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The State Administration of Foreign Exchange (SAFE) recently held in Beijing the 2014 high-level seminar for branch heads to convey the spirit of the Seminar for Presidents of the PBC Branches and Sub-branches, summarize and study foreign exchange administration practices in recent years, and open a new chapter in the foreign exchange administration reforms. Yi Gang, administrator of the SAFE, delivered a speech at the opening ceremony of the seminar. Also present were the deputy administrators, the head of the discipline inspection group, the chief economist, and the chief accountant from the SAFE, as well as the principals from the SAFE branches (Foreign Exchange Departments) and other departments of the SAFE. According to Yi Gang, as the economic and financial situations have undergone changes both at home and abroad, and the domestic reforms have deepened and been implemented in an all-round way since the first half of 2014, net inflows of foreign exchange receipts and payments have come within a balanced range, the supply and demand of foreign exchange have been improved, the capability to actively balance the BOP has been enhanced, and all foreign exchange administration reforms have been steadily promoted, thus creating a favorable environment for stimulating economic restructuring and transformation and upgrading. Yi Gang pointed out that since the "five changes" in the concepts and approaches to foreign exchange administration were first proposed by the SAFE Party Leadership Group in 2009, a series of fruits of reform that can withstand the test of time have been achieved through exploration and practice during the past five years . First, the change from administrative approval to monitoring and analysis has produced positive results. A substantial number of administrative approval items have been slashed. Since 2002 65 foreign exchange administration approval items, or nearly 80 percent of all approval items, have been removed, of which 27 have been canceled during the past five years. Regulatory integration, streamlining, and the delegation of powers have been accelerated, with more than 700, or over 60 percent, of the regulatory documents cancelled or declared invalid in recent years. The monitoring systems and institutions have been optimized, monitoring and capability building for analysis have been improved significantly, and monitoring and analytical products have been enriched. Second, there have been breakthroughs in the change from prior regulation to interim and ex post management. A multifaceted approach has been introduced to improve regulatory effectiveness through the use of multiple means and mechanisms. By introducing the system of interviewing company heads, a risk notification system has been implemented, classified management has been adopted, and the focus of regulation has been changed from more than 500,000 import and export companies to 80,000 90,000 key companies, especially the more than 4,000 class B and class C companies since the implementation of the reform of trade in goods. Special inspections have been carried out of key channels and players, such as entrept trade and banks, to clamp down on illegal behavior such as underground banks. Between 2011 and 2013 9,617 cases were investigated and dealt with, and fines in the amount of RMB 1.35 billion were imposed, more than double the amount between 2008 and 2010. Third, progress has been achieved in changing behavioral regulation to regulation of market players. Efforts have been made to explore new concepts, such as centralized receipts and payments of foreign exchange under the current account and centralized use of external debt limits via pilots for the centralized operation of MNC foreign exchange funds, to accumulate experience in regulating market players in an all-round way. The pilot program was promoted to regulate market players in good order in the branches and sub-branches of the SAFE, and "one-stop" services in the front office with comprehensive monitoring and inspections, integrated assessments and classified management in the middle and back offices, were introduced to build a regulatory service model that integrates analysis, regulation, and services for key players within the jurisdiction. Fourth, the positive list was changed to a negative list and "presuming guilty" was changed to "presuming innocent" and this has achieved preliminary results. An innovative "compliance confirmation" system was introduced, requesting that enterprises make commitments to operate according to the law, with the SAFE providing adequate ex ante conveniences. In recent policies, efforts have been made to explore and practice the management approach of a "negative list," such as for settlement of foreign exchange under capital funds and external debts, cross-border guarantees, and centralized operations of MNC foreign exchange funds. Yi Gang stressed that the entire society has reached a consensus to promote reform with respect to the direction and approaches of the foreign exchange administration reform to be well aligned with the requirements of the central government, and the reform concepts, such as slashing the administrative approval items and enhancing the interim and ex post regulation as well as the negative list. With liberated minds, we are less passive and more proactive in conducting the reform, thus laying a solid theoretical and practical foundation for deepening the reform. However, we should be clearly aware that the current accomplishments do not mark the end of the reform, but a new start for a further deepening of the reform. In face of the arduous task to reform foreign exchange administration, we must calmly and carefully think over the conditions and environment for foreign exchange administration from an international and holistic perspective and continue to deepen the challenging reforms by implementing the strategies and plans of the CPC Central Committee and the State Council. As the foreign exchange administration reform enters a "deep water zone," we should first promote the overall reform while making breakthroughs in key links. The overall reform plan and the top-level design, with a clear logic and definite measures, should be developed and implemented scientifically. Starting from in-depth issues such as the systems and mechanisms and based on the BOP situation, the priorities of the reform should be promoted step by step so as to unleash institutional bonuses via the overall reform. Second, regulation and deregulation should be carried out based on the market so as to enhance the effectiveness of foreign exchange administration, primarily by intensifying statistical monitoring and interim and ex post regulation. Third, we should systematically streamline and summarize the lessons from the previous reforms, based on the principle of practice being the sole criterion of truth, so as to identify a reform model that can be reproduced and promoted. As Yi Gang proposed, motivated by implementation of the spirit of the 18th CPC National Congress and the Third Plenum of the 18th CPC Central Committee and guided by the "five changes," efforts should be made to steadily promote an institutional reform and mechanism innovations, vigorously advance trade and investment facilitation, and enhance the ability of the foreign exchange administration to guard against risks and to serve the real economy during the next stage, with the aim of promoting an equilibrium in the BOP. First, deepening the reform, streamlining administration, and delegating more power to lower-level governments, promoting interim and ex post management, vigorously developing the foreign exchange market, and effectively managing and using the foreign exchange reserves. Second, guarding against risks, accelerating improvements in the monitoring, warning, and risk response mechanisms for cross-border capital flows, establishing a cross-border capital flow management system under a macro-prudential framework, and increasing the relevance and effectiveness of the foreign exchange inspections. Third, strengthening the foundation, improving the collection and comprehensive use of data, accelerating the construction and integration of the monitoring and analysis system, enhancing the development of officials and personnel to promote a management transformation, improving system building, and performing the administrative duties according to the law. At the seminar, four modules, including reform of the current account, reform of the capital account, regulation of market players, and integration of data, were specifically discussed and relevant experts and scholars were invited to present lectures. 2014-08-22/en/2014/0822/1126.html
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A recap meeting on carrying out the CPC's mass line campaign was recently held by the State Administration of Foreign Exchange (SAFE) to study the spirit of the speech delivered by General Secretary Xi Jinping at the CPC meeting for summarizing the first stage of the mass line campaign and for making plans for the second stage, and to sum up the SAFE's efforts in carrying out the campaign and to make plans for implementation of the "two programs and one plan," i.e., The Rectification and Implementation Program for Carrying Out the CPC's Mass Line Campaign by the Party Leadership Group of the NDRC, The Special Rectification Program for Carrying Out the CPC's Mass Line Campaign by the Party Leadership Group of the NDRC, and The Plan for Developing Systems for Carrying Out the CPC's Mass Line Campaign by the Party Leadership Group of the NDRC. Yi Gang, secretary and administrator of the Party Leadership Group and group leader of the Educational Practice Group, chaired the meeting and, on behalf of the SAFE Party Leadership Group, summed up the SAFE's efforts in implementing the campaign. The twenty-ninth Supervisory Team of the CPC's mass line campaign attended the meeting. Zhang Geng, head of the Supervisory Team, confirmed the achievements made by the SAFE in implementing the campaign and offered guidance on carrying out the spirit of Xi's speech and on further rectifying and carrying out the campaign. Also present were deputy administrators, heads of the discipline team, chief economists, chief accountants, and CPC members and officials, as well as heads of public institutions directly under the SAFE. It was agreed by the participants that Xi's profound speech is thought-provoking, relevant, and instructive, and is of significance for guiding the SAFE to sum up the mass line campaign. The meeting pointed out that under the guidance of the twenty-ninth Supervisory Team, CPC organizations at all levels, and CPC members of the SAFE, while focusing on building a progressive and clean government, have worked pragmatically for the people, have studied the CPC's mass line theories, have examined and corrected undesirable work styles, including formalism, bureaucracy, hedonism, and extravagance, have carried out rigorous criticisms and self-criticisms, and have worked hard to ensure verification and implementation, thus realizing obvious improvements in terms of awareness, reform and practice, and system building. As a result, CPC cadres and members have secured their ideals and beliefs, and their thinking and understanding have improved significantly. To be specific, the SAFE carried out “five shifts” in the concept and methodology of foreign exchange administration, straightened out the laws and regulations and streamlined administration, delegated power to lower levels more rigorously, deepened the results of the reform of the institutional mechanisms, and worked very hard to clean up undesirable work styles so as to achieve practical results. The meeting stressed that CPC organizations at all levels and CPC members of the SAFE must comply with the requirements of the twenty-ninth Supervisory Team of the CPC's mass line campaign to learn and implement the spirit of General Secretary Xi’s speech and align their thoughts and actions with the plans of the central government so as to perform their tasks well. Specifically, efforts should be made to improve the political life of the CPC by drawing on the valuable experiences of the first stage of the campaign, to clean up undesirable work styles as a long-term task, and to advance implementation of the "two programs and one plan" by focusing on verification and implementation and strengthening systemic construction, and especially rigorously combating formalism, bureaucracy, hedonism, and extravagance. As required by the meeting, all branches and sub-branches of the SAFE should participate in the second stage of the campaign under the leadership of the local branches of the People’s Bank of China. Drawing on the experiences of the first stage of the campaign, they are expected to improve their across-the-board capabilities to perform their tasks, enhance the cleaning up of undesirable work styles in the spirit of reform and innovation, and gather strength from the results of correcting undesirable work styles for deepening the reforms in an all-round way and with the aim of driving foreign exchange administration to a new high. 2014-01-24/en/2014/0124/1104.html
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A briefing on the inspection of the banks’ foreign exchange was recently held by the SAFE. The heads of the relevant businesses of 21 Chinese-funded banks and 11 foreign counterparts attended the meeting. It was pointed out at the meeting that in 2013 the SAFE earnestly implemented the decisions and arrangements of the CPC Central Committee and the State Council, rigorously promoted facilitation of trade and investment, carefully prevented risks arising from cross-border capital flows, increased efforts to inspect the banks, as the major channel of cross-border capital flows, seriously investigated foreign exchange–related violations by banks and actively warned the banks of the risks of foreign exchange operations so as to encourage the banks to improve their compliance with foreign exchange operations. Based on the findings, on a whole the banks’ compliance with foreign exchange operations has been improved, but violations still exist as banks put an emphasis on business expansion and neglect administration of internal controls. The meeting provided information on foreign exchange–related violations by banks, revealing a total of 439 cases discovered during 2013. The violations mainly included: 1. not handling foreign exchange settlements and sales in accordance with the relevant regulations. For example, some banks failed to create foreign exchange settlement and sale items separately and failed to handle their own foreign exchange settlement and sale business in compliance with the relevant regulations; while some banks handled foreign exchange capital settlements for companies and foreign exchange settlements and sales for individuals in violation of the relevant rules. 2. Failing to review the authenticity and consistency of the capital receipts and payments on the current account in accordance with the relevant regulations. For instance, some banks handled the balance of foreign exchange generated through trade in goods for unlisted companies, and some banks failed to review the retained data during the handling of capital receipts and payments for trade in goods (transit trade included) in compliance with the relevant regulations and provided receipts and payments business for Class B and Class C companies which is in violation of the relevant rules. 3. Violating the relevant regulations to provide capital receipts and payments on the capital account. Some banks failed to make timely foreign payments using the capital (RMB) acquired by handling foreign exchange capital settlements and sales in accordance with the relevant regulations. 4. Not complying with the relevant regulations to make statistical declarations on the balance of payments and to submit the relevant data. In addition, internal control systems were not improved, authenticity reviews were mere formalities, and some banks engaged in arbitrage by taking advantage of inbound and outbound linkages and avoiding the regulations by means of off-balance-sheet business innovations. All these issues require more attention. It was requested at the meeting that all banks should enhance their macro awareness, handle the relationship between individual benefits and the policy orientation in a correct manner, actively conduct their foreign exchange business in a rational way, enhance a sense of responsibility, practically carry out “understanding your customers,” seriously fulfill their duty of authenticity reviews, improve compliance awareness, strengthen internal control administration and system construction, and further improve the operational level of compliance to create a sound environment for the foreign exchange market. It was stressed at the meeting that in 2014 the SAFE will, in accordance with the decisions and operations of the CPC Central Committee and the State Council, continue to decentralize and further improve the level of facilitation of trade and investment, promote growth of the real economy, and, at the same time, closely monitor cross-border capital flows, prevent shocks from two-way capital flows across borders, maintain the bottom line in avoiding systemic and regional financial risks, and continuously reinforce and improve inspections of the foreign exchange business of financial institutions, such as banks, to encourage the finance industry to better serve the real economy and maintain foreign-related economic and financial security. 2014-04-23/en/2014/0423/1112.html
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A meeting was recently held by the State Administration of Foreign Exchange (SAFE) on broadening theoretical studies among the central teams of the party leadership group. The meeting was convened to convey the spirit of the Third Plenum of the 18th CPC Central Commission for Discipline Inspection (CCDI) and to formulate a plan for implementation of the relevant measures. Yi Gang, administrator and secretary of the Party Leadership Group of the SAFE, chaired the meeting. It was agreed by the participants that Xi Jinping, general secretary of the CPC Central Committee, had provided in his speech an overview of current circumstances regarding the construction of a clean government and the fight against corruption, offering in-depth insights into the significant theoretical and practical issues related to the building of a clean government and putting forward the general ideas and major assignments for combating corruption and for upholding integrity both in the present and in the foreseeable future. This is of far-reaching significance to the spirit of reform in CPC self-discipline by Party members, in the rigorous enforcement of Party discipline, and in the advancement of the building of a clean government and an anti-corruption campaign . The meeting will require that all participants carry out the spirit of Xi's speech as a current key political task. Officials and staff members under the administration of the SAFE are required to acquire a deep understanding of Xi's speech, align both thoughts and actions with the strategic planning of the CPC Central Committee, and implement the relevant measures to meet the needs of the foreign exchange administration. They are required to make innovations in the current mechanisms for combating corruption, implement relevant measures including institutional guarantees, strictly enforce CPC political, organizational, and financial discipline, earnestly carry out the eight-point guidelines issued by the CPC leadership, and persistently rectify undesirable work styles, including formalism, bureaucratism, hedonism, and extravagance. The use of power by officials will be placed under stricter scrutiny, with intensified efforts to combat corruption. A system of punishment and prevention of wrongdoings will be introduced to promote the building of a system and a mechanism to prevent the risks of corruption. Efforts will be intensified to combat corruption and to uphold integrity in a more scientific manner, thus making more significant contributions to the building of a clean government and to the implementation of the anti-corruption campaign. It was decided at the meeting that in the near future the SAFE will hold a working conference on construction of Party conduct and construction of honest and clean government, with the aim of conveying and studying the theory of the Third Plenum of the 18th CPC Central Commission for Discipline Inspection, and formulating a plan for implementation of the relevant measures. 2014-01-17/en/2014/0117/1101.html
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A working conference on cracking down illegal and criminal activities related to the illegal trading of foreign exchange was held recently by the State Administration of Foreign Exchange (SAFE) and the Ministry of Public Security (MPS). At the conference, the joint efforts by the SAFE and the MPS in 2013 to crack down on illegal and criminal activities related to the illegal trading of foreign exchange were summarized and relevant work for 2014 was arranged. In addition, advanced groups and individuals in terms of combating illegal and criminal activities related to the illegal trading of foreign exchange in 2013 were commended. It was pointed out at the conference that the foreign exchange authorities and the public security organs at all levels have tightened cooperation and have jointly carried out investigations according to the arrangements of the CPC Central Committee and the State Council, uncovering in 2013 more than forty cases involving foreign exchange –related illegal and criminal activities including the illegal trading of foreign exchange in an amount over RMB50 billion and more than one hundred criminal suspects were captured on site. Great achievements were made and foreign exchange–related illegal and criminal activities of all kinds were successfully deterred. It was emphasized at the conference that fluctuations in cross-border capital flows have been increasing since 2013. Therefore, there is a heavy responsibility to prevent unusual foreign exchange capital flows. The foreign exchange authorities and public security organs at all levels are required to strengthen study and judgments about the situation, make innovations in terms of the means of investigation, and improve the relevance and effectiveness of cracking down on foreign exchange–related illegal and criminal activities. Efforts shall be made to increase regional cooperation and to consolidate centralized governance in key regions in due time so as to build joint forces for cracking down on foreign exchange–related illegal and criminal activities. Meanwhile, upstream and downstream crimes related to the illegal trading of foreign exchange shall be pursued based on available clues, crime networks shall be thoroughly investigated, in particular criminal activities including money laundering and activities transferring hidden illegal money. In addition to investigating the criminal responsibility of the operators of underground money shops, administrative penalties shall be imposed on the participants in underground money shop transactions to increase punishment for illegal and criminal activities, such as the illegal trading of foreign exchange. In addition, investigations and research shall be strengthened in order early on to discover and to prevent new types of foreign exchange–related illegal and criminal activities. It was requested at the conference that the foreign exchange authorities and public security organs in 2014 should continue to deepen their cooperation, upgrade the means of investigations, and continue to maintain high pressure and to crack down on foreign exchange–related illegal and criminal activities so as to safeguard the healthy development of China’s foreign-related economy and finance. 2014-07-07/en/2014/0707/1119.html
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In 2013 the State Administration of Foreign Exchange (SAFE) received and handled 61 proposals from the NPC and the CPPCC. These proposals mainly involved areas such as the facilitation of trade and investment, support for enterprises “going-global,” and management of foreign exchange reserves. The SAFE attached great importance to the handling of these proposals, arranged relevant work, and made great efforts to carry out the related tasks. As a result, the handling of the relevant proposals for 2013 was completed successfully. The leadership placed great emphasis on the handling of the proposals and made detailed plans for the relevant tasks. The leading Party group of the SAFE also attached great importance to the handling of the proposals; the leadership of the Party branches held special meetings to make plans for the relevant work and to complete the specific requirements. Efforts were made to make institutional improvements to standardize the relevant work. A series of measures was formulated to ensure that the relevant work would be implemented in a systematic and standardized manner. The SAFE also managed to enhance coordination and communicationsso as to improvethe effectiveness and efficiency of the handling of the proposals. Various measures were taken to communicate with the delegates through a number of channels and to listen to comments and suggestions from the delegates in order to ensure the quality of the handling of the proposals. Efforts were intensified to provide training to relevant personnel and to enhance supervision. Relevant personnel who handle proposals from the NPC and the CPPCC were trained in a focused way, and supervision was enhanced so that there would be a response to each task. After the handling of the proposals, meetings were held to sum up the experience and good practices. The year 2014 is the first year that the SAFE has carried out the spirit of the Third Plenary Session of the 18th Central Committee of the CPC and it is an important year to fulfill the objectives of the 12th Five-Year Plan. The SAFE will make conscientious efforts to handle the 2014 proposals from the NPC and the CPPCC, which will be regarded as a benchmark for assessing implementation of the eight-point regulations of the Party Central Committee and for making efforts to carry out the mass line educational campaign. In 2014 the SAFE will further improve its work style, fulfill the relevant tasks in a pragmatic manner, and endeavor to achieve good performance with regard to the handling of the relevant proposals. 2014-02-27/en/2014/0227/1110.html
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On January 2, 2014, governor of the People's Bank of China (PBC), Zhou Xiaochuan, accompanied by Hu Xiaolian, deputy governor of the PBC, and Yi Gang, deputy governor of the PBC and administrator of the State Administration of Foreign Exchange (SAFE), paid a visit to the SAFE Central Foreign Exchange Business Center to call on officials devoted to administering foreign exchange reserves. On behalf of the Chinese Communist Party Committee of the Zhou Xiaochuan expressed his concern and care for all officials devoted to administering foreign exchange reserves and confirmed their achievements in 2013. As Zhou put it, in the complex global economic and financial situations in 2013, officials administering the foreign exchange reserves revealed an enormous sense of mission and accountability by carrying out the Chinese Communist Party’s mass line in educational practice and they conscientiously performed their responsibilities, thus ensuring the security, liquidity, and preservation and increases in the value of foreign exchange reserves assets, and making administration of foreign exchange reserves more regulated, professional, and globalized. According to Zhou, over the past several years, SAFE officials have been very low-key, down-to-earth, dedicated, and hardworking in terms of administering foreign exchange reserves and they have steadily strengthened their administration and management skills, have made new achievements in innovative uses of foreign exchange reserves, and have continuously improved risk controls and internal operations, thus ensuring the efficient management and use of foreign exchange reserves and making significant contributions to accomplishing China’s reform and development objectives as well as its China's economic and financial security. As Zhou emphasized, because the year 2014 marks the first year to implement the spirit of the Third Plenary Session of the 18th CPC Central Committee and to deepen the reforms in an all-round way, officials devoted to administration of foreign exchange reserves must rigorously implement the spirit of the 18th National Congress of the CPC, the Third Plenary Session of the 18th CPC Central Committee, and the Central Economic Work Conference, further strengthening their sense of mission and accountability, enhancing their confidence and cohesion, and working assiduously, despite the difficulties, to push ahead with the administration of foreign exchange reserves and to make foreign exchange reserves better serve the real economy and the reforms, thereby contributing to fulfillment of the Chinese dream of revitalizing the nation. 2014-01-02/en/2014/0102/1099.html
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A meeting was recently held by the State Administration of Foreign Exchange (SAFE) to convey and study the spirit of the second clean government work conference of the State Council and to make plans for implementation. Yi Gang, administrator and secretary of the Party Leadership Group of the SAFE, presided over the meeting. The meeting underlined the importance of studying and implementing the spirit of the conference for the present and for the foreseeable future. The SAFE should conscientiously implement the central government's requirements for combating corruption and upholding integrity, promote the building of a clean government through institutional reforms, and strive to achieve new progress in its efforts to combat corruption and to build a clean government. At the meeting it was emphasized that the SAFE should implement the spirit of the third plenum of the eighteenth Central Commission for Discipline Inspection and the second clean government work conference of the State Council, further integrating anti-corruption and upholding integrity in foreign exchange administration efforts. Specifically, the SAFE should (1) continue to implement the eight-point guideline and the three-point covenant; (2) deepen the reform of foreign exchange administration in key areas and continue to streamline administration and delegate power to lower levels; (3) enhance the building of institutional systems to combat corruption, to uphold integrity, and to deepen risk controls in this regard; (4) impose stringent rules on financial discipline and management; (5) advance transparency in foreign exchange administration; and (6) enforce rigid discipline. Leadership teams should play an exemplary role in implementing the rules for improving the work styles of CPC officials, for building clean government, and for ensuring that decrees of the central government are adequately conveyed to the lower levels. 2014-02-12/en/2014/0212/1105.html
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Question 1: What have the foreign exchange authorities done about cracking down on illegal and irregular capital inflows during the past five years? Answer: In recent years, facing the complicated and volatile economic and financial situations both at home and abroad, the State Administration of Foreign Exchange (SAFE), in accordance with the decisions and arrangements of the CPC Central Committee and the State Council, deeply implemented the scientific outlook on development, adhered to the principle of “expanding domestic demand, making structural adjustments, reducing the surplus, and promoting the balance of payments,” strengthened the monitoring and management of cross-border capital flows, increased efforts to carry out foreign exchange inspections on the basis of developments in the change of situation, improved foreign exchange inspection methods, rigorously cracked down on illegal and irregular flows of foreign exchange funds, and effectively guarded against the impact of cross-border capital flows. From 2007 to 2011, the foreign exchange authorities investigated a total of over 15,000 cases of activities in violation of the foreign exchange laws and regulations, and imposed a total of RMB 1.27 billion in administrative fines. In 2007, the SAFE carried out a “Comprehensive Inspection of the Inflow and Settlement of Foreign Exchange Funds” in ten coastal areas, such as Guangdong, whose total amount of foreign exchange receipts and payments accounted for more than 50% of China’s total, basically determining the channels for the inflow of illegal and irregular foreign exchange funds, such as those in the guise of foreign direct investment and trade in goods. In 2008, China ’s surplus of foreign exchange settlement and sales continued to expand, and the situation worsened in terms of the surplus of foreign exchange settlement and sales in trade in goods exceeding the surplus of customs imports and export trade. The SAFE carried out special inspections and investigations in five regions, such as Jiangsu, of the situation of importing without foreign exchange payments and making foreign exchange payments without foreign exchange purchases, and determined the reason for such a situation in terms of the trade in goods and its impact on the sharp increase in the surplus of foreign exchange settlement and sales. In 2009, the SAFE carried out special inspections of foreign-invested enterprises in ten regions, such as Liaoning, and discovered violations of the regulations on foreign exchange administration, e.g., some foreign-invested enterprises handled the procedures for profit remittances by making use of false vouchers, and for the foreign exchange settlement of capital by making use of false materials, and willfully changed the use of funds after conversion. In 2010, the SAFE organized and carried out special actions for dealing with and cracking down on hot money in 13 provinces (cities) with a large volume of foreign exchange business, carried out a comprehensive inspection of the foreign exchange inflows by such key channels as trade in goods and foreign direct investments, and rigorously cracked down on irregular cross-border capital flows. In 2011, the SAFE promoted throughout the country special actions for dealing with and cracking down on hot money. During the year, the foreign exchange authorities investigated and handled a total of 3,488 cases involving activities in violation of the regulations on foreign exchange administration, collected RMB 503 million in penalties and confiscations, and made outstanding achievements in dealing with and cracking down on the inflows of hot money. Question 2: What achievements have the foreign exchange authorities made in recent years in terms of cracking down on major activities in violation of the foreign exchange laws and regulations, such as illegal banks? Answer: The SAFE pays much attention to investigation of major cases in violation of the foreign exchange laws and regulations involving large amounts, wide regions, and many participants. The major cases involved a huge volume of funds, caused great damage to domestic macro-controls and market stability, and had an adverse social impact. From 2007 to 2011, the SAFE overcame difficulties and gathered its forces together to deal a crushing blow to the illegal activities. During that period, the foreign exchange authorities investigated a total of 23 major cases, involving RMB 31.937 billion; cooperated with the public security bodies to ferret out 65 cases involving illegal banks, 26 cases involving online foreign exchange speculation, and 119 cases involving illegal sales and purchases of foreign exchange, with a total amount of over RMB 100 billion; apprehended more than 1,000 suspects, and imposed a total of RMB 160 million in administrative fines; and rigorously cracked down on the arrogance of the offenders and criminals violating the laws on foreign exchange administration and effectively safeguarded the economic and financial order of China. While rigorously cracking down on the major activities in violation of the laws and regulations, such as the illegal banks, the SAFE implemented measures based on a combination of dredging and blocking principles, improved regulatory measures, further improved the convenience of services, satisfied the reasonable demands of the society for cross-border payments, and put pressure on the space for illegal foreign exchange trade. Question 3: What are the key targets of inspection in the foreign exchange authorities’ crack down on the illegal and irregular cross-border flows of foreign exchange funds? Answer: The SAFE firmly focused on the key link of cross-border capital flows, i.e., the financial institutions, such as the banks, in its inspections, and deeply carried out special inspections of financial institutions. In 2007, the foreign exchange authorities carried out special inspections of the foreign exchange collection and settlement and the short-term external debt in 208 banks and branches in four regions, such Beijing . In 2008, the foreign exchange authorities carried out special inspections on implementation of the management policy for the foreign exchange settlement of capital by the designated foreign exchange banks in ten regions, including Guangdong and Fujian . In 2009, the foreign exchange authorities carried out comprehensive inspections of foreign exchange business compliance of the head offices and nine branches of two joint-stock banks. In 2010, in consideration of such problems as the rapidly expanding scale of the inflows of foreign exchange funds through the banks, the foreign exchange authorities intensified their efforts to inspect the banks’ foreign exchange business. In 2011, the foreign exchange authorities further increased the frequency of inspections. While carrying out special inspections of the head offices of Chinese- and foreign-funded banks, the foreign exchange authorities carried out sample inspections in return visits to 26 banks that had been inspected in 2010 and effectively consolidated the achievements of these inspections. Question 4: In recent years, the foreign exchange authorities’ achievements in the investigation of cases involving illegal and irregular capital such as hot money have significantly improved. What is the main reason for this? Answer: As the scale of foreign exchange receipts and payments continuously expands, the foreign exchange trade methods become more complicated, and the illegal and irregular flows of foreign exchange funds, such as hot money, become more complicated and secretive, consequently, the traditional foreign exchange inspection methods that rely on manpower and manual work can no longer meet the work requirements of the situation. In order to improve the inspection efficiency and precisely crack down on illegal and irregular funds such as the hot money, the SAFE energetically elevated and improved the off-site inspection methods. In 2010, the SAFE developed the Off-site Foreign Exchange Inspection System. The system has wide coverage and a strong search ability for information, can rapidly and accurately lock the subjects in violation of the laws and regulations and their violation activities, strengthened the ability of the foreign exchange authorities to deeply search for clues about illegal and irregular capital flows, changed the past working mode that was based upon extensive screening, and played an important role in improving the accuracy, initiative, and effectiveness of cracking down on illegal and irregular flows of foreign exchange funds, such as the hot money. Question 5: The special actions dealing with and cracking down on hot money contribute to deterring flows in violation of the foreign exchange laws and regulations. In addition, what measures do the foreign exchange authorities have to enhance the law-abiding awareness of market players? Answer: Based upon regulatory practices in recent years, most of the market players carried out lawful foreign exchange operations, most of the demand to use foreign exchange and transactions had authentic bases, and part of the activities in violation of the regulations on foreign exchange administration were due to a lack of knowledge of the policy adjustments and regulatory changes in foreign exchange administration. Therefore, in recent years, while rigorously cracking down on activities in violation of the foreign exchange laws and regulations, the SAFE placed high priority on foreign exchange policy propaganda and alertness education and actively took a variety of measures to promote lawful operations by foreign exchange business operators. First, increasing efforts on positive propaganda, and reducing unintentional irregular activities. One the one hand, the foreign exchange authorities spread the foreign exchange administration policies through a variety of media, such as television, newspapers, and networks; on the other hand, the foreign exchange authorities introduced foreign exchange administration knowledge and business handling procedures through such means as on-site consultations and the distribution of brochures so as to actively help foreign-related enterprises and the public better acknowledge and understand foreign exchange administration policies and regulations and the specific handling procedures, and to reduce unintentional irregular activities by foreign exchange transaction participants. Second, increasing efforts for the disclosure of information on illegal and irregular activities to deter activities in violation of the laws and regulations. From 2007 to 2011, the SAFE provided the public with services for searching and disclosing information on illegal and irregular activities in a total of 9,775 enterprises. In 2010 and 2011, the SAFE publicly exposed some major irregular activities, and disclosed, in 6 batches, typical cases of activities in violation of the foreign exchange laws and regulations involving 17 bank violators, 26 enterprise violators, and 13 individual violators. Question 6: What arrangements do the foreign exchange authorities have this year to crack down on illegal and irregular cross-border capital flows? Answer: In 2012, the SAFE will thoroughly implement the spirit of the Central Economic Working Conference and the National Financial Working Conference, grasp well the general keynote of the work for “Steady Development,” continuously enhance the sensitivity and prospects of inspection work, and increase efforts to monitor and crack down on unusual cross-border capital flows, such as hot money; give full play to the advantages of the Off-site Foreign Exchange Inspection System, and carry out special inspections and investigations; strengthen resource integration and interdepartmental cooperation, and continue to increase efforts to crack down on illegal and criminal activities with respect to foreign exchange, such as illegal banks; actively improve the inspection methods, perfect the inspection means, and improve the relevant and effectiveness of foreign exchange inspection work; seriously punish activities in violation of the foreign exchange laws and regulations in accordance with the law, create a stable, harmonious, and sound market environment for foreign exchange reform and development, and effectively safeguard the economic and financial security of China. 2012-06-07/en/2012/0607/1053.html
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To maintain the economic and financial security of the state and to crack down strongly on cross-border flows of illegal and irregular funds, such as "hot money", the State Administration of Foreign Exchange (hereinafter referred to as the "SAFE") revealed two groups of cases involving some enterprises and individuals that had illegally conducted foreign exchange transactions and were subjected to penalties on November 1, 2010 and December 10, 2010 respectively. Now, a third group of such cases, based on the progress of the relevant inspections, is announced as follows: I. From January to March 2010, a total of 21 customs declarations of Guangzhou Couger Metal Material Ltd. failed to go through the registration procedures for the withdrawal of deferred foreign exchange payments for imports as per the relevant provisions, with the illegal amount amounting to USD1.2927 million. The above behavior was deemed to be in violation of the relevant provisions for the registration of external debt, and the SAFE thereby rendered a decision to impose a fine as an administrative penalty upon the said company pursuant to the Regulations of the People's Republic of China on Foreign Exchange Administration (hereinafter referred to as the "Regulations"). II. From January 2009 to June 2010, Shenzhen Mission Hills Golf Club Co., Ltd. directly collected a total of HKD21.3265 million in cash paid by customers for consumption, and then settled HKD16.0375 million in RMB in the name of company's staff. RMB13.9479 million was deposited into the account of the company. The above behavior was deemed to be in violation of the relevant provisions on the administration of collections and payments of foreign currency by domestic institutions and in violation of the legal handling of foreign exchange settlements. Hence, the SAFE rendered a decision to impose a fine as an administrative penalty upon the said company pursuant to the Regulations. III. From May to July 2009, Power-One Co., Ltd. in Shenzhen city, claiming business travel expenses, collected payment for sale of goods with an actual amount higher than the figure on the customs declarations form through four transactions totaling USD2.98 million. The above behavior with respect to the inward remittances of foreign exchange was in violation of the relevant provisions, and the SAFE thereby rendered a decision to impose a fine as an administrative penalty upon the said company pursuant to the Regulations. IV. During the period from April to November 2009, a person surnamed Zhang, a local citizen in Zhejiang province, in the name of 14 company employees, collected and settled USD799,800 from Hong Kong, and the settled RMB was transferred to Zhang's personal account. The above behavior constituted a split settlement of foreign exchange and was deemed to be in violation of the relevant provisions on the administration of personal foreign exchange. The SAFE thereby rendered a decision to impose a fine on Zhang as an administrative penalty pursuant to the Regulations. V. From November to December 2009, Lingguo Ecological Agriculture Co., Ltd. in Rugao city, Jiangsu province, by virtue of the equipment purchase contract signed with Haoli Trading Co., Ltd. in Qidong city, Jiangsu province, settled USD4.1 million of foreign exchange. However, it failed to utilize the settled RMB in the way for which it was applied, but it instead transferred the settled RMB14.9894 million to Haoli Trading Co., Ltd. under the current account. The above behavior constituted a change of purpose for settled foreign exchange and was deemed to be in violation of the relevant provisions on the administration of foreign exchange settlement. The SAFE thereby rendered a decision to impose a fine upon the said company an administrative penalty pursuant to the Regulations. VI. From June to September 2008, Jiangbo Century (Laiyang) Biotechnology Co., Ltd. in Shandong province settled USD27.7 million of foreign exchange for foreign investments through 3 transactions to pay for land purchases. In fact, the company did not acquire the corresponding land-use rights, and the settled capital of RMB185 million was transferred to Jiangbo Medicine Group in Yantai city and to Shandong Hilead Biotechnology Co., Ltd. for use through various channels. The above behavior was deemed to be in violation of the relevant provisions on the administration of settlement of foreign exchange, and the SAFE thereby rendered a decision to impose a fine upon the said company as an administrative penalty pursuant to the Regulations. VII. On June 30, 2008, after settling AUD3 million of foreign exchange from foreign investors, Aocheng Investment Consultant Co., Ltd. in Yantai city, Shandong province, on the next day transferred the settled capital of RMB19.7916 million to Baocheng Real Estate Co., Ltd. in Yantai city for an investment fund, which exceeded the normal production and business scope of the company. The above behavior was deemed to be in violation of the relevant provisions on the administration of foreign exchange settlement, and the SAFE thereby rendered a decision to impose a fine upon the said company as an administrative penalty pursuant to the Regulations. VIII. On March 4, 2009, Xinjiang Yumei Energy Co., Ltd. applied to settle HKD79.527 to pay for the transfer of initial mining rights to New Century Mining Co., Ltd., and on the same day it made such payment to the latter. Yet on the same day both parties suspended acquisition of the mining rights and abolished the Contract for the Transfer of Mining Rights and the Contract to Mortgage Assets. On March 5, 2009, New Century Mining Co., Ltd. transferred RMB70 million of the settled foreign exchange to the corporate account of Xinjiang Yumei Energy Co., Ltd. The latter then used the capital as entrusted loans to Chongqing Xuchuan Trading Co., Ltd. The above behavior was deemed to be in violation of the relevant provisions on the administration of foreign exchange settlement, and the SAFE thereby rendered a decision to impose a fine upon the said company as an administrative penalty pursuant to the Regulations. IX. On December 27, 2007, Jianghe Water Affairs Co., Ltd. in Jiangxi province, based on an invalid contract for the transfer of state-owned land-use rights, settled USD5 million of foreign exchange from foreign investors. On the same day, the settled RMB36.5268 thereof was transferred back to the company through Fairy Lake New City Development Co., Ltd. in Xinyu city. From June 2008 to April 2009, the settled capital of RMB24 million was transferred by Jianghe Water Affairs Co., Ltd. to securities companies and then ended up on the stock market. The above behavior was deemed to be in violation of the relevant provisions on the administration of foreign exchange settlement, and the SAFE thereby rendered a decision to impose a fine upon the said company as an administrative penalty pursuant to the Regulations. X. During the period from January 2009 to February 2010, Feidike Beauty Equipment (Shanghai) Co., Ltd. in Shanghai, when exporting beauty equipment, neither applied for the verification and writing off forms for export proceeds in foreign exchange, nor underwent the customs declaration procedures, but rather exported the goods directly by an air express company. Upon collection of the foreign exchange, the company combined the export proceeds with nontrade revenue, such as R&D expenses and product freight, failed to distinguish the nature of the fund for each foreign exchange receipt, and falsely declared it as "freight", "consulting services fees", or "trade payments". The company collected a total USD7.9053 million through 22 transactions, which were declared as revenue from services trade, but as a matter of fact constituted revenue from the selling of goods. The above behavior was deemed to be in violation of the relevant provisions on the administration of the verification and writing-off of foreign exchange collections from exports as well as of the declaration of balance of payments statistics. The SAFE thereby rendered a decision to impose a fine upon the said company as an administrative penalty pursuant to the Regulations. All market entities shall conscientiously remain aware of their social responsibilities, and operate in a prudent and scientific manner and in strict compliance with the policies on foreign exchange administration. The penalized enterprises and individuals shall regard the penalties as warnings and henceforth always bear in mind the concept of legitimate operations. All other enterprises and individuals shall also draw lessons from the above-mentioned cases to strengthen their self-discipline and to operate their businesses in strict accordance with the law. The SAFE shall vigorously facilitate trade and investment and enhance a service-oriented awareness so as to meet the reasonable foreign exchange demands of enterprises and individuals. Furthermore, strengthened efforts shall be made to supervise and inspect the foreign exchange business of market entities with respect to compliance with the regulations and to crack down on the flow of "hot money", thus safeguarding the foreign-related economic and financial security of the state. 2011-07-11/en/2011/0711/1004.html