations during signing of the contract and during its performance. The pilot program for the reform of centralized operations and management of the foreign exchange of MNCs is aimed at achieving willingness settlement of foreign exchange under the capital account by using the "negative list" approach. This approach has further deepened the concept that items not found on the list will be deemed permissible, thus providing valuable experience to continue to upgrade the foreign exchange administration reform. Continue to promote the foreign exchange administration reform to tackle the challenges ahead. Over the past five years, the SAFE has continued to deepen the foreign exchange administration reform based on the "five shifts," which has produced positive results, and therefore has promoted foreign exchange administration to a new high. But we should also be aware that the achievements are not the end of the reform but a new starting point of continuing to deepen the reform, and there are still big challenges that lie ahead for the reform. Continuing to promote the foreign exchange administration reform is a necessary requirement to implement the country's overall reform plan. Since it took office in 2013, the new government has promoted the economic institutional reform on all fronts, driven by the streamlining of administration and the delegation of powers to lower levels. In this new situation, the foreign exchange administration reform is like a boat sailing against the current and we must forge ahead. Take FDI management as an example. Prior approval for industrial and commercial registration has long been one of the foreign exchange administration documents under FDI, based on which the SAFE handles investigations of registered capital verifications, foreign exchange capital settlements, and annual checks of foreign exchange. But as the industrial and commercial registration system was reformed this February, with the registration of paid-in capital changed to registration of subscribed capital, the registration and confirmation by investors in foreign-invested enterprises based on the capital verification system lost ground. Moreover, it will become more difficult to manage foreign exchange settlements for capital payments based on the business scope as administration of the scope of the company business has now liberalized. All these require us to keep up with the times, adapt to the new changes, and accelerate innovations in the foreign exchange administration reform. Continuing to promote the foreign exchange administration reform is a necessary requirement for a BOP equilibrium. The imbalanced situation of the BOP in China has obviously improved in recent years, but the equilibrium is fragile and the institutional and structural problems that have long constrained the BOP equilibrium have not been completely resolved. Moreover, the capability to achieve an active BOP equilibrium is not sufficiently strong and a long-term mechanism that promotes a BOP equilibrium has yet to be established. Meanwhile, there are not many foreign exchange administration tools are marketized, and macro-prudential and administrative management tools alone can no longer satisfy the dual policy objectives of facilitation and risk prevention. All these have raised the need to accelerate innovations in the mechanisms and systems of financial and foreign exchange administration. Continuing to promote the foreign exchange administration reform is a necessary requirement to enhance the global competitiveness of the Chinese economy and of Chinese companies. Deepening the reform as China's reform and opening up expands will be conducive to working out the connections between domestic and overseas markets to guide the rational allocation of capital on a larger scale and to take fuller advantage of both domestic and international markets and resources to improve the efficiency of resource allocations, and to promote the reform and innovation of the financing and investment systems to sharpen the competitive edge of Chinese companies in the global market. We should look at the situation and the environment for foreign exchange administration from a global and holistic perspective and continue to tackle the challenges as the foreign exchange administration reform enters a deep-water zone, while implementing the strategic reform plans of the CPC Central Committee and the State Council. First, we will develop and implement an overall plan and a top-down design with a distinct logic and clearly defined measures, beginning by addressing the deep-seated problems in systems and mechanisms to gradually promote the overall reform while making breakthroughs in key areas based on the BOP situation, thus releasing the dividends of the system. Second, by combining regulation and delegation based on the market, we will enhance statistical monitoring and ongoing and ex-post oversight to improve the effectiveness of foreign exchange administration. Third, we will systematically streamline and summarize the lessons from the previous reforms to identify a reform model that can be reproduced and be promoted. To further deepen the reform in the future, we should work around the "five shifts" to fundamentally change our concepts, working processes, and work methods, as well as the quality and skills of our people. Meanwhile, we should focus on improving our capabilities in foreign exchange administration: building a strong database and information system based on statistical monitoring; improving our analysis capability and strengthening collaboration between business lines involving the current account, the capital account, the BOP, and foreign exchange inspections; improving the early-warning threshold and the kick-off mechanism; and providing regulation-based services to serve the development of the real economy and to safeguard China's foreign-related economic security. First, promoting the reform. Deepening the reform will be the top priority of foreign exchange administration. We will continue to streamline administration and delegate powers to lower levels and streamline items that require administrative approval. We will change our administrative model and make innovations in our administration thinking to improve the systems and mechanisms for ongoing and ex-post administration, to promote regulation of market players across the board, and to break through the constraints of current account and capital account management. We will step up efforts to develop the foreign exchange market and further improve it in terms of both breadth and depth with advances in the reform of the RMB exchange rate formation mechanism. We will also shift the focus of market regulation from approving entry and promoting new products to safeguarding fair play to prevent market failure and systemic management risks. Second, guarding against risks. Preventing the impact from cross-border capital flows will be the primary task of foreign exchange administration. We will build a new early-warning indicator system for monitoring risks associated with the BOP and cross-border capital flows and will make improvement in order to explore new risk emergency-management approaches and policy tools for new situations. We will establish and improve a management system for external debts and cross-border capital flows under the macro-prudential framework. Based on the situation of foreign exchange receipts and payments, we will enhance the relevance and effectiveness of foreign exchange inspections. Efforts will also be made to crack down on illegal trade and transfers of foreign exchange, such as underground banks, to guard against large-scale inflows of international speculative capital and to ensure China's economic and financial security. Third, strengthening the foundation. Data and the system will provide an underpinning for foreign exchange administration. To improve data acquisition, we will integrate and design a rule for interfaces of bank data acquisition and a uniform scheme for bank data acquisition to avoid duplicate and repeated data acquisition. We will enhance system construction, providing quality information services, enabling banks and companies to handle foreign exchange issues in the same system, and providing Internet access interfaces to facilitate information interaction and sharing. We will increase our administrative tools, gradually completing the integration of data on cross-border capital flows and the building of a database and further studying and enriching the monitoring and analysis indicators to effectively assist in oversight. Efforts will also be made to improve data standards by enhancing the building of statistical and coding standards based on the BOP and external debt statistics. Fourth, improving management. Strengthening team and system construction will be the foundation of foreign exchange administration. Administration by law will be practiced by standardizing administrative decision making and administrative enforcement. Administrative transparency will be further promoted by increasing policy and data transparency. Working rules on monitoring and analysis, off-site verifications and on-site inspections will be developed and improved, and the construction of internal controls will be improved to enhance mitigation and control of internal risks. More efforts will be made to strengthen cadres training, including promoting personnel restructuring and raising their service consciousness, thus combining management and service. We will further implement the gist of the eight-point guideline of the CPC Central Committee, clean up our work style, and actively implement a long-term mechanism for independent risk control and to further regulate our exercise of power. (The original text was published in issue no 19 of China Finance in 2014.) 2014-11-26/en/2014/1126/1133.html
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Gain a Deep Understanding of the New Economic Trends in China —Learning and Implementing Xi Jinping's Ideas on the Economic New Normal Yi Gang, SAFE Administrator Since the 18th National Congress of the Communist Party of China, President Xi Jinping has summarized the success stories of China's reform and development, shared many of his thoughts and ideas, and made constructive statements and proposed new requirements, thus enriching and developing the theoretical system of socialism with Chinese characteristics. As we are entering a critical period for economic construction and development in terms of the pace of growth, the structural readjustments, and the stimulus policies, Xi proposed that we should adapt to the new normal state featuring the characteristics of the current development stage of the Chinese economy and remain calm while implementing the new strategies. This idea is of great theoretical value and of guiding significance to deepen the economic institutional reform, promote sustainable and healthy economic development, and achieve the two centennial goals (namely, to complete the building of a moderately prosperous society in all respects when the Communist Party of China celebrates its centennial in 2021, and to turn China into a modern socialist country that is prosperous, strong, democratic, culturally advanced, and harmonious when the People's Republic of China celebrates its centennial in 2049) and achieves the Chinese dream of the great renewal of the Chinese nation. Fully understand the grounds for the statement that China's economy is entering a critical period of slower growth, deepening structural readjustments, and absorption of the stimulus policies With an accurate understanding of the overall picture of China's economic growth, the CPC Central Committee led by Secretary General Xi Jinping has stated that in the long term China will see sound fundamentals in its economic and social development, but it is now facing a critical period as its economy is shifting from high-speed growth to mid-to-high-speed growth, its structural readjustments are under great pressures, and the preliminary stimulus policies are being absorbed. This statement shows that the CPC Central Committee is willing to face up to the reform and development challenges and is able to identify the principal contradictions and key links in economic development. Fully understanding the grounds for this statement is a prerequisite for delivering good performance in our economic work. The economic laws determine China's shift to slower economic growth. China's GDP has sustained an astonishing annual average growth rate of nearly 10 percent for more than thirty years since implementation of the reform and opening up, and our economic aggregates reached RMB 56.88 trillion in 2013. As the world's second-largest economy with huge economic aggregates, China is finding that it is difficult to maintain high-speed growth due to the constraints of production factors. Take labor factors as an example. China's population structure and supply and demand for labor have fundamentally changed. The number and share of the labor force dropped for the first time in 2012, and the aging population will continue to grow, making it difficult for China to achieve two-digit growth. International experience shows that economies decelerate to varying extents after reaching a certain stage. Japan and South Korea, for example, witnessed 23 and 36 years of high-rate growth after World War II, with their GDPs growing at an annual average rate of 9.7 percent and 8.02 percent respectively, but then their economies slowed down by nearly one-half. Facing an economic slowdown, we must thoroughly study and follow the economic laws and ensure that the range of adjustments is appropriate for improving the quality and efficiency of economic development. Accelerating the strategic readjustments of the economic structure is a very necessary approach to respond to the profound changes in the economic conditions. The manufacturing industry has long been the engine of China's economic growth and has played an important role in China's economic miracle. But the development model of China's manufacturing industry is relatively extensive, leading to many problems, such as a serious overcapacity. The capacity utilization of manufacturing companies in the first three quarters of 2013 was at the lowest level since 2006 and lower than the internationally recognized normal level. In particular, the capacity utilization of the main products in the iron and steel, cement, electrolytic aluminum, coke, shipping, photovoltaic, and so forth industries was lower than 50 percent. The overcapacity in the manufacturing industry led to decreases in the returns on capital and the marginal output. Moreover, the extensive development of the manufacturing industry has also caused many resource, ecological, and environmental problems, such as high energy consumption per unit of GDP, serious water, air, and soil pollution, and deteriorations in the ecological environment. If we are not determined and courageous today, we will pay a bigger price tomorrow. Given the profound changes in the development conditions, we must accelerate the strategic readjustments in the economic structure and combine economic growth with structural readjustments, improvements in the people's lives, and the construction of an ecological civilization to achieve sustainable development. Absorbing the preliminary stimulus policies is a prerequisite for safeguarding China's economic and financial security. To respond to the global financial crisis, China introduced a package of stimulus policies during the past few years, which contributed greatly to China's sound economic growth and the recovery of the world economy. However, these policies also had some negative effects, such as financial capital being off to a virtual reality, too many company debts, and the accumulation of potential risks in some areas and links, such as local financing platforms. Developing a high liability ratio and a high leverage ratio will compromise our future and may potentially endanger sustainable economic development. Therefore, we must take the initiative in economic development and properly handle the relationship between ensuring growth and guarding against risks to improve the efficiency and quality of economic development. Accurately understand the meaning of the economic new normal in China "China's development is entering a period of strategic importance. We must consolidate confidence to adapt to the new normal state featuring the characteristics of the current development stage of the Chinese economy and remain calm while making strategies," said Xi. This is a scientific analysis of the long-term economic trends in China, based on, among other things, a comprehensive analysis of China's economy during a period when economic growth is slowing down, structural readjustments are under great pressures, and the preliminary stimulus policies are being absorbed. We should accurately understand the meaning of the economic new normal, acquire good knowledge about the new economic trends, and promote the economy, reform, and development well to make sure that we will complete the building of a moderately prosperous society in all respects by 2020 and go on to fulfill further goals. China's economy is shifting from high-speed growth to mid-to-high-speed growth. After undergoing two-digit growth over the past thirty-plus years, China's economy is now gradually slowing down to mid-to-high-speed growth, which is an important sign of the new normal economic state. Such a speed is sustainable. "We must understand the relationship between sustainable and healthy development and GDP growth in an all-round way," stressed Xi. Ending the blind pursuit of high-speed economic growth is favorable for the optimization of resource allocations and for full utilization of resources, and for improvements in the quality and efficiency of economic development to ensure that the people can share in the fruits of the economic development. An economic slowdown means relatively slow economic growth compared with the previous high-speed growth, but this speed is still much higher than that in the developed economies and many emerging markets and this growth is more comprehensive, coordinated, and sustainable, featuring a more stable and rational structure. It is foreseeable that China's economic growth will contribute even more to global economic growth in the coming decade. The leading position of the manufacturing industry in the industrial structure is being shifted to the services industry. With its level being a key sign that measures the level of economic development in a modern society, the services industry is an important sector of the Chinese economy. But China's services industry was relatively immature in the past. The added value of this industry accounted for 46 percent of China's GDP in 2013, which outperformed that of the manufacturing industry for the first time, but it was still far behind the 70 percent which is the typical percentage of the services industry in GDP in the developed countries, indicating the boosting of the services industry on China's economic growth has yet to be unleashed. Under the new normal economic state, the position of the services industry in the industrial structure will further pick up. Since what we need is an economic growth speed that ensures improvements in the people's lives and full employment, the development of the services industry that can provide more job opportunities than the manufacturing industry is conducive to achieving the goal of full employment, enriching the provision of daily necessities, improving the people's lives, and achieving the growth of humanity. The development concept is being transformed from one-sided pursuit of GDP growth to humanitarian and environmental protection. Under the new normal economic state, efforts will be made to expand the reforms and to promote development based on the people-first philosophy and the principle of serving the fundamental interests of the overwhelming majority of the people rather than to seek GDP growth as the ultimate goal. "A good ecological environment is the fairest public good that is most beneficial to general well-being," Xi pointed out. The central government has been implementing an innovation-driven development strategy in recent years and regards energy-savings and emissions reductions as restrictive indicators for economic and social development to promote green, circular, and low-carbon development. People-first economic development means equal access to basic public services in urban and rural areas will be promoted at a faster pace, with an elimination of the urban-rural dual economic structure. China's urbanization has been accelerated in recent years. Its urban population exceeded its rural population for the first time at the end of 2011, accounting for 53.7 percent of the total population at the end of 2013, nearly equal to the world’s average. More and more migrant workers have access to basic urban public services. Meanwhile, new rural areas are being built, urban and rural development is becoming more balanced, and gaps between the rural and urban areas are being narrowed, indicating the fruits of development are being shared by more people in a more equitable way. Promote stable economic growth under the new normal state by deepening the reforms The critical period featuring slower economic growth, deepened structural readjustments and absorption of the stimulus policies, and the economic new normal are both an opportunity and a challenge. "To meet the people's new expectations, we must consolidate confidence in the reforms and promote the reform and opening up with more political courage and wisdom and more effective measures and methods," Xi stressed. During this critical period of strategic importance, we should remove the institutional and structural contradictions in economic development by deepening the reforms, give the market a decisive role in allocating resources by promoting the reforms in key areas and links, and allow the government to play a better role in the promotion of the sustainable and healthy development of the Chinese economy. Carrying out market-oriented reforms. First, streamline administration and delegate power to lower levels. Efforts should be made to minimize permissions, approvals, and qualification evaluations and to motivate market players to start businesses so as to continuously vitalize economic transformation. Second, accelerate improvements in the modern market system. We should develop open and transparent market rules and unified market access rules by formulating a negative list. We should deepen the reform of the factors market and establish a price system that can reflect scarcities and the supply-demand relationship to combine improving the efficiency of resource allocations and promoting economic growth. Third, energize micro units. We should ensure that diverse forms of ownership participate in competition in an open, fair, and just way and we should encourage non-public ownership to move into the services sector and high-technology areas. Fourth, expand internal and external opening up. We should promote bidirectional opening up of the capital market to increase the convertibility of cross-border capital and financial trade in good order. We should combine "inviting in" and "going out" to encourage foreign capital to participate in domestic M&As and integration, ease restrictions on domestic residents' overseas investments and establish the principal positions of companies and individuals in overseas investments. Carrying out innovation-oriented reforms. First, deepen the education reform to accelerate accumulation of human resources. We should make full use of the role of human resources as a source of innovations to a lay a solid foundation for the upgrading of the traditional industries and the development of industries such as new generation IT, new energy, and high-end equipment manufacturing and then to improve labor productivity and total factor productivity. Second, improve the systems and mechanisms of technology innovation. We should deepen the reform of technology systems and establish an open and transparent evaluation mechanism for national technological resource management and projects. We should uphold market-oriented technology innovations, strengthen the principal position of companies in technology innovations, and improve venture capital investment mechanisms and business models to promote the transformation of technology innovations into the dynamism of economic development. Third, promote the integration of technology and finance. We should increase the use and protection of intellectual property rights to make full use of the capital market to support innovations and the starting of businesses. Carrying out sustainability-oriented reforms. First, accelerate the building of mechanisms and systems for sustainable economic development. We should build a scientific indicator system, an assessment system, and a monitoring system for energy savings and emissions reductions, implement a target responsibility system regarding energy savings and emissions reductions and stress the restrictive roles of the indicators. Second, develop a green and circular economy. We should promote low-carbon technology, develop new and renewable energies, and enhance prevention and control of water, air, and solid waste pollution and traffic congestion. Third, protect the ecological environment. We should actively respond to global warming and continue to push ahead with ecological projects, such as natural forest protection, conversion of farmland to forests, and conversion of farmland to pastures, to promote coordinated development of the economy and the environment. Carrying out reforms that benefit all. First, build a reasonable and orderly income allocation pattern. We should adjust the distribution pattern of the national income by further increasing the proportion of labor remuneration in the initial distribution to synchronously enhance labor remuneration and labor productivity. We should improve the minimum wage and wage payment guarantee systems to bridge the income gaps between the rural and urban areas, between regions, and between industries. Second, establish a fair and sustainable social security system. We should integrate the basic pension and medical insurance systems for rural and urban residents, coordinate the minimum standard of living scheme for rural and urban residents, and accelerate the building of a basic public services system for all people. We should learn lessons from other countries regarding welfare policies and build a social security system that is appropriate for the level and stage of social and economic development in China, while avoiding welfare problems caused by overly high welfare or a failure to guarantee a minimum standard of living due to excessively low welfare. (The original text was released on page 7 of the People's Daily, dated November 3, 2014) 2014-11-26/en/2014/1126/1135.html
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In 2014, the State Administration of Foreign Exchange (SAFE) received and processed in 2014 52 proposals and motions in total from the National People's Congress (NPC) and the Chinese People's Political Consultative Conference (CPPCC), which mainly involved operations and administration of foreign exchange reserves, trade and investment facilitation, support of companies going global, overseas investments by individuals, and foreign exchange administration policies for special economic regions. The SAFE attached great importance to the processing efforts, arranged relevant work, and made great efforts to carry out the related tasks. As a result, the processing of the relevant proposals and motions for 2014 was completed successfully, which can be attributable to the following aspects: first, close attention from the leadership and thoughtful arrangements. With the significance of the proposals and motions processing stressed by the SAFE's Party Leadership Group, the leaders in charge of this processing effort convened a special meeting to make arrangements and raise requirements for the processing. Second, improved systems and standardized processing. A special measure has been developed to make sure the processing is institutionalized and standardized. Third, good coordination and communication to enhance the processing level. The SAFE took various measures to communicate with the delegates and further listened to their opinions and suggestions to ensure the quality of the processing. Fourth, strengthened training and rigorous overseeing. Intensive training was provided for the persons processing the proposals and motions and supervision was improved to make sure every proposal and motion was replied. After the completion of the processing, a wrap-up meeting was held to identify and summarize the experience gained and good practices in this processing effort. The year 2015 is a critical year in deepening the reforms in China in an all-round way, the first year in fully promoting the rule of law in China as well as the last year of the Twelfth Five-Year Plan period. The SAFE should take the processing effort of 2015 as a touchstone for the implementation of the gist of the 18th CPC National Congress, the Third and Fourth Plenums of the 18th CPC Central Committee and the Central Economic Work Conference and continue to improve its work styles, so as to do well in the processing of the proposals and motions from the NPC and CPPCC in 2015. 2015-03-11/en/2015/0311/1149.html
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To enhance internal control and external supervision of banks, the State Administration of Foreign Exchange (SAFE) has recently printed and distributed a circular that it would carry out a special inspection of 7 banks for foreign exchange compliance. This special inspection is designed to identify the typical problems and hidden risks in banks' foreign exchange business, understand banks' deficiency in implementing foreign exchange administration policies and regulations, promote banks to enhance their foreign exchange compliance and curb foreign exchange incompliance and illegalities. The focus of this inspection will be on the rectification of problems identified in previous inspections, internal controls of banks, their implementation of service principles, and their foreign exchange compliance. This inspection will be carried out in three phases. The first phase, starting from January 2015 and ending on February 9, is about self-check by banks and offsite inspection by foreign exchange authorities. Banks are required to conduct a full-scale self-check and foreign exchange authorities will carry out offsite inspection at the same time. The second phase, lasting from February 10 to mid-March 2015, will be focused on onsite inspection of some bank branches and sub-branches which are selected by the foreign exchange authorities. The third phase will be a bank rectification phase. Banks will be required to complete rectification of violations identified in their self-check and the inspection by foreign exchange authorities by the end of May 2015. According to the Circular, banks are required to conduct self-check in their systems by building a level-based accountability system and introducing comprehensive measures without any ignorance, making sure their self-checks are fruitful; they also should report their violations and illegalities, identify causes, conduct rectification and build and improve a long-term mechanism on foreign exchange compliance. To strengthen organization and leadership, the SAFE has established a special inspection leadership team to make decisions and offer guidance on key issues, and coordinate progress and problems to be solved during this inspection. 2015-02-06/en/2015/0206/1146.html
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In order to promote the construction of a credit system in the field of foreign exchange, strengthen penalties for dishonesty, and urge foreign exchange market players to operate in compliance with the laws, the Department of Management and Inspection of the State Administration of Foreign Exchange (SAFE) and the Credit Information Center of the People’s Bank of China signed a Memorandum of Cooperation regarding the collection of information on foreign exchange violations to be included in the basic database on financial credit information (the “Memorandum of Cooperation”). According to the Memorandum of Cooperation, starting from January 1, 2015, information on foreign exchange violations by enterprises and public institutions which have been involved in substantial violations and have received administrative penalties for evasion of foreign exchange controls, illegal purchases of foreign exchange, inward remittances in violation of the regulations, illegal settlements of foreign exchange, arbitrary changes in the use of foreign exchange funds or foreign exchange settlement funds, and illegal trading of foreign exchange will be included in the basic database on financial credit information of the People’s Republic of China (the “Credit Information System”). The relevant information on the foreign exchange violations will be added to the Credit Information System on a quarterly basis and will remain displayed in the system for five years. The goal of the inclusion of information on foreign exchange violations in the Credit Information System is to implement the relevant requirements of the Outline for the Planning of the Construction of a Social Credit System (2014–2020) (Guofa No. 21 [2014]), to promote the exchange and sharing of credit information of the financial regulatory authorities, to expand the application of foreign exchange credit information, to strengthen the imposition of penalties for dishonesty in the field of foreign exchange, and to promote operations by foreign exchange market players that are in full compliance with the laws. All foreign exchange market players shall seize this opportunity to further enhance their awareness of operations in compliance with the laws, strengthen internal controls, enhance their level of management, and standardize operational behavior in terms of their foreign exchange business. 2014-12-17/en/2014/1217/1141.html