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The State Administration of Foreign Exchange (SAFE) has recently released the Balance of Payments (BOP) for the first quarter of 2019 and the International Investment Position (IIP) as of the end of March, 2019. The SAFE spokesperson and Chief Economist Wang Chunying answered media questions on relevant issues. Q: Could you brief us on China's balance of payments for the first quarter of 2019? A: Based on the balance of payments, China's current account and financial account (excluding reserve assets) both registered surplus for the first quarter of 2019. The foreign reserves rose and the balance of payments maintained basic equilibrium. First, the surplus under the current account remained within a reasonable range, the surplus under trade in goods increased and the deficit under trade in services narrowed. In the first quarter of 2019, a surplus of USD 49 billion was recorded under the current account, and its ratio to GDP for the period was 1.5%. The surplus in trade in goods under balance of payments reached USD 94.7 billion, up by 83% year on year. The deficit under trade in service was USD 63.4 billion, down by 14% year on year. Specifically, tourism posted a deficit of USD 57.6 billion, down by 9%. Second, the financial account (excluding reserve assets) was in surplus, featuring net cross-border capital inflows. In the first quarter, the financial account (excluding reserve assets) registered a surplus of USD 48.8 billion, and the main net inflow items are direct investment and portfolio investment. Net inflows of foreign exchange by direct investment amounted to USD 26.5 billion. Specifically, the net inflows of inward foreign direct investment to China approached USD 47.6 billion; the net outflows of China’s outbound direct investment reached USD 21 billion. The net inflows of portfolio investment reached USD 19.5 billion. Specifically, the net increase of foreign portfolio investment in China reached USD 35.7 billion; China's external portfolio investment posted a net increase of USD 16.2 billion. Third, reserve assets rose. In the first quarter, China's reserve assets rose by USD 10 billion as a result of the BOP transactions (excluding the impact of non-transaction factors such as exchange rate and price), among which, foreign exchange reserves increased by USD 10 billion. In 2019, China will continue to promote high-quality economic development and all-round opening-up, which is conducive to consolidating the foundation for stable operation of the balance of payments. It is expected that China's balance of payments will continue the development pattern of basic balance of current account and overall stability of cross-border capital flows. Q: What would you say about China's International Investment Position as at the end of March 2019? A: According to the international investment position statement, China's international investment position remained robust at the end of March 2019. The main characteristics are as follows: Firstly, the total size of external financial assets increased. China's external assets reached USD 7.3817 trillion at the end of March, up by 0.8% over the end of 2018, mainly because China's ODI increased by USD 28.5 billion, or 1.5%; portfolio investment assets picked up by USD 47.6 billion or 9.6%; and reserve assets rose by USD 28.2 billion or 0.9%. Secondly, external liabilities continued to increase. China's external liabilities reached USD 5.4306 trillion at the end of March, up by 4.6% over the end of 2018. Specifically, FDI rose by USD 101.2 billion or 3.7%; Portfolio investment liabilities (foreign purchases of securities issued by China) rose by USD 159.3 billion, or up by 14.5%. Thirdly, the decline in net external assets mainly reflects the increase in the stock market capitalization of China's listed companies in the first quarter. At the end of March, China's net external assets (asset-liability) totaled USD 1.9511 trillion, down by 8.4% from the end of 2018, mainly affected by valuation factors such as asset price changes. In the first quarter, the domestic stock market and Hong Kong stock market witnessed a significant rise, and the market value of shares issued by Chinese enterprises held by non-residents increased, which belonged to China's external portfolio investment liabilities. The increase of market value led to the increase of liabilities, so the scale of China's net external assets decreased correspondingly. Overall, China sustained its No. 1 position worldwide by reserve assets. With orderly outbound investments and rising inbound investments, China's international investment position is still robust. 2019-06-27/en/2019/0627/1519.html
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The State Administration of Foreign Exchange (SAFE) has recently disseminated the data on banks' foreign exchange settlement and sales and banks' foreign-related receipts and payments for customers for May 2019. SAFE Press Spokesperson and Chief Economist Wang Chunying answers media questions on foreign exchange receipts and payments for May 2019. Q: What changes occurred in China’s foreign exchange receipts and payments in May 2019? A: In May, China's foreign exchange receipts and payments remained stable with good momentum, and the operation of the foreign exchange market remained stable. Based on relevant data, firstly, banks’ settlement and sales of foreign exchange registered a surplus. In May, banks’ foreign exchange settlement rose 4% from April, while banks’ foreign exchange sales fell 7%, recording a surplus of USD 6.2 billion. Secondly, the deficit of banks’ foreign-related receipts and payments for customers narrowed. In May, enterprises, individuals and other non-banking sectors recorded a deficit of USD 6 billion in foreign-related receipts and payments, narrowing by 23% month on month. Thirdly, the balance of foreign exchange reserves rebounded to certain extent, reaching USD 3,101 billion at the end of May, an increase of USD 6.1 billion month on month. Market expectations have been stable as a whole since May, with positive changes in cross-border capital flows through major channels. In May, market players’ willingness to settle foreign exchange rose and their willingness to buy foreign exchange remained stable. In particular, the foreign exchange settlement rate that measures the willingness to settle foreign exchange, or the foreign exchange sold by customers to banks as a percentage of their foreign-related foreign exchange income, was 70%, up by 4 percentage points month on month. The foreign exchange sales rate that measures the willingness to buy foreign exchange, or the ratio of foreign exchange purchased by customers from banks to the customer's foreign-related foreign exchange payments was 68%, basically the same month on month. The contracted surplus of forward settlement and sales of foreign exchange was USD 19.2 billion, up by33% month on month. In this context, cross-border capital flows through major channels remained stable and showed positive changes. First, banks maintained a certain scale of surplus in the settlement and sales of foreign exchange and foreign-related receipts and payments of trade in goods on behalf of clients, registering an increase from April. Second, the foreign exchange settlement of capital in foreign direct investment registered an increase, the foreign exchange purchases with capital in ODI were stale with a slight decline, and the surplus of foreign exchange settlement and sales of direct investment increased. Third, the purchase of foreign exchange with investment income by enterprises was normal and orderly, which registered a month-on-month increase due to seasonal factors but was lower than that of the same period last year. Fourth, net foreign exchange purchases by individuals continued to decrease in May, down by 28% year on year and 19% month on month respectively. Despite the complex and volatile external environment, China's economy has been running smoothly on the whole, showing strong resilience and great potential. The ongoing progress in reform and opening-up, ample macro policy space and high market confidence has provided strong fundamental support for the stability of the foreign exchange market. Meanwhile, in recent years, the RMB exchange rate formation mechanism has been constantly refined. As the bidirectional floating of foreign exchange rate has become more flexible, the risk management awareness and adaptability of market players have witnessed obvious improvement. The changes of foreign exchange receipts and payments data in May adequately reflect the increasing maturity and rationality of China’s foreign exchange market, which is expected to better stand all kinds of tests in the future. 2019-06-20/en/2019/0620/1517.html
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On May 19, Pan Gongsheng, Deputy Governor of the People’s Bank of China (the PBOC) and Administrator of the State Administration of Foreign Exchange (SAFE) received an interview by a reporter from the Financial News regarding the current operation of China’s financial and foreign exchange markets. Financial News: What would you say about the current operation of China’s financial and foreign exchange markets? Pan Gongsheng: First, China’s economy is running smoothly on the whole, the main indicators remain within a reasonable range, the shift from old drivers to new drivers is accelerating and the macroeconomic fundamentals are sound. In April, China’s manufacturing purchasing managers’ index (PMI) was 50.1%, continuing to be in the expansion range. The macro policies still have considerable operation space and there is a rich selection of policy instruments. Since the beginning of this year, counter-cyclical adjustment has been strengthened under the prudent monetary policy, which makes the policy more forward-looking and flexible, and maintains reasonable liquidity. Such efforts have promoted the rapid growth of social credit and resulted in moderately tight monetary and financial conditions. Meanwhile, financial sectors have stepped up their support for private enterprises as well as micro and small enterprises. At the end of April, the broad money supply (M2) increased by 8.5% year on year, 0.2 percentage point higher than the same period last year. China’s steady economic and financial operation lays a solid foundation for a reasonable and stable development pattern of the foreign exchange market and RMB exchange rate. Since the beginning of this year, China’s foreign exchange market has been running smoothly. The inflow of foreign capital has increased, the foreign exchange reserves have risen steadily, and the expectation of foreign exchange market has been stable on the whole. Second, we will, in accordance with the established guidelines, unswervingly promote the financial opening-up, maintain the continuity and stability of the financial reform and opening-up policy, resolutely implement the financial reform and opening-up policy which has been deployed, further facilitate the two-way opening-up of the financial market, deepen the foreign exchange administration reform, improve the liberalization and facilitation level for cross-border trade and investment, earnestly protect the legitimate rights and interests of foreign investors, and create more convenient and friendly investment environment for domestic and foreign investors. Third, in recent years, we have accumulated rich experience and sufficient policy instruments in dealing with fluctuations in the foreign exchange market, and adopted necessary counter-cyclical adjustment measures to strengthen macro-prudential management in light of the changing situations. We have cracked down upon irregularities on the foreign exchange market, to maintain the good order of the foreign exchange market. We have the solid foundation, confidence and capabilities to maintain the steady operation of China’s foreign exchange market and keep the RMB exchange rate basically stable at a rational and balanced level. 2019-05-19/en/2019/0604/1508.html
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In order to fully implement the spirit of the 19th CPC National Congress and the second and third plenary sessions of the 19th CPC Central Committee, effectively guard against and mitigate financial risks, the State Administration of Foreign Exchange (SAFE) has earnestly implemented the deployment of special rectification of Internet financial risks, and vigorously promoted the clean-up and rectification of illegal online foreign exchange speculation platforms. We hereby inform you of the recent investigation and punishment of relevant cases as follows: Upon investigation and verification, Shenzhen ThinkMarkets Consulting Co., Ltd. provided business promotion services for the online foreign exchange speculation platform operated by its overseas shareholders, solicited domestic investors to participate in overseas foreign exchange margin trading, and collected service fees in violation of regulations, which violates Article 12 of the Regulations of the People’s Republic of China on Foreign Exchange Administration, and constitutes a serious offense. The Shenzhen Branch of the SAFE, in accordance with Article 41 of the Regulations of the People’s Republic of China on Foreign Exchange Administration, gave a warning to the company, ordered it to make corrections and imposed a fine of RMB 1.18 million. Presently, the regulatory authorities in China haven’t approved any institutions to conduct foreign exchange margin trading either directly or on agency basis. In accordance with the Circular on Sternly Investigating and Punishing Illegal Foreign Exchange Futures Transactions and Foreign Exchange Margin Trading Activities (Zhengjianfazi No. 165 [1994], which was jointly released by China Securities Regulatory Commission, the State Administration of Foreign Exchange, the State Administration for Industry and Commerce, and the Ministry of Public Security), any unauthorized foreign exchange futures transaction and foreign exchange margin trading by an unapproved institution is illegal; it is also an offense for a client (organization or individual) to entrust an institution which is not approved and registered to conduct foreign exchange futures transaction and foreign exchange margin trading, whether in foreign currency or renminbi as security deposit. The SAFE and its branches will continue to earnestly implement the deployment requirements of guarding against and mitigating financial risks, carry out clean-up and rectification of illegal online foreign exchange speculation platforms in a steady and orderly manner, so as to safeguard the national financial security and stability. (The end) 2019-05-10/en/2019/0604/1514.html
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The State Administration of Foreign Exchange (SAFE) has recently released the data on external debt as at the end of March 2019. The SAFE spokesperson and Chief Economist Wang Chunying answered media questions on China’s recent external debt situations. Q: Could you brief us on China's external debt for the first quarter of 2019? A: The scale of China’s external debt is basically stable. As at the end of March, the full-scale outstanding external debt (including domestic and foreign currencies) hit USD 1.9717 trillion, representing an increase of USD 6.5 billion from the end of 2018, up by 0.3%. Q: What would you say about the external debt situation in China? A: The growth of China's external debt has slowed down. Firstly, the currency structure of external debt has continued to improve. The increase of external debt in the first quarter of 2019 was mainly driven by external debt in domestic currency, which increased by 0.8 percentage point from the end of 2018. Secondly, the demand of foreign investors for purchasing domestic RMB bonds has remained stable with a slight increase. In the first quarter of 2019, the balance of debt securities increased by 4.3% from the end of 2018, accounting for 22.6% of the full-scale outstanding external debt. With the increasing uncertainties and destabilizing factors in the external environment, China's economic operation has maintained the development trend of overall stability and steady progress, showing adequate resilience. In the future, the SAFE will further refine the two-pronged "macro-prudential and micro-regulation" management framework for cross-border capital flow, and adhere to the practice of focusing on both serving the real economy and preventing risk from cross-border capital flow, so as to promote healthy economic development. 2019-06-28/en/2019/0628/1518.html
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Q: The latest data on foreign exchange reserves disseminated by the State Administration of Foreign Exchange (SAFE) show that China's foreign exchange reserves as of the end of May 2019 rose by USD 6.1 billion month on month. Could you tell us why such a change occurred? What would you say about the future trends of foreign exchange reserves? A: As at the end of May 2019, China posted USD 3.101 trillion in foreign exchange reserves, up by USD 6.1 billion or 0.2% month on month. In May, the US dollar index and global bond index rose as multiple factors such as escalating global trade friction and uncertainty over Brexit pushed up the risk aversion. Due to the combined impact of exchange rate translation and asset price changes, China’s foreign exchange reserves rose slightly. Since the beginning of this year, China's economy has been stable on the whole and moderately improving. The supply and demand of China's foreign exchange market have been basically balanced. Cross-border capital flows through major channels remained stable, and foreign exchange reserves grew steadily. Going forward, there will be still many political and economic uncertainties in the world, and the international financial market may become increasingly volatile. However, thanks to the adequate resilience and huge potential of China’s economy as well as the constantly improved capabilities of coping with external shocks, the long-term positive trend of China’s economic development will not change. China's sound economic fundamentals will provide strong support for the smooth operation of the foreign exchange market and provide a solid foundation for the overall stability of the foreign exchange reserves. 2019-06-10/en/2019/0610/1516.html
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Q: The latest data on foreign exchange reserves disseminated by the State Administration of Foreign Exchange show that China's foreign exchange reserves as of the end of April 2019 declined by USD 3.8 billion month on month. Could you tell us why such a change occurred? What would you say about the future trends of foreign exchange reserves? A: As at the end of April 2019, China posted USD 3.0950 trillion in foreign exchange reserves, down by USD 3.8 billion or 0.1% month on month. China's foreign exchange market performed stably in April. On the international financial market, the US dollar index rose slightly by 0.2%, while the global bond index remained basically unchanged. Due to the combined impact of exchange rate translation and asset price changes, China’s foreign exchange reserves fell slightly. Due to the slowdown in the growth of global economy and international trade, China’s economy has been operating within a reasonable range since the beginning of this year. Market expectations and confidence have been boosted, supply and demand at the foreign exchange market has maintained basic equilibrium, cross-border capital flows through major channels have been further improved, and the size of foreign exchange reserves have remained stable on the whole. Looking ahead, there will still be many uncertainties in the international economy and financial market, but China is expected to maintain good momentum of economic growth in the long run, and will continue to promote the reform and opening-up. Given the stability of domestic economy and policies, cross-border capital flows will remain basically balanced, which will provide a solid foundation for the overall stability of China’s foreign exchange reserves. 2019-05-07/en/2019/0604/1511.html
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In April 2019, the State Administration of Foreign Exchange (SAFE) approved investment quota totaling USD 4.2 billion for nine qualified foreign institutional investors (QFIIs), and approved a total of RMB 9.7 billion in investment quotas for five RMB qualified foreign institutional investors (RQFIIs). So far, a total of 13 QFIIs have been approved this year with a total investment quota of USD 4.74 billion, exceeding the total quota approved for the whole year of 2018. A total of 12 RQFIIs have been approved with a total investment quota of USD 24 billion, surpassing half of the total approved quota for the whole year of 2018. China’s determination to open wider to the outside world and a series of reform measures which are promoted currently make China’s financial market more and more attractive to foreign investors. China’s stock market and bond market have been included into a number of important global indexes, generating strong demand among foreign investors to make allocation in China’s financial market. In the first quarter of 2019, net purchases of China’s stocks and bonds by foreign institutions were USD 19.4 billion and USD 9.5 billion respectively, registering a substantial increase from the same period last year and the fourth quarter of last year. The SAFE will continue to vigorously support the wider opening of the financial market to satisfy the constantly rising investment demand of foreign investors in China’s financial market, and attract global long-term capital to enter China’s financial market. 2019-05-06/en/2019/0604/1512.html
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Q6: How can the operation and management of foreign exchange reserves follow the principles of safety, liquidity, and value increment? A: Safety, the primary principle, can be broken down into three key elements: diversification, long-term perspectives, and strategic considerations. As the saying goes, dont put all your eggs in one basket; in other words, when one door shuts, another door opens, hence the need to diversify. There are continued worries that we are taking too much of this asset or too much of that currency, but in fact this risk is under control, due to our sustained efforts in recent years to diversify investment. As for a long-term perspective, when we are determining the asset structure we should comprehensively consider the long-term factors, such as the risk-returns of various assets and market development trends. As a responsible long-term investor in the international market, we must not be a super retail-investor. With regard to strategic considerations,when we are determining the currency composition, we need to comprehensively consider the macro strategic factors, such as Chinas international balance of payments structure, foreign payment demands, and the developmental trends in the international monetary and financial systems, because the stability of macro elements can ensure the safety of our foreign exchange reserve investments. The liquidityprinciple should be understood in the context of Chinas national circumstances. The renminbi is not an international currency, so the liquidity requirements of the foreign exchange reserves should not be generally confined to foreign payments, such as for imports. Instead, we need to take into consideration the national economic development strategy and make sure that the foreign exchange reserves can be used as a magic weaponin a timely and effective manner if a reversal in capital flows threatens to trigger a monetary crisis or even a financial crisis. The principle of value incrementrequires maintenance of the long-term stable profitability of the reserve assets during the management of the foreign exchange reserves. This is in line with the above two safety and liquidity principles. As a result, the profits from the foreign exchange reserves might not be the highest in a given year, but we are confident that in the long run, there will be stable and substantial returns. Q7: Did Chinas foreign exchange reserve investments suffer huge losses during the recent international financial crisis? A: It is safe to say that this international financial crisis was the most devastating crisis in decades. Against this backdrop, it is inevitable that various investments suffered certain impacts and influences. However, we are proud to report that Chinas foreign exchange reserves withstood the test of this severe financial crisis and the overall safety of our assets has been maintained. In 2008 and 2009, the hardest-hit years, we managed to earn decent profits on the basis of breaking even. Our most important management method is to properly allocate assets and diversify investments. In terms of allocation of asset types, we make a point of spreading risks among investment products, such as those from governments, institutions, and international organizations, as well as corporate assets and funds. In terms of currencies, we have built a loose composition that encompasses the major traditional currencies, such the US dollar, the euro and the Japanese yen, as well as the currencies of the emerging economies. Such a diversified allocation can help hedge against risks and ensure adequate leeway for asset management. In addition, risk prevention and management has always been an important part of our investment work. Investments of Chinas foreign exchange reserves emerged from the recent financial crisis fairly unscathed due to the fact that we do not have risky products such as sub-prime mortgages. Q8: Recently, Fannie Mae and Freddie Mac de-listed their shares from the New York Stock Exchange. Have Chinas foreign exchange reserve investments in Fannie Mae and Freddie Mac suffered losses? A: Fannie Mae and Freddie Mac, both government-sponsored institutions chartered by the US Congress to help fund home mortgages, hold under their name 50 percent of the real estate loans in the US residential real estate market and are critical to Americas housing market and economic development. Because of the large-scale and high liquidity of their debt securities, Fannie Mae and Freddie Mac received a lot of investments from the foreign exchange reserves of many central banks around the world. During the financial crisis, this pair of mortgage giants was supported by a government bailout and therefore remained solid. Presently, the US government holds about 80 percent of their shares and is their biggest shareholder. Their being de-listed from the NYSE has not had any negative impacts on their debt securities. Chinas foreign exchange reserves were not invested in Fannie Mae and Freddie Mac shares. As for debt securities, repayment of the principal and interest is being maintained and prices are stable. We will continue to closely follow the latest Fannie Mae and Freddie Mac developments to ensure the asset safety of our foreign exchange reserves. Q9: Under Europes current sovereign-debt crisis, will the SAFE adjust its investment strategy for foreign exchange reserves in the European market or reassess the euro assets that it holds? A: Generally, although the bailout measures have been rolled out and implemented to help high-debt countries such as Greece prevent debt defaults and restructuring, we should continue to pay close attention to any new developments in the crisis. We have always firmly supported the EU integration process and have also supported the package of financial stability measures that the EU and the International Monetary Fund have adopted. We believe that, under the joint efforts of the international community, all of Europe will definitely overcome the current difficulties and maintain the stability and healthy development of the financial markets. As a responsible long-term investor, in terms of our foreign exchange reserves China has always adhered to the principle of diversified investment and the European market was, is, and will remain one of the major investment markets for our foreign exchange reserves. Q10: If there is a sharp depreciation in the US dollar, will China's foreign exchange reserves suffer a heavy loss? A: To address this issue, a comprehensive analysis will be required. First, we must take into account the currency composition of Chinas foreign exchange reserves and the trends in the exchange rates of other currencies against the RMB. A number of currencies constitute the foreign exchange reserve assets. Even if the US dollar were to depreciate, the euro and other currencies might appreciate, thus to a certain extent cancelling out one another. Therefore, in order to understand the impact of a depreciation of the US dollar on Chinas foreign exchange reserves, we need to conduct a specific analysis of the composition of China's foreign currency basket. Second, an actual gain or loss in Chinas foreign exchange reserve assets will only occur when they are exchanged for RMB. Foreign exchange reserves mainly exist in the form of foreign currency assets and are used to ensure the countrys international liquidity, including payments for imports, international financing, debt payments, as well as maintenance of the stability of the currency and financial systems. Unless there are special circumstances such as a war or a crisis, the People's Bank of China will never convert its foreign currency reserve assets into RMB on a large scale. Therefore, due to the above reasons, a depreciation of the US dollar against the RMB will not cause an actual loss in Chinas foreign exchange reserves. Third, the value of China's foreign exchange reserve assets is decided by its real purchasing power. Foreign exchange reserves are mainly for external payments, so whether there is a loss in foreign exchange reserves mainly depends on a decrease in their purchasing power. If there is inflation in the United States, the real purchasing power of the foreign exchange reserve assets will be affected, which means the same amount of US dollars will buy less than before. Yet, the reality is that China's foreign exchange reserves have been maintaining stable income after many years of operations and their return on assets (ROA) is higher than the US inflation rate. In recent years, the US consumer price index (CPI) has been generally low, therefore the ROA of China's foreign exchange reserves insures a steady increase in their purchasing power. Fourth, the book loss in Chinas foreign exchange reserves caused by an appreciation of the RMB is far less than the book surplus of Chinas financial assets. As of March 2010, China's foreign exchange reserves amounted to USD2.42 trillion. During the same period, if calculated by the exchange rate at the end of March 2010, the total assets in China's banking sector were approximately RMB84.3 trillion, equivalent to approximately USD12.3 trillion and 5.1 times that of China's foreign exchange reserve assets. This means that when the RMB appreciates, the book gain in RMB assets is roughly equivalent to 5.1 times of the book loss of the foreign exchange reserve assets. If we take into account other financial assets such as stocks and bonds held by residents as well as real estate assets, the book gain in RMB assets will be even greater. It is worth emphasizing that the above-mentioned loss or gain only means a change in book value, which would only occur if there is an actual conversion between the RMB and the other currencies. 2010-07-06/en/2010/0706/938.html
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In order to ensure the economic and financial security of the state and to severely crack down on hot money, since February 2010, the State Administration of Foreign Exchange (SAFE) has launched a series of special campaigns to combat hot money in provinces and cities with large amounts of foreign exchange businesses. With intensified efforts to crack down on cross-border fund flows with no verifiable trade/investment background, by the end of October 2010, 197 cases in violation of the foreign exchange regulations were discovered and disclosed, involving a total sum of USD7.34 billion. Among these cases, 178 were filed and penalties were imposed. For the purpose of raising the awareness of banks and enterprises in handling the foreign exchange business in compliance with the regulations, warning and instructing entities involved in the violation of the regulations and of creating a social synergy for cracking down on the hot money,the SAFE has decided to circulate the non-compliance cases in stages, based on the types of entities involved. During implementation of the special campaigns, priority was given to inspections of banks handling the settlement and sales of foreign exchange, short-term external debts, offshore financing, as well as to the sources and utilization of foreign exchange funds and so forth. Inspections show that with constant efforts to improve financial services, all the designated foreign exchange banks have enhanced their awareness of the compliance risks, with further improvements achieved on the overall condition of compliance operations. However, there are still some banks that put a priority on business expansion and ignore compliance operations. Their inadequate fulfillment of the verification of authenticity has given rise to the inflow of hot money, producing a negative impact on the equilibrium in the balance of payments as well as on the healthy and stable development of the national economy and finance. Cases of bank violations of the foreign exchange regulations that have been penalized are hereby circulated as follows: On November 22, 2007, China Construction Bank Limited, Jiangmen Branch, handled settlement of foreign exchange in the amount of HKD31.5 million for capital of a foreign-funded enterprise. These funds were subsequently used to extend loans to the administration committee of a high-tech industrial development zone, but the purpose of the funds as declared by the enterprise was a security deposit for land purchases This violates the relevant regulations on the administration of exchange settlement for capital. In accordance with the Regulations of the People's Republic of China on Foreign Exchange Administration, the SAFE decided to impose administrative penalties on the branch in the form of fines. During the period from January 20 to May 22, 2009, the Agricultural Bank of China Limited, Guanghua Sub-Branch in Chengdu City, handled the cross-border collection of foreign exchange for 28 individuals within the territory of China. Among the individuals, 20 collected funds from a payer who was outside the territory of China, with and 8 collecting from the same payer, after which the funds were settled and transferred immediately to an individual within the territory of China. Such acts violate the relevant regulations on the administration of individual foreign exchange due to the fact that large sums of money were split into smaller amounts for the settlement and sales of foreign exchange. In accordance with the Regulations of the Peoples Republic of China on Foreign Exchange Administration, the SAFE decided to impose administrative penalties on the sub-branch in the form of fines. On November 21, 2007 and March 27, 2008, the Bank of China, Zhenhai Sub-Branch in Ningbo City, handled the settlement of foreign exchange for the external debts of a company in the amount of USD13.58 million. It was verified that the purpose of the settlement failed to conform to the purpose ratified by the SAFE; meanwhile, the bank failed to pay the settled funds directly to the payee within the prescribed time limit. This violated the relevant regulations on the administration of foreign exchange settlement for external debts. In accordance with the Regulations of the Peoples Republic of China on Foreign Exchange Administration, the SAFE imposed fines on the sub-branch and ordered that it correct its behavior. On May 7 and 8, 2009, the Bank of China, Guchengtai Sub-Branch in Xining City, handled the settlement of foreign exchange for the capital fund of a foreign-funded enterprise in the amount of HKD85.3 million and HKD28.2 million respectively. The funds were subsequently used for capital investments, which exceeds the business scope of the enterprise and violates the relevant regulations on the administration of foreign exchange settlement for capital funds. In accordance with the Regulations of the Peoples Republic of China on Foreign Exchange Administration, the SAFE decided to impose administrative penalties on the sub-branch in the form of a 3-month suspension of involvement in foreign exchange settlement and sales. During the period from October 2006 to July 2007, German-based NORD/LB, Shanghai Branch, handled 12 agency import deals with a letter of credit for a number of Chinese-funded banks, involving a total sum of USD26.98 million. With no prior notice delivered to the Chinese-funded issuing bank, the branch transferred all the financial claims to the aforesaid Chinese-funded bank to its overseas branches. This violated the regulations of the state on the administration of external debts. In accordance with the Regulations of the Peoples Republic of China on Foreign Exchange Administration, the SAFE decided to impose administrative penalties on the branch in the form of fines. On February 1, 2008, the Bank of East Asia (China) Limited, Guangzhou Branch, handled the settlement of foreign exchange for a Hong Kong resident in the amount of HKD11 million to be used for the purchase of non-residential housing. This violated the relevant state regulations allowing overseas individuals to purchase commercial residential housing for their own use within the territory of China for the purpose of satisfying their basic living needs. In accordance with the Regulations of the Peoples Republic of China on Foreign Exchange Administration, the SAFE decided to impose administrative penalties on the branch in the form of fines. During the period from September 1, 2008 to June 30, 2010, the Agricultural Bank of China Limited, Yichun Branch, handled 35 foreign exchange settlements of capital for a number of foreign-funded enterprises, involving a total amount of over RMB100 million. The branch failed to carefully examine the relevant funds and to preserve the vouchers for the settlement in accordance with the law. This violated the relevant regulations on the administration of foreign exchange settlements of capital. In accordance with the Regulations of the Peoples Republic of China on Foreign Exchange Administration, the SAFE decided to impose administrative penalties on the branch in the form of fines. In 2009, a number of institutions, including Taijiang Sub-Branch within the jurisdiction of the Business Department of the Industrial and Commercial Bank of China Limited, Fujian Branch, failed to handle the settlement and sales of foreign exchange for individuals through the information system for the administration of settlement and sales of foreign exchange for individuals in 42 deals involving a total amount equivalent to USD265,000. These institutions, including the Gulou Sub-Branch within the same jurisdiction, failed to handle the deferred payments of foreign exchange for enterprises in accordance with the regulations in three deals involving a total amount equivalent to USD2.94 million. In accordance with the Regulations of the Peoples Republic of China on Foreign Exchange Administration, the SAFE decided to impose administrative penalties on the aforesaid sub-branches in the form of fines. As the main channel for handling foreign exchange business, all designated foreign exchange banks should further consolidate the concept of scientific development, earnestly fulfill their social responsibilities, and strictly comply with the policies for the administration of foreign exchange business. The involved banks referred to in this Circular should pay great attention to their violations of the relevant regulations, examine their handling of the business using the regulations as a benchmark, and conscientiously correct their non-compliance in their handling of the business. Banks and relevant institutions should draw lessons from the above cases, strengthen their internal management, and handle their businesses in compliance with the laws and regulations. The SAFE will, in addition to performing its role to further improve financial services and facilitate the business operations of market entities, strengthen supervision over the foreign exchange business of banks, improve constantly the effectiveness of foreign exchange inspections, increase the efficiency of supervision and inspection, crack down severely on cross-border flows of hot money in accordance with the law, and continue to promote the healthy development of the foreign-related economy and finance. October 28, 2010 2010-10-28/en/2010/1028/962.html