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Since the beginning of 2013 the SAFE has further intensified efforts to simplify administrative procedures, institute decentralization and sort out the laws and regulations, and thereafter it updated the directory of major laws and regulations in effect on foreign exchange administration. The updated Directory of Major Laws and Regulations in Effect on Foreign Exchange Administration (as of July 31, 2013, hereinafter referred to as the “Directory”) has been posted on the official website of the SAFE. Including 315 policies, laws, and regulations with respect to foreign exchange administration, the Directory consists of eight categories, namely, Comprehensive Foreign Exchange Administration, Foreign Exchange Administration under the Current Account, Foreign Exchange Administration under the Capital Account, Supervision of the Foreign Exchange Business of Financial Institutions, the RMB Exchange Rate and Foreign Exchange Market, the BOP and Foreign Exchange Statistics, Foreign Exchange Inspections and the Applicable the Laws and Regulations, and Technical Management of Foreign Exchange, and, to facilitate use by the public, these are classified into several sub-items based on the category of the specific business. The SAFE will devise and improve long-term mechanisms to sort out the laws and regulations and to straighten out and update the Directory on a regular basis to further facilitate efforts by banks, enterprises, and individuals to understand and use the foreign exchange administration laws and regulations, and to advance law-based foreign exchange administration. 2013-08-12/en/2013/0812/1086.html
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Since the beginning of 2011, the State Administration of Foreign Exchange has actively implemented the decisions and arrangements of the CPC Central Committee and the State Council, has maintained tough measures against hot money, and has continuously improved the accuracy of cracking down on activities in violation of the foreign exchange laws and regulations, such as hot money, in particular by further improving the inspection methods and actively using the Off-site Foreign Exchange Inspection System. Recently, the Deputy Administrator of the State Administration of Foreign Exchange, Deng Xianhong, accepted an interview with journalists on issues concerning dealing with and cracking down on illegal and irregular capital flows such as hot money. Question 1: What are the results of the foreign exchange authorities’ cracking down on illegal and irregular capital flows such as the hot money since the beginning of this year? Answer: Since the beginning of this year, in order to effectively prevent financial risks, the foreign exchange authorities have maintained tough measures against hot money in accordance with the decisions and arrangements of the CPC Central Committee and the State Council, and have achieved notable results. In the first half of 2011, the foreign exchange authorities investigated 1,865 cases of activities in violation of foreign exchange laws and regulations, involving an amount in excess of USD16 billion, an increase of 26.2% and 26.9% respectively over the same period of the last year; the total amount of administrative penalties and confiscations imposed by the foreign exchange authorities was RMB260 million, whereas the total amount for all of 2010 was RMB243 million. In the first half of 2011, the foreign exchange authorities cooperated closely with the public security bodies to carry out a series of special actions to crack down on irregular cross-border capital flows, exposed 10 cases involving illegal banks and on-line foreign exchange speculation in an amount exceeding RMB10 billion, destroyed 16 illegal trade markets, and, consequently, effectively curbed and deterred illegal and crime activities related to foreign exchange and effectively curbed the increasingly active momentum in illegal and irregular capital flows such as hot money. Question 2: Since the beginning of this year, there was a breakthrough increase in the number of cases involving illegal and irregular capital such as hot money investigated by the foreign exchange authorities. What is the mean reason for this? Answer: In recent years, as the foreign economy of China has continuously developed, illegal and irregular capital flows such as hot money have become more complicated and secretive. The foreign exchange authorities have always rigorously cracked down on irregular cross-border capital flows, carrying out special actions to deal with and crack down on illegal and irregular capital inflows such as hot money, specifically investigating illegal and irregular funds of key participants and channels and rigorously cracking down on illegal and irregular transactions such as illegal banks. In particular, the foreign exchange authorities searched extensively for clues about illegal and irregular capital flows such as hot money through multiple channels, connected and coordinated with the on-site inspections in a timely manner, and consequently improved the accuracy and effectiveness of the crackdown on hot money. Generally, the key channels for the foreign exchange authorities to obtain clues on irregular flows of foreign exchange include: first, the handling of business and the on-site inspections by the foreign exchange authorities; second, the receipt of reports; third, the receipt of clues handed over by the public security bodies, audit offices, customs, tax authorities, and other departments. In particular, a maximum amount of RMB 100,000 on the basis of his or her contributions will be rewarded to those who proactively report on clues about activities in violation of the foreign exchange laws and regulations. The reward may also be increased for those who make special contributions. In order to strengthen the monitoring and early warning on illegal and irregular capital flows such as hot money, the foreign exchange authorities have energetically elevated and improved the off-site inspection methods. In 2010, the foreign exchange authorities developed and promoted nationwide the Off-site Foreign Exchange Inspection System. The operation of the system enhances the capability of the foreign exchange authorities to carry out extensive searches for clues about illegal and irregular capital flows, and plays an important role in improving the accuracy, initiative, and effectiveness of cracking down on activities in violation of the foreign exchange laws and regulations. Question 3: Could you briefly introduce the Off-site Foreign Exchange Inspection System? Answer: The Off-site Foreign Exchange Inspection System is mainly used to find clues about illegal and irregular capital flows such as hot money. In recent years, the means and methods of illegal and irregular cross-border capital flows have become more complicated, posing a great challenge to the inspections by the foreign exchange administration. It is difficult to adapt to the needs of situation if the foreign exchange authorities only rely on daily supervision or on-site inspections to discover clues about illegal and irregular activities. In order for the foreign exchange inspections to cover the foreign exchange collection and payment activities of various market players, after years of investigation, the foreign exchange authorities designed and developed the Off-site Foreign Exchange Inspection System. The characteristics of the system are as follows: First, wide coverage. The system covers various foreign exchange-related subjects, such as banks, non-bank financial institutions, enterprises, and individuals, and monitors almost all the information on foreign exchange transactions under the current account and the capital account. Second, strong capability to search for information. It may screen suspicious and irregular transactions from a vast amount of foreign exchange transaction data, sketch the entire track of capital operations by participants in suspicious and irregular transactions, and consequently promptly and accurately investigate the subjects in violation of the laws and regulations and their specific activities in violation of laws and regulations. Therefore, it basically realizes all-dimensional foreign exchange supervision, investigation of all illegal and irregular activities and precise guidance for case investigations. Question 4: What are the actual effects of the Off-site Foreign Exchange Inspection System? Answer: The Off-site Foreign Exchange Inspection System has obvious advantages in terms of finding and investigating clues about activities in violation of the foreign exchange laws and regulations, and is becoming a powerful weapon of the foreign exchange authorities to crack down precisely on irregular cross-border capital flows. In the first half of this year, the number of cases filed and closed and the amount of penalties and confiscations far exceeded those in the corresponding period of the last year, and the Off-site Foreign Exchange Inspection System has played an important role therein. Currently, the Off-site Foreign Exchange Inspection System comprehensively covers the key transaction methods and channels of illegal and irregular cross-border capital flows such as hot money by establishing 19 supervisory and analytical indicators in six categories. In particular, in the first half of this year, through the Off-site Foreign Exchange Inspection System, the foreign exchange authorities carried out nationwide screening and investigation of clues related to cross-border inflows and foreign exchange settlements of illegal and irregular funds over the past two years, and found 821 clues about suspected irregular cross-border capital flows and 16,945 transactions involving USD16.703 billion suspected to be in violation of the regulations on foreign exchange administration. In particular, the verification rates of clues in the Jiangsu branch, Shanghai branch, and Zhejiang branch were 62.5%, 70%, and 76.7% respectively. Question 5: Could you introduce several cases involving activities in violation of the regulations on foreign exchange administration found through the Off-site Foreign Exchange Inspection System？ Answer: The Off-site Foreign Exchange Inspection System can flexibly set screening conditions and search methods based upon the inspection experience and targets, and can discover clues about illegal and irregular capital flows in a timely manner. For example, in general, payments of goods in normal transactions do not appear in integer form. In consideration of this behavioral characteristic, certain sub-branches of the foreign exchange authorities regularly monitored foreign exchange transactions in which RMB funds from the foreign exchange settlement were used toward payment of goods and appeared in integer form, and successfully found one case in which the enterprise completed the foreign exchange settlement procedures for external debt through false trade contracts and applied the funds from the settlement toward repayment of a domestic RMB loan. An investigation determined that the enterprise changed the purpose of the funds from foreign exchange settlement of external debt and it was punished by the local foreign exchange authority in accordance with the relevant regulations. As another example, a certain branch of the foreign exchange authorities set special indicators in the Off-site Foreign Exchange Inspection System to screen large amounts and rapid foreign exchange settlements in the name of payments of land prices by newly established foreign-invested enterprises and followed the flows of RMB funds from the foreign exchange settlement. The branch screened 15 suspicious enterprises and carried out on-site inspection thereof. The inspections found that 9 enterprises had applied the RMB funds from the foreign exchange settlement for purposes other than the payment of the land prices as previously declared. Presently, the 9 enterprises have been punished by the local foreign exchange authorities. Question 6: How do the foreign exchange authorities verify violations after finding clues about illegal and irregular cross-border capital flows such as hot money? What kinds of administrative penalties do violators face? Answer: The foreign exchange authorities will specifically carry out on-site inspections, investigations, and collections of evidence on relevant suspected violators after finding and investigating suspected violators and related transactions through the Off-site Foreign Exchange Inspection System. According to Article 33 of the newly amended in 2008 Regulations on the Foreign Exchange Administration of the People’s Republic of China, the foreign exchange authorities may enter the facilities of foreign exchange operations and places of suspected foreign exchange violations to conduct on-site inspections and investigations and to collect evidence; the foreign exchange authorities have the right to require an explanation of the matters under investigation from the relevant institutions and individuals, and have the right to inquire about the accounts of the entities and individuals directly relevant to cases of foreign exchange violations; where necessary, the foreign exchange authorities may apply to a people’s court to freeze or seal the illegal funds or other involved property. After an on-site inspection, investigation, or collection of evidence, where the activities in violation of the laws and regulations on foreign exchange are verified, the foreign exchange authorities will impose administrative penalties in accordance with the law. When it is suspected that a crime has been committed, the case will be handed over to the judicial authorities and criminal liability will be pursued in accordance with the law. In particular, with respect to institutions and individuals involved in illegal and irregular cross-border capital flows such as hot money, the foreign exchange authorities will order that corrections be made, will confiscate the illegal gains, and will impose a fine of no more than 30 percent of the amount involved; where the circumstances are serious, a fine of no less than 30 percent of the amount involved but no more than the amount involved may be imposed. Where the activities of the financial institutions in violation of the laws and regulations on foreign exchange are verified, the foreign exchange authorities may order termination of the relevant business operations of such financial institutions and also issue a warning and impose an administrative fine on the person in charge or any other person with relevant accountability. In the first half of this year, the foreign exchange authorities imposed penalties and confiscated a total amount of RMB202 million with respect to three kinds of irregular activities closely related to the flow of hot money, such as the illegal use of foreign exchange, the remittance of foreign exchange into the territory of the People’s Republic of China in violation of the provisions or illegal foreign exchange settlements, and violations of the regulations on external debt administration, for which the penalty in a number of major cases exceeded RMB10 million. This reveals the strength and determination of the foreign exchange authorities to crack down on illegal and irregular cross-border capital flows such as hot money. Question 7: What about future prospects for dealing with and cracking down on hot money? Answer: Facing the complicated economic situations both at home and abroad, the foreign exchange authorities will continue to rigorously crack down on irregular cross-border capital flows, with a special focus on seriously combating the inflows of hot money, further improving the inspection methods, and intensifying the investigation and punishment of major cases. We will continuously improve the Off-site Foreign Exchange Inspection System, expand the data sources, optimize the indicators for monitoring and analysis, and adjust the monitoring indicators in a timely manner in accordance with changes in the foreign exchange receipts and payments situation. We will further strengthen off-site inspections of unusual capital outflows and effectively prevent and resolve the financial risks of unusual capital inflows and outflows while also strengthening the off-site monitoring of unusual capital inflows of enterprises, banks, and individuals. In summary, the foreign exchange authorities have the capability, means, and confidence to firmly crack down on illegal and irregular capital flows such as hot money, and any activities that disrupt the order in the foreign exchange market and violate the regulations on foreign exchange administration will be punished in accordance with the law. 2012-01-18/en/2012/0118/1025.html
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Recently, the director-generals of the branches of the State Administration of Foreign Exchange (SAFE) attended a symposium in Nanchang, the capital of Jiangxi province. The participants earnestly studied and implemented the decisions and plans of the Party Central Committee and the State Council on economic work for the second half of this year, reviewed and summarized foreign exchange administration work in the first half of the year, conducted in-depth analyses of the current foreign exchange situation, and mapped out the management tasks for the latter half of the year. Mr. Yi Gang, administrator of the SAFE, delivered a work report. The deputy director-generals, chief economists, and chief accountants of the SAFE were also present at the meeting. It was pointed out at the meeting that during the first half of 2011, efforts were made by the foreign exchange authorities to accelerate the five transformations of the concepts and methods of foreign exchange administration, rigorously crack down on the inflows of hot moneyand other illegal and irregular funds, actively prevent the risks of cross-border capital flows, and constantly deepen the reform of the foreign exchange administration system so as to improve the operation and management of foreign exchange reserves and to make further progress in various tasks. Following the overall planning of the Party Central Committee and the State Council, and under the guidance of the Party Committee of the Peoples Bank of China (PBOC), such efforts focused on scientific development and the transformation of the mode of economic development. The progress can be demonstrated in the following eight respects: First, policy measures were introduced to strengthen the management of foreign exchange business and to curb irregular capital inflows. In 2011 efforts were made to reinforce administration of the position of the banks foreign exchange settlement and sales, foreign exchange collections from transit trade, advances on sales and deferred payments, and to further downsize the total scale of the short-term external debt quota of domestic financial institutions; Second, the foreign exchange authorities stepped up efforts to crack down on hot money and other illegal and irregular capital inflows. Efforts were made to carry out special inspections of major market player, such as financial institutions and large-scale enterprises, as well as of items such as foreign exchange settlement of capital funds and short-term external debt, to investigate and deal with serious violations, and to severely punish underground money shops, speculation in foreign currency via the Internet, and other criminal activities. During the first half of 2011, 1,865 relevant cases were closed, involving a total amount of over USD16 billion; Third, the SAFE strengthened the monitoring and management of cross-border capital flows. Efforts were made to advance the reform of supervision and control of foreign exchange entities in a steady manner and to integrate and comprehensively utilize the related managerial system and data. Examinations and verifications of the authenticity of cross-border capital flows were intensified. Meanwhile, the system of checking up on the banks execution of the foreign exchange administrative provisions was refined so as to encourage compliance of bank operations; Fourth, reform of foreign exchange administration of trade in goods was steadily promoted. Efforts were made to promote the policy of overseas deposits of export proceeds throughout the country, to popularize the reform of the verification and writing-off system of foreign exchange payments for imports with a down-to-earth attitude, and to take an initiative to study the reform of the verification and writing-off system of exchange collected from exports; Fifth, efforts were made to further facilitate foreign exchange receipts and payments of market entities, to adjust and streamline the management policies for some items under the capital account, to perfect the administration of foreign exchange settlements and sales for individuals via e-banking, and to launch RMB-foreign currency option trading to further satisfy the market demand for hedging the exchange rate; Sixth, investment and risk management of foreign exchange reserve assets was strengthened. Efforts were made to closely follow and analyze market changes, maintain diversified investment strategies, optimize the allocation of medium- and long-term currencies and assets, and continuously improve risk management; Seventh, the transparency of foreign exchange administration was constantly enhanced by releasing for the first time a monitoring report on Chinas cross-border capital flows to the public and announcing data on the position of international investments on a quarterly basis to spread thorough knowledge among the general public about cross-border capital flows; and Eighth, the fundamental work for foreign exchange administration was consolidated, Striving for Excellencecampaigns were intensively launched, and Party construction of the foreign exchange authorities and the building of ranks of cadres and honest and clean government were reinforced. It was put forward at the meeting that during the second half of 2011 Chinas foreign exchange receipts and payments may face pressures due to large net inflows. Therefore, it is imperative to fully recognize the seriousness and complexity of the current foreign exchange situation, to keep close track of the development of the economic situation both at home and abroad, to carry out in-depth assessments of market risks, to grasp the latest trends and changes in a timely manner, and to formulate effective response plans and measures. It was proposed at the meeting that the key points of foreign exchange administration for the second half of 2011 will follow the unified arrangements of the Party Central Committee and State Council, adapt to the new changes in domestic and overseas conditions, attach greater importance to slowing down the excessively growing surplus of banks foreign exchange settlement and sales, expedite the preventing and cracking down on inflows of hot moneyand making steady progress in the reform of the import and export verification and writing-off system, and vigorously carry out the various tasks of foreign exchange administration so as to promote the stable and relatively rapid growth of the national economy. Efforts should be made in two major respects as follows: First, rigorously fighting against the inflows of hot moneyand other illegal and irregular funds as well as cross-border arbitrage funds. Further unifying thinking, strengthening macro-awareness about the overall concepts, continuing to maintain high pressure to crack down on hot money,and seriously punishing illegal foreign exchange collections and settlement. Meanwhile, adopting positive measures to encourage and facilitate foreign exchange purchases and payments, restraining market entities from arbitrage in cross-border asset management, slowing down the excessive growth of the surplus in foreign exchange settlement and sales, and continuing to implement policies for the convenience of legitimate foreign exchange fund flows. Second, steadily boosting the reform of the import and export verification and writing-off system. Promoting progress in preparation of a pilot reform of the import and export verification and writing-off system and steadily moving ahead with the reform of the system. Further intensifying the joint coordination mechanism among the trade administrative departments in an effort to lay a foundation for the overall reform of the import and export verification and writing-off system. In addition, it is also imperative to proceed with various tasks in an orderly fashion in light of the work arrangements defined at the national work conference on foreign exchange administration at the beginning of this year, further perfect the operation and management of foreign exchange reserves, actively advance law-based administration and regularize the laws and regulations, thoroughly carry out Striving for Excellencecampaigns, enhance the construction of a clean and honest government, and continually improve the internal control system and the level of internal management. 2011-08-04/en/2011/0804/1009.html
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In September 2011 the State Administration of Foreign Exchange (SAFE), the State Administration of Taxation (SAT), and the General Administration of Customs (GAC) jointly issued an announcement in which they decided to implement a pilot reform of the foreign exchange administration system for trade in goods in seven provinces (cities), such as Jiangsu and Shandong, beginning from December 1, 2011. Recently, an official from the SAFE accepted an interview by journalists on relevant issues. I. Under the current situation, what are the main concerns of the three departments such as the SAFE for introducing the pilot reform of the foreign exchange administration system for trade in goods? Answer: Before the reform of the foreign exchange administration system for trade in goods, the core of the foreign exchange administration for trade in goods consisted of the verification and writing-off management for imports and exports. The verification and writing-off management system, since its establishment in the early 1990s, involved the matching of the macro-economic situation and the balance of payments status. This played an important role in promoting the balance of payments equilibrium and guarding against the risks of cross-border capital flows. In recent years, the foreign economy of China has developed rapidly and the scale, method, and participants in foreign trade have changed greatly, therefore, the verification and writing-off management method based on a “one-to-one correspondence, case-by-case examination” needed to be changed. For this purpose, the SAFE actively adapted to the changes in the situation, transformed the concepts and methods of foreign exchange administration, and on the basis of adequate investigation and research, introduced the pilot reform of the foreign exchange administration system for trade in goods jointly with the SAT and the GAC to establish a new management mode featuring aggregate screening, dynamic monitoring, and classified management, and made relevant adjustments to the management method for export rebates and export custom declarations. The reform of foreign exchange administration system for trade in goods is helpful to further enhance the level of trade facilitation, to improve the means of foreign exchange administration, and to guard against the risks from foreign exchange receipts and payments. II. How should one understand the new administration mode combining facilitation and risk management established by the pilot reform of the foreign exchange administration system for trade in goods? Answer: The so-called combination of facilitation and risk management means simplifying the formalities and business handling procedures for receipts and payments of foreign exchange from trade and guiding and encouraging enterprises to operate their businesses according to the law, as well as improving the means for foreign exchange administration for trade in goods and guarding against risks from foreign exchange receipts and payments. The reform of the foreign exchange administration system for trade in goods, on the basis of confirmation by the enterprises of the knowledge of the relevant policies and regulations as well as the related rights and obligations, simplified the management procedures and implemented convenient policies with respect to the handling of the foreign exchange receipts and payments for trade in goods for most enterprises. This included further simplifying the requirements on document examination of foreign exchange payments for imports, cancelling the procedures for the verification and writing-off of foreign exchange collections from exports and online inspections of foreign exchange collections and settlements from exports, and significantly reducing the number of administrative licensing items under trade in goods. Furthermore, the SAFE will implement comprehensive inspections and the classified management in terms of foreign exchange receipts and payments from trade in goods, classify the enterprises in accordance with their business compliance and make dynamic adjustments to the classification, screen out the very few unusual and suspicious economic entities, and focus the supervision thereon to change the institutional arrangements of the past, i.e., “feeding the medicine to all in the case of only one being sick”. III. The reform of the foreign exchange administration system for trade in goods will be beneficial for foreign exchange held individuals. However, will it weaken state control of hot money? Answer: The reform of the foreign exchange administration system for trade in goods represents a major move by the SAFE to proactively adapt to developments and changes in the situation, to accelerate the transformation of the concepts and methods of foreign exchange administration, and to timely adjust the management methods. The reform, while providing facilitation for the market players such as enterprises and banks, further improves management and strengthens supervision of the risks of foreign exchange receipts and payments, by such means as improving the management methods, the efficiency of on-site verifications and dynamic classified management, and strengthening information sharing and regulatory cooperation among departments. This is mainly embodied in the following areas: First, the regulatory departments such as the foreign exchange authorities will have timely and comprehensive knowledge of the data on the flow of imported and exported goods and the flow of capital from receipts and payments of foreign exchange by enterprises. Second, the foreign exchange authorities will carry out fully covered monitoring to match the flows of goods and the flows of capital from the foreign trade of enterprises, will screen out through technical means those enterprises with suspicious and irregular activities, and will carry out on-site verifications. Third, the foreign exchange authorities will strengthen supervision of the enterprises with suspicious and irregular activities by examining the documents from receipts and payments, the business types, the modes of settlement and the handling procedures. Fourth, the foreign exchange authorities will carry out dynamic classified management of the enterprises, and may make adjustments to the classification of the enterprises based on their compliance. IV. It has been reported that the reform of the foreign exchange administration system for trade in goods will significantly reduce the burdens on enterprises and will simplify examination of the daily business of banks. How will this be carried out? Answer: This mainly involves the following: First, the enterprises’ foreign exchange collections from exports will not be required to be inspected online, the foreign exchange refunds for exports will not be required to undergo prior approval procedures on a case-by-case basis, and the documents required to be submitted to the banks for examination with respect to foreign exchange payments for imports will be significantly simplified; furthermore, the paper Export Verification Form for Foreign Exchange Collections will not be required in the application to the tax authorities for export rebates. Second, the verification and writing-off procedures will not be required to be handled by the foreign exchange authorities after the enterprises’ foreign exchange collections from exports. Third, real-time information interaction platforms will be established between the enterprises and the foreign exchange authorities, and most of the information submission and business reports of the enterprises will be handled online. Fourth, the verification system for the collection and payment of foreign exchange from trade and the online inspection system for foreign exchange collections and settlements from exports will be integrated into the Foreign Exchange Monitoring System for Trade in Goods, in order to facilitate bank business operations. Fifth, the number of administrative licensing items will be reduced from 6 to 2, i.e., list registration and registration administration of Category-C enterprises. V. We note that the Announcement on the Pilot Reform of the Foreign Exchange Administration System for Trade in Goods provides that enterprises are classified into A, B, and Categories based on dynamic classified management. What are the issues involved? What should the enterprises do in order to benefit from this policy? Answer: After the pilot reform, the foreign exchange authorities will carry out classified management of the imports and exports of enterprises. According to past experience of foreign exchange supervision of trade in goods, most of the import and export enterprises operate according to the law. Therefore, the foreign exchange authorities will classify the enterprises with normal and lawful operations into Category A, which will enjoy the facilitation policies and measures. Meanwhile, the foreign exchange authorities, by comprehensively realizing the off-site monitoring and on-site verifications and investigations, will classify the enterprises with suspicious and irregular activities into Category B or C, and will focus their supervision thereon. In this way, the limited supervision resources of the foreign exchange authorities will be focused on a few management targets. Strict management of a few enterprises will serve as a deterrent to guide and encourage the enterprises to operate their businesses according to the law. After the reform of the foreign exchange administration system for trade in goods, most enterprises operating according to the law will enjoy maximum facilitation when handling foreign exchange receipts and payments for trade in goods. As long as the enterprises have authentic and lawful trade bases for their foreign trade activities, can provide necessary evidentiary materials in accordance with the requirements of the relevant regulations, and report any trade which may result in a mismatch between the foreign exchange receipts and payments and the imports and exports in a timely manner, they will fully enjoy the benefits of the policy brought about by the reform. 2012-01-18/en/2012/0118/1028.html
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The State Administration of Foreign Exchange recently issued the Circular of the State Administration of Foreign Exchange on Relevant Issues Concerning the Banks’ Handling of Renminbi-Against-Forex Options Portfolio Business (Hui Fa No.43 [2011], hereinafter referred to as the “Circular”), and a relevant official from the State Administration of Foreign Exchange accepted an interview with journalists on related issues. Question: It has been learned that the Renminbi-against-Forex options trading was introduced in April 2011; why was the foreign exchange options portfolio business being introduced at this time? Answer: An option is a kind of right to choose. The buyer, after paying a premium to the seller, has the right to buy or sell certain subject matter of an agreed quantity at an agreed price in the future. Compared with the forward settlement and sales of foreign exchange, a foreign exchange option has the advantage of flexibility. For example, export enterprises may choose to conduct forward foreign exchange settlement or to buy a foreign exchange put option in order to guarantee the value of their future revenue from payment for goods in a foreign currency. In particular, the advantage of conducting forward foreign exchange settlement business is that it avoids possible losses from a depreciation of the foreign currency and fixes the cost in advance and avoid paying any expenses. However, it involves the sacrifice of possible gains from the appreciation of foreign currency; in contrast, the advantage of conducting the option business is that it has flexibility, i.e., in the case of a depreciation of the foreign currency, the enterprise may choose to exercise the option to conduct foreign exchange settlement at the agreed upon price; in the case of an appreciation of the foreign currency, the enterprise may choose not to exercise the option and conduct the foreign exchange settlement at the market price. However, the enterprise will have to pay a relatively high premium in advance. On April 1, 2011, the Renminbi-against-Forex options trading officially commenced on the domestic foreign exchange market whereby enterprises may buy options from the banks to hedge against exchange-rate risks. On this basis, in order to better satisfy the requirements of market players to hedge against exchange-rate risks, the Circular introduces the foreign exchange put and risk-reversal options portfolio business and the foreign exchange call and risk-reversal options portfolio business, both of which are options portfolio businesses at zero cost. The so-called options portfolio at zero cost means that the premium expenditure for the purchase of an option and the premium revenue from the sale of an option are offset by one another to make the net cost of guaranteeing the value equal to zero (or approaching zero) through the option purchase and sale portfolio. Consequently, flexibility in guaranteeing the value can be assured and the trading cost can be reduced. The most prominent feature of the foreign exchange put and risk-reversal options portfolio business and the foreign exchange call and risk-reversal options portfolio business is that there is a cap on the greatest potential loss, i.e., when the market players use the two types of businesses to hedge against exchange-rate risks for their future foreign exchange revenue or expenditures, they can fix the price for the foreign exchange settlement or purchase within a pre-set range, regardless of the direction of the changes in the exchange or the extent of the changes. From this perspective, in terms of the aforesaid two types of businesses introduced by the Circular, the risks of their products are relatively low, and they are beneficial to satisfy market demand and to conform to the actual situation in the identification, management, and tolerance of the risks by enterprises and banks at the current stage. Question: May clients sell the options from the options portfolio business that is being introduced at this time? Answer: Because the risks assumed by the seller are far greater than those assumed by the buyer, the seller needs a relatively strong risk-management capability. Based on international experience, it is common practice in newly emerging market economies to restrict the “naked short sale” of options by clients. In view of the fact that the current risk-management capabilities of domestic enterprises are still at a growth stage, in order to avoid an over-commitment of trade risks by domestic enterprises, upon the introduction of the Renminbi-against-Forex options business in April 2011, it is provided that the clients can only purchase the options from the banks and may not sell the options. However, in the options portfolio business introduced in this Circular, through the option purchase and sale portfolio the clients are granted the right to sell the options based on the purchase of the option, which is beneficial to reducing the risks of only sales of the option by clients. Question: What are the management requirements for the options portfolio business being introduced at this time? Answer: First, adhering to the principle of trading on the basis of actual needs. In order to prevent large-scale sheer speculation, the clients must have a true trading background in trade and investment to handle the options portfolio business, and the banks shall conduct the necessary examinations of their authenticity and compliance to ensure compliance with hedging principles. Second, emphasizing the principles of integrity. In the options portfolio business, the purchase and sale by clients of options from and to banks constitute a whole contract to prevent “naked short sales” of options by clients. Furthermore, the premium received by the clients from the sale of options shall not exceed that which they paid for the purchase of the options, in order to prevent an over-commitment of risks by clients due to a net receipt of the premium. Third, simplifying market-access management. The banks that qualify for Renminbi-against-Forex options trading on the inter-bank foreign exchange market and that qualify to operate the Renminbi-against-Forex options business for clients may directly engage in the options portfolio business for their clients, and the foreign exchange authorities will not provide new measures to manage market access. Question: What are the plans of the foreign exchange authorities to promote the development of the domestic and international options market? Answer: The foreign exchange authorities will cooperate with the relevant departments to foster market players and to allow them play a leading role in product innovation, and will continue steadily promoting the development of the domestic and international options market. 2012-01-18/en/2012/0118/1023.html
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The branches and foreign exchange administrative departments of the State Administration of Foreign Exchange (SAFE) in all provinces, autonomous regions, and municipalities directly under the Central Government; the SAFE branches in Shenzhen, Dalian, Qingdao, Xiamen, and Ningbo; and all policy banks, state-owned commercial banks, and shareholding commercial banks: In order to further promote the development of the Renminbi-against-Forex options market and to satisfy the requirements of economic entities to hedge against exchange-rate risks, in accordance with the Circular of the State Administration of Foreign Exchange on Relevant Issues Concerning Renminbi-Against-Forex Options Trading (Hui Fa No. 8 [2011]), the relevant issues with regard to the banks’ handling of the Renminbi-against-Forex options portfolio business are hereby notified as follows: I. The options portfolio stated in this Circular refers to the portfolio consisting of the purchase of a common European option of Renminbi against a foreign currency or the sale of one with the same currency, time limit, and principal specified in the contract, including the following two types: (1) Foreign exchange put options and risk reversal options portfolio: in view of the actual future needs for foreign exchange settlement, the client purchases a foreign exchange put option with a lower strike price (the strike price to be measured in RMB converted from a unit of foreign exchange, the same below) and meanwhile sells a foreign exchange call option with a higher strike price. (2) Foreign exchange call options and risk reversal options portfolio: in view of the actual future needs to purchase foreign exchange, the client sells a foreign exchange put option with a lower strike price and meanwhile purchases a foreign exchange call option with a higher strike price. II. The banks shall comply with the principle of actual needs and shall abide by the following provisions when handling the options portfolio business for their clients: (1) The options portfolio shall follow principles of integrity. Any operation by the client on the options portfolio, including but not limited to contract signing, position offsetting, and choice of delivery method, shall be on the entire options portfolio and shall not be on any single option trading chosen from the options portfolio. The signing of the contract between the banks and the clients in terms of the options portfolio business and any changes thereto shall be reflected in the same product specification. (2) Prior to the signing of an options contract, the banks shall require that their clients furnish a basic business contract and carry out the required examination of the contract so as to ensure that the options business that is to be conducted complies with the hedging principles. (3) Upon the maturity of the options portfolio, only one buyer of the option may exercise the option and the principle that the clients have priority to exercise the option shall be followed, i.e., only where the clients decide not to exercise the option purchased by themselves, can the banks choose whether to exercise their options; where the clients choose to exercise the option, the banks shall not exercise the option. (4) If the clients choose to exercise their option, the banks must conduct an authenticity and regulatory examination of the compliance of the receipts and payments of foreign exchange delivered by the clients. Where the clients as the sellers of the option are unable to exercise their option, the matter shall be dealt with by the parties in accordance with commercial principles. Upon the maturity of the options portfolio, where both the clients and the banks choose not to exercise the option, the clients may handle a part of the business for spot settlement and sales of foreign exchange upon the strength of the relevant documents. (5) With respect to the options portfolio, the premium received by the clients from the sales of the options shall not exceed that paid by them for the purchase of the options. III. Banks qualifying for Renminbi-against-Forex options trading on the inter-bank foreign exchange market and qualifying to operate the Renminbi-against-Forex options business for clients may handle the options portfolio business for clients. The bank branches qualifying to operate the Renminbi-against-Forex options business for clients may, after being authorized by their legal persons thereof (branches of foreign commercial banks are deemed to be legal persons), handle the options portfolio business for clients. IV. The banks shall, during the handling of the options portfolio business, respectively measure and manage the Delta options trading positions in accordance with Circular (Hui Fa No.8 [2011]) and other relevant provisions. V. The banks shall, during the handling of the options portfolio business, abide by the following statistical requirements: (1) The banks shall deem their clients’ exercise of options based on the performance of the contracts on the forward settlement and sales of foreign exchange, and shall incorporate such exercises into the statistics on the performance of the contracts on the forward settlement and sales of foreign exchange in the Monthly (Ten-day) Report on Statistics on Foreign Exchange Settlement and Sales by Banks in accordance with the Circular of the State Administration of Foreign Exchange on Distribution of the Statistical System for the Settlement and Sales of Foreign Exchange by Banks (Hui Fa No.42 [2006]). (2) The banks shall incorporate all the options trading in the options portfolio business into the Daily Report on the Comprehensive Position Management of Foreign Exchange Settlement and Sales by Banks and the statistical statements set forth in the Circular (Hui Fa No.8 [2011]) on a case-by-case basis. In particular, the Statistics on the Renminbi-against-Forex Options Business Handled by the Banks for Clients set forth in Annex 2 of the Circular (Hui Fa No.8 [2011]) shall be adjusted in accordance with the provisions of the annex to this Circular. VI. The scope of the clients, the time limit for trading, the currency of the options premium, the position offsetting, and the delivery method of the options portfolio business handled by the banks shall comply with the relevant provisions of the Circular (Hui Fa No.8 [2011]). VII. This Circular shall come into force as of December 1, 2011. The branches and foreign exchange administration departments of the SAFE shall, upon receipt of this Circular, forward it immediately to the urban commercial banks, rural commercial banks, rural cooperative banks, and foreign-funded banks within their respective jurisdictions. With respect to any problems arising from implementation, please contact the Department of the Balance of Payments of the SAFE. Tel: 010-68402385, 68402313. November 8, 2011 2012-01-18/en/2012/0118/1030.html
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The State Administration of Foreign Exchange, the State Administration of Taxation, and the General Administration of Customs recently jointly issued an announcement in which they decided to reform the foreign exchange administration system for trade in goods and to optimize and upgrade the information-sharing mechanism for foreign exchange receipts from exports and export rebates. Entering into effect as of December 1, 2011, a pilot reform will take place in provinces (cities) such as Jiangsu , Shandong , Hubei , Zhejiang (excluding Ningbo ), Fujian (excluding Xiamen ), Dalian , and Qingdao . The reform of foreign exchange administration for trade in goods mainly includes the following: First, improving foreign exchange administration for trade in goods and preventing risks in foreign exchange receipts and payments. The foreign exchange authorities will carry out comprehensive verifications on the flows of imported and exported goods and on the flows of capital from receipts and payments from trade, will conduct classified management of enterprises based on their compliance with the provisions on foreign exchange administration, and will dynamically adjust the results of the classified management. Most enterprises will enjoy facilitation during the handling of foreign exchange receipts and payments from trade; meanwhile the foreign exchange authorities will strengthen supervision of non-compliant enterprises with respect to document examination regarding receipts and payments from trade, business type, mode of settlement, and relevant handling procedures. Second, simplifying the formalities for receipts and payments of foreign exchange from trade and the relevant handling procedures. Enterprises will not be required to handle verifications and writing-off formalities after receipts and payments of foreign exchange from trade; the documents required for enterprise compliance with foreign exchange payments for imports will be simplified significantly, and foreign exchange payments may be handled with the banks upon the strength of the import customs declaration, contract, invoice, or any other documents that can prove the authenticity of transactions. The bank documents and examination procedures for foreign exchange payments by enterprises will be simplified significantly and foreign exchange collections from exports will not be subject to online inspections. Third, simplifying the export-rebate vouchers. During the pilot period, where the export enterprises in the pilot regions apply for export rebates, they will not be required to provide a paper Export Verification Form for Foreign Exchange Collections. The tax authorities will, in accordance with the relevant provisions, examine the enterprises’ export rebates with reference to the information provided by the foreign exchange authorities on the foreign exchange receipts from exports and the classification of the enterprises. Fourth, adjusting customs declaration procedures for exports. During the pilot period, where the export enterprises in the pilot regions make customs declarations on exports, they shall still provide an Export Verification Form for Foreign Exchange Collection in accordance with the provisions in force. Upon nationwide acceptance of the reform of the foreign exchange administration system for trade in goods, the State Administration of Foreign Exchange and the General Administration of Customs will adjust the customs declaration procedures for exports and in general will cancel the Export Verification Form for Foreign Exchange Collections. Fifth, improving regulatory synergy. The State Administration of Foreign Exchange, the State Administration of Taxation, and the General Administration of Customs will further strengthen their cooperation, realize data-sharing, improve coordination mechanisms, and rigorously crack down on irregular cross-border capital flows and activities such as tax fraud and smuggling that are in violation of the relevant laws. Reforming the foreign exchange administration system for trade in goods and establishing a new administration mode combining facilitation and risk management are important measures conforming with the development and changes in the scale, mode, and participants in the country’s foreign trade and responding to the current balance of payments situation. They are an important element in the transformation of the concept and methods of foreign exchange administration. Optimizing and upgrading the information-sharing mechanism for foreign exchange receipts from exports and export rebates is beneficial to reduce social costs, improve the means of foreign exchange administration, and further enhance the level of trade facilitation. 2011-09-15/en/2011/0915/1013.html
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In order to further improve foreign exchange management of the capital account, simplify the procedures for administrative examination and approval, and promote the facilitation of trade and investment, the State Administration of Foreign Exchange (The SAFE) recently issued the Circular of the SAFE on Cancellation or Adjustments of Certain Approval Authorities and Administrative Measures for Foreign Exchange Business under the Capital Account (HuiFa No. 20 [2011], hereinafter referred to as the Circular). The Circular will come into effect as of June 1, 2011. The Circular mainly stipulates the following: First, it cancels the registration and approval of overdue deferred payments in the management of trade-credit registration. Where an enterprise registers to withdraw deferred payments within 120 days (inclusive) upon the issuance of the import customs declaration by customs, it is unnecessary to undergo the overdue registration and approval formalities at the local foreign exchange authority. Second, the Circular cancels the examination and approval for the return of foreign exchange under advance payments in the management of trade-credit registration. When foreign exchange from the advance payments of an enterprise is returned, the enterprise can directly log into the Trade- Credit Registration Management System to go through the cancellation procedures, as well as to go through the formalities to enter the returned funds into the account in accordance with the relevant regulations on foreign exchange administration of the current account. Third, the designated foreign exchange banks can directly handle the procedures for when foreign exchange obtained through a reduction in state-owned shares in overseas listed companies is transferred to the national social security fund and put on file. Fourth, the branches and foreign exchange administrative departments of the SAFE are authorized to check and ratify the quota for the balance of external financing guarantees (excluding those explicitly stipulated to be ratified by the SAFE) for the designated foreign exchange banks registered within their jurisdictions in accordance with the current regulations on the administration of external guarantees. Fifth, the base ratio for advance payments of goods under trade credit is increased from 30 percent to 50 percent. This policy adjustment will help enterprises reduce costs and enhance efficiency. While vigorously simplifying the ex-ante approval procedures, the SAFE will also increase efforts to conduct off-site inspections and to carry out ex-post supervision, constantly improving foreign exchange administration of the capital account and steadily advancing the convertibility of the RMB under the capital account. 2011-05-27/en/2011/0527/998.html
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The State Administration of Foreign Exchange (SAFE) and the General Administration of Customs (GAC) recently signed a Memorandum of Cooperation between the State Administration of Foreign Exchange and the General Administration of Customs on the Joint Promotion of Reform of the Foreign Exchange Administration System for Trade in Goods in order to strengthen cooperation between departments, efficiently promote the reform of the foreign exchange administration system for trade in goods, and jointly improve the level of cooperative supervision. The SAFE and the GAC have already established effective cooperative mechanisms to coordinate policy formulation, to share regulatory information, and to strengthen business cooperation. The execution of this Memorandum further defines the process of coordinating business and the exchange of regulatory information between the parties and other affairs in accordance with the needs to promote the reform of the foreign exchange administration system for trade in goods. The main contents of this Memorandum include: First, adjusting the business process and function of the system for coordination between the foreign exchange authorities and the customs. Upon the date of nationwide generalization of the reform of the foreign exchange administration system for trade in goods, the management method with the Export Verification Form for Foreign Exchange Collection will be cancelled; the foreign exchange authorities and the banks will no longer make a note of the amount of the customs declaration or deduct (or increase) the receivable foreign exchange quota from exports through the online inspection system for customs declaration of imported goods and the online inspection system for foreign exchange collections and settlements from exports; the customs will maintain the current operation of issuing and printing the certification sheets for receipts and payments of foreign exchange from the customs declaration for imported and exported goods . Second, further strengthening the sharing of regulatory information. The GAC and the SAFE will strengthen their exchange of regulatory information in such areas as the data on the customs declaration for imported and exported goods of enterprises, the information about the classified management of the enterprises, the ratios of export receipts and import payments of foreign exchange of enterprises, and the electronic data on the receipts and payments of foreign exchange for trade in goods of enterprises on a case-by-case basis, and will realize their data sharing. The execution of the Memorandum represents a management concept and a service consciousness of keeping up with the times and of reform and innovation, while effectively promoting trade facilitation and is beneficial to creating a synergy to rigorously crack down on illegal behavior such as irregular cross-border capital flows, evasion and illegal purchases of foreign exchange, and smuggling, and to effectively safeguarding the security of the foreign economy and finances of China. 2012-01-18/en/2012/0118/1027.html
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In order to regulate the banksown foreign exchange settlement and sales business and to facilitate banking operations, the State Administration on Foreign Exchange (the SAFE) recently released the Circular of the State Administration of Foreign Exchange on Relevant Issues Concerning Improving the Administration of the BanksOwn Foreign Exchange Settlement and Sales (Huifa No. 23 [2011]) (hereinafter referred to as the Circular). The Circular will come into effect as of July 1, 2011. The Circular standardizes regulation of the settlement and sales of foreign exchange under the banks own current and capital accounts: first, it embodies balanced management by establishing unified quantitative standards for the conversion of the banks capital (or working capital) between domestic and foreign currencies; second, it reflects convenient operationsby straightening out and integrating the administrative policies on the banks own foreign exchange settlement and sales and standardizing such business that is not clearly stipulated in some of the current policies; third, it reflects a streamlined review process by simplifying the requirement for ex-ante review for the settlement of the banks profits in foreign exchange and canceling the ex-ante review requirement for the dividends and bonuses paid by banks to foreign shareholders as well as for profits remitted by foreign banks; fourth, it stresses laying emphasis on major items by standardizing foreign exchange settlement and sales for items that have a great impact on balance of payment and foreign exchange operations; and fifth, it represents ex-post supervisionby reiterating the statistical requirements for the banks own foreign exchange settlement and sales as well as regarding the information to be submitted by the banks. The release of this Circular is expected to reduce the review requirements, streamline the administrative process, and facilitate the banks own foreign exchange settlement and sales and other related business activities in an orderly manner. 2011-06-13/en/2011/0613/1000.html