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In order to prevent and crack down on hot money and other kinds of cross-border fund inflows in violation of the regulations, to maintain the healthy and steady operation of the foreign exchange market, and to ensure the economic and financial security of the state, since the latter half of February 2010, the State Administration of Foreign Exchange (SAFE) has launched special campaigns to struggle against hot money and other kinds of fund inflows in violation of the regulations in some provinces (regions and cities) with massive inflows of foreign exchange funds. To date, 197 cases of foreign exchange transactions in violation of the regulations have been disclosed, involving a total amount of USD7.34 billion. At the beginning of October 2010, the SAFE launched a new round of special inspections to combat foreign exchange fund inflows in violation of the laws and regulations. In total, 3 head offices of commercial banks, 33 branches of Chinese-funded banks, and 9 branches of foreign-funded banks have been inspected, covering areas such as foreign exchange settlement and sales, short-term external debt, offshore financing, sources and utilization of foreign exchange funds, and so on. The inspections show that with constant efforts to improve financial services, the majority of the banks have enhanced their awareness of business compliance, and as a result overall compliance has improved. However, it was also found that some banks had operated in violation of the relevant regulations. The major forms of violations include: the amount of the short-term debt exceeding the quota, illegal foreign exchange settlement of capital and settlement and sale of foreign exchange by individuals, fund collections and payments under the current account and the capital account in violation of the regulations on the administration of foreign exchange accounts, failure to conduct authenticity examinations when offering foreign exchange transaction services for clients, and so forth. By complying with the relevant laws, the SAFE has dealt with the said cases in a centralized manner and has imposed severe punishments. Since October 2010, the SAFE has imposed penalties on banks conducting business in violation of the regulations in 20 regions, including Guangdong, Jiangsu, Beijing, Shanghai, and so forth. The entities involved include 79 branches of 16 incorporated banks, such as the Industrial and Commercial Bank of China (ICBC), the Agricultural Bank of China (ABC), the Bank of China (BOC), China Construction Bank (CCB), China CITIC Bank, Shanghai Pudong Development Bank (SPDB), Xiamen International Bank, and Yamaguchi Bank. Penalties have been imposed in the form of fines, suspensions of certain kinds of foreign exchange businesses, punishment of senior management, and so forth. In order to warn and educate the banks and their branches, to further enhance the banks awareness of business compliance, and to create social synergy to struggle against the hot money,the SAFE circulated information about the cases of non-compliance in various batches. The first batch of typical cases, involving banks that illegally conducted foreign exchange business and were penalized, was announced on October 28, 2010. Now information about the second batch of cases is being circulated as follows according to the progress of the relevant inspections: In January 2009, the sub-branch of the ICBC in Yanbu county of Foshan city failed to scrutinize the vouchers for foreign exchange settlement and handled a foreign exchange settlement deal involving capital totaling USD26.32 million for a real estate company in Foshan, which violated the regulations on the administration of foreign exchange settlement of capital. According to the Regulations of the Peoples Republic of China on Foreign Exchange Administration (hereinafter referred to as the Regulations), the SAFE imposed fines on the said sub-branch and suspended its capital settlement business for 3 months. Meanwhile, fines were imposed on two senior managers in the said sub-branch. During the period from January to December 2009, the sub-branch of the ICBC in Hanjiang county of Yangzhou city failed to scrutinize the vouchers for the settlement of foreign exchange and concluded 22 deals of foreign exchange settlement of capital for three foreign-invested enterprises, including a textile company in Yangzhou, involving a total amount of USD19.174 million. Such behavior was deemed to be in breach of the relevant regulations on the administration of foreign exchange settlement of capital. Therefore, the SAFE imposed fines on the said sub-branch and suspended its capital settlement business for 3 months pursuant to the regulations. In November 2009, the Liuli sub-branch of the CCB in Shanghai failed to scrutinize the vouchers for the settlement of foreign exchange and completed one deal of foreign exchange settlement of capital totaling HKD63.1166 million for a shopping company. Furthermore, the inspection revealed that no vouchers were issued for HKD26.7212 million of the total amount. This violated the regulations on the administration of foreign exchange settlement of capital. In light of this, the SAFE imposed fines on the sub-branch and suspended its capital settlement business for 3 months pursuant to the regulations. In September 2009, the Sanyuan sub-branch of the CCB Beijing branch failed to examine vouchers in the amount of USD1.73 million for foreign exchange settlement when handling foreign exchange settlement business for individuals in excess of the annual total limit. Such behavior was deemed to be in violation of the relevant regulations on the administration of foreign exchange settlement of capital. The SAFE thereby imposed fines on the said sub-branch and suspended its foreign exchange settlement and sale business for 6 months pursuant to the regulations. In April 2009, the Baoan sub-branch of the CCB Shenzhen branch settled USD2.3 million-worth of short-term loans in foreign exchange for an instrument company in Shenzhen. Such behavior was deemed to be in violation of the relevant regulations on the administration of foreign exchange settlement under the capital account. The SAFE thereby imposed fines on the sub-branch and suspended its foreign exchange settlement business for capital projects for 3 months according to the regulations. During the period from March 2008 to May 2010, the Fuzhou branch of the Xiamen International Bank handled 33 foreign exchange settlement deals without using the information system for the administration of foreign exchange settlement and sale for individuals, involving a total amount of HKD 17.2842 million. This violated the relevant regulations on the administration of individual foreign exchange. The SAFE thereby imposed fines on the said branch and suspended its foreign exchange settlement business for individuals for 6 months according to the regulations. During the period from February to October 2009, the Zhongxing sub-branch of the SPDB in Ningbo city handled 56 foreign exchange settlement deals for a person surnamed Dong and 55 other domestic individuals by splitting large sums of foreign exchange into smaller parts, involving a total amount of USD2.7659 million. In accordance with the regulations, the SAFE imposed fines on the said sub-branch. In May, July, and August 2010, the business department of the Dalian branch of the China CITIC Bank had USD1.3779 million-worth of capital settled through 3 petty cash deals for a real estate company in Dalian. The department failed to scrutinize the vouchers for the foreign exchange settlement, resulting in a violation of the relevant regulations on the administration of capital settlement business. The SAFE thereby imposed fines on the department and suspended its capital settlement business for 3 months pursuant to the regulations. In December 2009, the Jiangnan Sub-Branch of the ICBC in Yulin city completed 14 foreign exchange settlement deals in cash for individuals by splitting large sums of money into smaller parts, involving a total amount of USD67, 000. In May 2010, the business department of the ICBC Yulin branch concluded 5 deals of spot exchange settlement for individuals by splitting large sums of money into smaller parts, totaling HKD 2.3 million. Such behavior was deemed to be in violation of the relevant regulations on the administration of individual foreign exchange, and the SAFE thereby imposed fines on the said sub-branch and branch and suspended their foreign exchange settlement and sale business for 3 months pursuant to the regulations. The designated foreign exchange banks, as the major channels for conducting foreign exchange business, should firmly embrace the philosophy of scientific development and fulfill their social responsibilities in an earnest manner and in strict compliance with the regulations on foreign exchange administration. The banks referred to in this circular should attach great importance to their violations, examine their business operations, and rectify any acts of non-compliance. Other banking institutions should draw lessons from the above-mentioned cases so as to strengthen their internal management and to operate their businesses according to the laws and regulations. The foreign exchange authorities will continue to improve financial services to facilitate the operation of market entities; meanwhile, they will intensify supervision of the foreign exchange business of banks, enhance the approaches for foreign exchange inspections, and crack down severely on hot money and other kinds of cross-border fund flows that do not comply with the law, thus promoting the healthy development of the foreign-related economy and finance. 2010-12-29/en/2010/1229/973.html
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In order to ensure the economic and financial security of the state and to severely crack down on hot money, since February 2010, the State Administration of Foreign Exchange (SAFE) has launched a series of special campaigns to combat hot money in provinces and cities with large amounts of foreign exchange businesses. With intensified efforts to crack down on cross-border fund flows with no verifiable trade/investment background, by the end of October 2010, 197 cases in violation of the foreign exchange regulations were discovered and disclosed, involving a total sum of USD7.34 billion. Among these cases, 178 were filed and penalties were imposed. For the purpose of raising the awareness of banks and enterprises in handling the foreign exchange business in compliance with the regulations, warning and instructing entities involved in the violation of the regulations and of creating a social synergy for cracking down on the hot money,the SAFE has decided to circulate the non-compliance cases in stages, based on the types of entities involved. During implementation of the special campaigns, priority was given to inspections of banks handling the settlement and sales of foreign exchange, short-term external debts, offshore financing, as well as to the sources and utilization of foreign exchange funds and so forth. Inspections show that with constant efforts to improve financial services, all the designated foreign exchange banks have enhanced their awareness of the compliance risks, with further improvements achieved on the overall condition of compliance operations. However, there are still some banks that put a priority on business expansion and ignore compliance operations. Their inadequate fulfillment of the verification of authenticity has given rise to the inflow of hot money, producing a negative impact on the equilibrium in the balance of payments as well as on the healthy and stable development of the national economy and finance. Cases of bank violations of the foreign exchange regulations that have been penalized are hereby circulated as follows: On November 22, 2007, China Construction Bank Limited, Jiangmen Branch, handled settlement of foreign exchange in the amount of HKD31.5 million for capital of a foreign-funded enterprise. These funds were subsequently used to extend loans to the administration committee of a high-tech industrial development zone, but the purpose of the funds as declared by the enterprise was a security deposit for land purchases This violates the relevant regulations on the administration of exchange settlement for capital. In accordance with the Regulations of the People's Republic of China on Foreign Exchange Administration, the SAFE decided to impose administrative penalties on the branch in the form of fines. During the period from January 20 to May 22, 2009, the Agricultural Bank of China Limited, Guanghua Sub-Branch in Chengdu City, handled the cross-border collection of foreign exchange for 28 individuals within the territory of China. Among the individuals, 20 collected funds from a payer who was outside the territory of China, with and 8 collecting from the same payer, after which the funds were settled and transferred immediately to an individual within the territory of China. Such acts violate the relevant regulations on the administration of individual foreign exchange due to the fact that large sums of money were split into smaller amounts for the settlement and sales of foreign exchange. In accordance with the Regulations of the Peoples Republic of China on Foreign Exchange Administration, the SAFE decided to impose administrative penalties on the sub-branch in the form of fines. On November 21, 2007 and March 27, 2008, the Bank of China, Zhenhai Sub-Branch in Ningbo City, handled the settlement of foreign exchange for the external debts of a company in the amount of USD13.58 million. It was verified that the purpose of the settlement failed to conform to the purpose ratified by the SAFE; meanwhile, the bank failed to pay the settled funds directly to the payee within the prescribed time limit. This violated the relevant regulations on the administration of foreign exchange settlement for external debts. In accordance with the Regulations of the Peoples Republic of China on Foreign Exchange Administration, the SAFE imposed fines on the sub-branch and ordered that it correct its behavior. On May 7 and 8, 2009, the Bank of China, Guchengtai Sub-Branch in Xining City, handled the settlement of foreign exchange for the capital fund of a foreign-funded enterprise in the amount of HKD85.3 million and HKD28.2 million respectively. The funds were subsequently used for capital investments, which exceeds the business scope of the enterprise and violates the relevant regulations on the administration of foreign exchange settlement for capital funds. In accordance with the Regulations of the Peoples Republic of China on Foreign Exchange Administration, the SAFE decided to impose administrative penalties on the sub-branch in the form of a 3-month suspension of involvement in foreign exchange settlement and sales. During the period from October 2006 to July 2007, German-based NORD/LB, Shanghai Branch, handled 12 agency import deals with a letter of credit for a number of Chinese-funded banks, involving a total sum of USD26.98 million. With no prior notice delivered to the Chinese-funded issuing bank, the branch transferred all the financial claims to the aforesaid Chinese-funded bank to its overseas branches. This violated the regulations of the state on the administration of external debts. In accordance with the Regulations of the Peoples Republic of China on Foreign Exchange Administration, the SAFE decided to impose administrative penalties on the branch in the form of fines. On February 1, 2008, the Bank of East Asia (China) Limited, Guangzhou Branch, handled the settlement of foreign exchange for a Hong Kong resident in the amount of HKD11 million to be used for the purchase of non-residential housing. This violated the relevant state regulations allowing overseas individuals to purchase commercial residential housing for their own use within the territory of China for the purpose of satisfying their basic living needs. In accordance with the Regulations of the Peoples Republic of China on Foreign Exchange Administration, the SAFE decided to impose administrative penalties on the branch in the form of fines. During the period from September 1, 2008 to June 30, 2010, the Agricultural Bank of China Limited, Yichun Branch, handled 35 foreign exchange settlements of capital for a number of foreign-funded enterprises, involving a total amount of over RMB100 million. The branch failed to carefully examine the relevant funds and to preserve the vouchers for the settlement in accordance with the law. This violated the relevant regulations on the administration of foreign exchange settlements of capital. In accordance with the Regulations of the Peoples Republic of China on Foreign Exchange Administration, the SAFE decided to impose administrative penalties on the branch in the form of fines. In 2009, a number of institutions, including Taijiang Sub-Branch within the jurisdiction of the Business Department of the Industrial and Commercial Bank of China Limited, Fujian Branch, failed to handle the settlement and sales of foreign exchange for individuals through the information system for the administration of settlement and sales of foreign exchange for individuals in 42 deals involving a total amount equivalent to USD265,000. These institutions, including the Gulou Sub-Branch within the same jurisdiction, failed to handle the deferred payments of foreign exchange for enterprises in accordance with the regulations in three deals involving a total amount equivalent to USD2.94 million. In accordance with the Regulations of the Peoples Republic of China on Foreign Exchange Administration, the SAFE decided to impose administrative penalties on the aforesaid sub-branches in the form of fines. As the main channel for handling foreign exchange business, all designated foreign exchange banks should further consolidate the concept of scientific development, earnestly fulfill their social responsibilities, and strictly comply with the policies for the administration of foreign exchange business. The involved banks referred to in this Circular should pay great attention to their violations of the relevant regulations, examine their handling of the business using the regulations as a benchmark, and conscientiously correct their non-compliance in their handling of the business. Banks and relevant institutions should draw lessons from the above cases, strengthen their internal management, and handle their businesses in compliance with the laws and regulations. The SAFE will, in addition to performing its role to further improve financial services and facilitate the business operations of market entities, strengthen supervision over the foreign exchange business of banks, improve constantly the effectiveness of foreign exchange inspections, increase the efficiency of supervision and inspection, crack down severely on cross-border flows of hot money in accordance with the law, and continue to promote the healthy development of the foreign-related economy and finance. October 28, 2010 2010-10-28/en/2010/1028/962.html
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Mr. Deng Xianhong, Deputy Administrator of the SAFE, was recently interviewed by Rui Chenggang, reporter from the Finance and Economics Channel of CCTV. Rui Chenggang (hereinafter referred to as Rui): First, I would like to express my thanks to you for accepting this interview. Can we start from the term? Deng Xianhong (hereinafter referred to as Deng): OK. Rui: How do you define hot money? Deng: To date, there is no uniform definition of hot money. From my point of view, hot money should be categorized differently in countries allowing free capital flows and countries imposing foreign exchange controls. In China, all illegal capital flows without authentic transactional backgrounds (either in trade or investment) and in violation of the foreign exchange administration regulations are considered hot money and are the target of our attack. One of the goals of our macro-economic regulatory policy is to lessen interest-oriented pursuit of the market featured by excessive speculation. And we will take strong administrative measures to combat hot money,which is in breach of both the laws and regulations. Rui: As for hot money statistics, we have many approaches in the media. How do you calculate the amount of hot money? Deng: In the context of partially imposed capital controls, hot money flows into a country in the guise of being legal. In other words, it is impossible for hot money to get across the border if it is identified as illegal. Therefore, only by inspections and examinations can we know the amount of hot money. Hot money is somewhat like disbanded soldiers who hide themselves in the thick forest. Only by searching the forest can we get to know the actual number of disbanded troops. Certainly some funds may escape from capture. But I can definitely say that in China, there are no massive inflows of hot money and hot money is only dispersed in small amounts. Rui: You disagree with the comment that the inflow of hot money is accelerating. Why is this comment being spread throughout the society? Deng: Analysis shows that there is a considerable amount of net inflows and surplus. However, we cannot equate such inflows and surplus with hot money. Our analysis indicates that a large amount of the net inflows and surplus results from the allocation of assets and liabilities of enterprises based on their expectations of market interest rates and exchange rates. Serious analysis shows that the settlement of foreign exchange contributes slightly to the increase in net inflows and surplus. However, when it comes to foreign exchange purchases and payments, a large amount of the transactions (imports) are carried out in the form of trade financing, deferred payments, external loans with internal guarantees, overseas agent-based payments, and overseas financing as a substitute for foreign exchange payments. Thus, it appears that the outflow of foreign exchange is relatively small. Rui: It is true that in the wake of the global financial crisis, the country is facing increasing inflows of capital or liquidity and that may not necessarily be hot money.Is this the reality? Deng: It is the reality. To combat the financial crisis, some developed countries adopted quantitative easy monetary policies which gave rise to an overwhelming liquidity of funds. Amidst the financial crisis, China took the lead in restoring its economy and achieving a rapid increase in foreign trade. That led to the formation of a gap that led to some expectations about interest margins and exchange margins. The country will see a considerable amount of net inflows of funds, and the inflows will trigger an increase in a favorable balance. Though this has created some pressure for us, we cannot equate the net inflows and surplus with hot money. As mentioned previously, all capital flows with verifiable transactional backgrounds are the results of normal economic activities. Rui: What are the major motivations for the inflow of hot money in pursuit of arbitrage by illicit means? Deng: The expectation of an RMB appreciation, the expectation of a rising stock market, and the expectation of a rise in the real estate market. The hot money is generally driven by such expectations, which in turn serve as the target for hot money inflows. Rui: In addition to their basic functions, what are the major roles of commercial banks in preventing the inflow of hot money? Deng: Inspections show that some banks have failed to perform their verification duty, that is to say, some banks have failed to comply completely with the policy requirements for foreign exchange administration, which has given rise to the inflow of hot money.Generally, our inspections during the past few years show that banks have strengthened their regulatory compliance. The banks compliance with the relevant regulations plays an important role in preventing hot money because complete compliance by one bank will mean effective administration of thousands of market entities. Rui: It is really hard to impose effective regulation on the underground money shops. What are the SAFEs effective approaches for combating against such underground money shops? Deng: During recent years we have come up with some effective methods for cracking down on underground money shops. For example, we established close collaboration with the public security organs to jointly combat the underground money shops and we have encouraged social forces to become involved. Since the beginning of 2010, we have discovered 13 large-scale money shops. Instead of combating the shops separately, we are now cracking down on them en masse. Rui: The last question: Are there any foreign investors who have different opinions about the intensified efforts for combating hot money? I mean, they may worry that these efforts may affect their investments? Is this a double-edged sword to a certain degree? Deng: A good question. It is true that we need to pay special attention to law-based administration when combating hot money. We should take effective measures to combat the illegal inflow of funds. Meanwhile, we need to ensure that the crackdown is carried out according to the law. It should not affect the legal operations of market entities. In a word, we need to achieve a trade-off between cracking down on hot money and implementing the reform of foreign exchange administration. Rui: Thank you so much. 2010-11-10/en/2010/1110/967.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 branches in Shenzhen, Dalian , Qingdao , Xiamen , and Ningbo ; and all designated Chinese-funded foreign exchange banks: In order to prevent financial risks caused by cross-border flows of capital, issues related to the strengthening of the administration of foreign exchange operations are hereby notified as follows: 1. Strengthen administration of the banks comprehensive positions in the settlement and sales of foreign exchange. Implement a minimum level of management of the banks balance of positions calculated on a cash basis based on the current management of the comprehensive position limits for foreign exchange settlement and sales. The lower limit of the position shall be the position of the day on a cash basisas presented in the Daily Statement of the Comprehensive Position of Foreign Exchange Settlement and Sales issued by each bank on November 8, 2010. 2. Tighten administration of online inspections of foreign exchange collections and settlement for exports. Abrogate the provision that In the event that the enterprise has an insufficient balance of foreign exchange receivables due to a delay in the transmission of data on exports, the banks may, on the strength of the letter of commitment submitted by the enterprise, settle or transfer the funds in the accounts to be verified.The banks shall, in light of the limits on the balance of foreign exchange receivables, settle or transfer the funds in the accounts to be verified. The proportion of foreign exchange collection from the processing of imported materials shall be uniformly reduced from 30 percent to 20 percent. In the event that the proportion of the actual collection of foreign exchange for customs declaration for a single batch of exported goods under trade for the processing of imported materials exceeds 20 percent, the banks shall handle the relevant business in accordance with the existing regulations on foreign exchange collection for the processing of imported materials with the proportion of exchange collected in excess of the prescribed limit. 3. Strengthen administration of the quotas on short-term external debts and the balance of external guarantees of financial institutions. In the event that banks conduct agency payments abroad for the business subsequent to the issuance of L/Cs to their customers and the total time limit of both payments exceeds 90 days, the amount under the agency payment abroad shall be incorporated into the quota control of the short-term external debt. The foreign exchange authorities shall monitor and provide early warnings about the circumstances, such as the banksborrowing of short-term external debt and the provision of external guarantees for financing in violation of the regulations, and shall impose tight restrictions on bank operations in excess of the quotas. 4. Strengthen administration of capital contributions by overseas investors of foreign-funded enterprises. In the event that the actual payer is inconsistent with the overseas investor of a foreign-funded enterprise, the foreign-funded enterprise shall submit a notarized certification of the proxy contribution when entrusting an accounting firm to consult the foreign exchange authorities for capital verification. 5. Strengthen examination of the authenticity of the settlement of funds repatriated as capital raised from overseas listings in accordance with the requirements for foreign exchange settlements for payments. The materials certifying authenticity shall be examined in accordance with the relevant regulations on foreign exchange administration for the settlement of capital funds in foreign exchange for foreign-funded enterprises. The foreign exchange settlement shall be conducted in compliance with the purposes specified in the prospectus; for any amount that exceeds the planned limit on fund raising or goes beyond the purposes stated in the prospectus, a board resolution concerning the purposes of the foreign exchange settlement shall be submitted. The foreign exchange that is to be settled and paid to the other party in the transaction shall not be settled and deposited in the Renminbi account of the enterprise. 6. Strengthen administration of overseas incorporations of companies with special purposes by domestic institutions and individuals, and impose penalties on enterprises and individuals operating in violation of the regulations. 7. Impose penalties on banks operating in violation of the regulations by complying strictly with the law. Banks shall strengthen verification and examination of the authenticity of transactions by their customers and the consistency of foreign exchange receipts and payments. For those bank operations in violation of the foreign exchange regulations that result in illegal inflows of funds, the foreign exchange authorities shall impose penalties in the form of fines, termination of relevant operations, circulation of notices of criticism, and so forth, and shall investigate the responsibilities of the senior management staff who are directly liable for the violations. This Circular shall come into effect as of the date of promulgation. All the branches and administrative departments of the SAFE shall, after receipt of this Circular, forward it as soon as possible to the central sub-branches, sub-branches, and banks within their jurisdictions. All Chinese-funded designated foreign exchange banks shall, after receipt of this Circular, forward it to their branches and sub-branches as soon as possible. If any problems arise in the implementation of this Circular, please report them to the SAFE in a timely manner. Tel.: 010-68402295, 68402450, 68402366 2010-11-09/en/2010/1109/966.html
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To bring into better play the vital role of the market in selecting the best market makers and to respond to the increasing varieties of trading products on the inter-bank foreign exchange market as well as the increasingly segmented market positioning of commercial banks, in August 2010 the State Administration of Foreign Exchange issued the Circular on the Printing and Distribution of Guidelines for Market Makers on the Inter-Bank Foreign Exchange Market (Hui Fa [2010] No.46), in which a trial market-making business was introduced into the inter-bank foreign exchange market, with more accessibility granted to non-market-makers to become involved in market-making competition. According to the Circular, a system for the grading of market makers was established, and the liquidity and trading efficiency of derivative markets, including the forward-swap market, were increased. The appraisal mechanism for selecting the superior market makers and eliminating the inferior market makers was perfected, and the initiative for market makers to participate in market making was enhanced. The Circular represents another important move on the part of the SAFE to speed up the development of the foreign exchange market as well as to gradually improve the market mechanism since the introduction of the market-maker system into the inter-bank foreign exchange market in January 2006. So far, by adhering to the principles of willingness and selecting the best, the SAFE has given the go-ahead to 26 spot market markers and 18 forward-swap market makers. Qualifications for a trial spot market marker and a trial forward-swap market maker were granted to 7 and 12 commercial banks respectively. For details thereof, please refer to the Namelist of Inter-bank Foreign Exchange Market Makers. FILE: Guidelines for Inter-bank Foreign Exchange Market Makers 2010-12-30/en/2010/1230/974.html
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With the rapid development of Chinas foreign-related economy and the increasing cross-border interactions by individuals, bank cards, as a safe and convenient mode of payment, have gained growing popularity for cross-border consumption. In order to improve the management of foreign currency bank cards and to familiarize the public with the relevant management policies, the State Administration of Foreign Exchange (SAFE) recently promulgated the Circular on Regulating the Administration of Foreign Currency Bank Cards (Huifa No.53 [2010], hereafter referred to as the Circular). The Circular will come into force as of November 1, 2010. According to the Circular, the four original laws and regulations on foreign exchange administration with regard to foreign exchange bank cards have been integrated into one set of laws. Meanwhile, the fundamental principle for the management of bank card-related foreign exchange businesses is specified in three respects: (1) insistence on the convertibility of the current account; both residents and non-residents are allowed to use their bank cards for cross-border consumption for tourism, services, etc; (2) the use of domestic bank cards outside of China shall be subject to the management rules of the merchant category codes; cash withdrawals outside of China shall be conducted within the prescribed amounts, and shall be handled by the card-issuing financial institutions or the bank card organizations in charge of the transfer; (3) the relevant authorities shall keep records on bank card transactions, monitor and track abnormal transactions efficiently, and investigate and deal with illegal acts and non-compliance with the regulations in a timely manner. With reference to the working practices in recent years, the Circular has made adjustments to the limit of withdrawals of RMB in cash at ATM by foreign cards within China, viz. each transaction shall not exceed RMB3000. The Circular will play an active role in enhancing the transparency of the laws and regulations on the administration of foreign exchange, enabling the public and the banks to better understand and carry out the relevant regulations on foreign exchange administration so as to facilitate the use of bank cards by the public for cross-border interactions. As a result, larger amounts of foreign-related transactions will be conducted within the bank system and greater transparency of the foreign-related economy will be achieved. 2010-10-11/en/2010/1011/955.html
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To deepen the reform of the foreign exchange administration system, boost the sustainable development of the foreign-related economy, and further promote the facilitation of trade, the SAFE recently promulgated the Circular on Issues Concerning Implementation of the Reform of the Verification and Writing-off System for Foreign Exchange Payments for Imports (hereinafter referred to as the Circular). It has been decided that the reform will be carried out as of December 1, 2010. The reform covers four areas: first, enterprises will no longer be subject to on-site verification procedures for the operation of routine business, greatly facilitating external payments for trade; second, the on-line verification procedures processed by the banks for foreign exchange payments by enterprises for imports have been lifted, lessening the burden on the banks and facilitating the routine business operations of the banks; third, the SAFE will make use of the directory for the administration of enterprises; the directory of enterprises that have a need for foreign exchange payments for imports will be shared nationwide, and foreign exchange remittances by enterprises in different regions will no longer be subject to recording in advance with the foreign exchange authorities; fourth, the SAFE will carry out off-site inspections, monitoring, and early warnings on enterprises via the Verification System for the Collection and Payment of Foreign Exchange under Trade, implement on-site verification of abnormal trading entities, identify the categories for the classified evaluation of enterprises, and implement classified administration. The reform of the verification and writing-off system for foreign exchange payments for imports represents a fundamental change to the current model of verification administration, and a constructive innovation in the foreign exchange administration system and trade mechanism. Implementation will: first, promote conceptual and practical innovation in foreign exchange administration, thereby realizing the transformation from case-by-case verification to aggregate verification, from on-site verification to off-site verification, and from behavioral supervision to subject supervision; second, lubricate the process of trade, streamline the procedures for foreign exchange payments for imports, reduce costs for enterprises, facilitate enterprise operations, and promote the smooth implementation of business activities by legitimate enterprises; third, play a positive role in guarding against risks; when there are any changes in the foreign exchange circumstances or any misbehavior by the trading entities, the foreign exchange authorities will be able to take effective measures to enhance on-site inspections of Class-B and Class-C enterprises, carry out strict measures for classified supervision, and impose penalties on enterprises that do not comply. 2010-10-27/en/2010/1027/961.html
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In order to improve administration of the bankssynthetic positions in foreign exchange settlement and sales and to facilitate the conduct of the relevant business by banks, the State Administration of Foreign Exchange (SAFE) recently promulgated the Circular on Relevant Issues concerning the Administration of the BanksSynthetic Positions in Foreign Exchange Settlement and Sales (Huifa No. 56 [2010]) (hereinafter referred to as the Circular). The circular shall come into force as of the date of promulgation. This Circular collates and integrates the 7 normative documents pertaining to the administration of bankssynthetic positions in foreign exchange settlement and saleshereinafter referred to as the positions . In the Circular, the principles for the administration of the positions are defined, including unified ratification of legal persons, limited management, management on an accrual basis, examination and regulation on a daily basis, and regular reconciliation against the accounting subjects; specific management requirements for the positions have also been further clarified concerning the position application, adjustment, and ratification, as well as the submission of the relevant data on the positions; moreover, the management requirements have been integrated with regard to application of balance controls in the special RMB accounts for foreign exchange settlement and sales to foreign-funded banks which have not opened RMB business, and in the centralized management of the positions of the branches of foreign banks. As of the date of issuance, the limits of the banks existing position remain unchanged. The Circular will play an active role in improving the transparency of laws and regulations on the administration of foreign exchange and simplifying management processes, thus enabling banks to better understand and implement the relevant regulations. As a result, the foreign exchange settlement and sales business and the relevant business activities will be carried out in an orderly manner. 2010-10-20/en/2010/1020/958.html
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To effectively control the cross-border flow of funds, to crack down on the inflow of hot moneyin violation of the relevant regulations, and to maintain the security of the foreign-related economy and finance, the State Administration of Foreign Exchange (SAFE) recently promulgated the Circular on Relevant Issues Concerning Strengthening the Administration of Foreign Exchange Operations (Hui Fa [2010] No. 59) (hereinafter referred to as the Circular). The Circular deals with seven issues: (i) strengthening administration of the banks comprehensive positions in the settlement and sales of foreign exchange, and implementing a minimum level of management of the banks balance of positions calculated on a cash basis; (ii) making adjustments to the policies on the administration of online inspections of foreign exchange collections and settlement for exports, reducing the proportion of foreign exchange collection from the processing of imported materials for the online inspections of foreign exchange collections and settlement for export, and strictly handling the procedures for the settlement or transfer of foreign exchange funds in accounts to be verified; (iii) strengthening administration of the quotas on the short-term external debts and the balance of external guarantees of financial institutions, and imposing tight restrictions on banks operations in excess of the quotas; (iv) strengthening administration of capital contributions by foreign-funded enterprises in overseas countries and regions, and further clarifying the requirements for the examination and verification of foreign exchange under circumstances when the actual payer is inconsistent with the overseas investor; (v) strengthening examination of the authenticity of the settlement of funds which are repatriated as capital raised from overseas listings in accordance with the requirements for tightening foreign exchange settlement for payments; (vi) regularizing administration of overseas incorporation of companies with special purposes by domestic institutions and individuals, and imposing penalties on enterprises and individuals operating in violation of the regulations in accordance with the law; (vii) increasing penalties on banks operating in violation of the regulations in the form of imposing fines, terminating relevant operations, circulating notices of criticism, and so forth, and investigating the responsibilities of the senior management staff who are directly liable for the violations. The promulgation of the Circular will further regularize cross-border flows of funds through such channels as trade, foreign direct investment, round-tripping investment, overseas listings, and so on, particularly administration of the bankscomprehensive positions for foreign exchange settlement and sales and short-term external debts. Promulgation of the Circular will strengthen the banks obligation to carry out examinations of authenticity in the handling of foreign exchange business, which will be conducive to further cracking down on the inflow and settlement of foreign exchange funds in violation of the laws and regulations, preventing financial risks caused by cross-border inflows of hot money,and thereby promoting the healthy and orderly development of Chinas economy and finance. 2010-11-09/en/2010/1109/965.html
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A symposium of branch directors of the State Administration of Foreign Exchange (SAFE) was recently held in Shenyang, Liaoning province. The symposium discussed foreign exchange administration work since the beginning of 2009, analyzed the current foreign exchange situation, and studied and planned the next stage of foreign exchange administration work. Yi Gang, administrator of the SAFE, and Deng Xianhong, deputy administrator of the SAFE, each delivered speeches at the symposium. The symposium pointed out that since the beginning of this year, under the firm leadership of the Central Committee of the CPC and the State Council and the direct guidance of the Party Committee of the Peoples Bank of China, the foreign exchange administration departments have been earnestly carrying out and putting into practice the scientific outlook on development, and have made new achievements with consolidated conviction and concerted effort, which have played an active role in coping with the global financial crisis and promoting the steady and rapid development of the national economy. First, normal foreign trade activities of enterprises have been further facilitated so as to mitigate the difficulties of export enterprises. The SAFE has earnestly put into practice the policy measures of the State Council on promoting economic development with financial levers and stabilizing external demand, improved on-line inspection and management for the collection and settlement of foreign exchange for exports, and has taken measures to encourage banks to carry out trade financing. These measures are conducive to accelerating foreign exchange collection and settlement for exports and capital turnovers as well as for stabilizing the foreign trade activities of enterprises. Second, energetic support has been given to the go-global strategy and trade facilitation has been promoted. The SAFE issued the Circular on Related Issues Regarding Foreign Exchange Administration of Overseas Loans Granted by Domestic Enterprises and the Regulations on Foreign Exchange Administration of Overseas Direct Investment of Domestic Institutions, which further expanded the scope of lenders and sources of funds for overseas loans, streamlined the ratification and exchange procedures for overseas loans, and improved the relevant statistical monitoring and risk prevention mechanism. The examination and verification measures of foreign exchange fund sources for overseas direct investment have been altered from ex ante examination to ex post registration. The administration system for outward remittances of funds has been adjusted from a ratification system to a registration system. Currently, the overseas direct investment of domestic institutions is basically free from exchange procedure restrictions, which, to a great extent, has further facilitated the relevant procedures. Third, the statistics and monitoring of the balance of payments have been improved, and balanced administration and risk prevention of cross-border fund flows have been strengthened. The SAFE improved the foreign exchange administration and monitoring system for direct investment, revised the measures for the statistics of foreign exchange assets and liabilities of Chinese-funded financial institutions, standardized the opening, use, and other activities of domestic foreign exchange accounts of overseas institutions, and improved the supervision of cross-border fund flows. The SAFE also improved the working mechanism of the Global Financial Crisis Response Team, completed the appraisal of commercial banksimplementation of the foreign exchange administration regulations, and revised and issued the Measures for Appraisal of Banks Implementation of Foreign Exchange Administration Regulations. Fourth, construction of the foreign exchange market has been promoted and efforts by enterprises to avoid exchange rate risks have been supported. Since the beginning of this year, the SAFE has approved three currency brokerage companies to enter the foreign exchange brokerage business, three financial companies to have access to the inter-bank foreign exchange market, and seven finance companies of enterprise groups to engage in spot settlement and sales of foreign exchange, in order to activate transactions on the foreign exchange market and facilitate the use of foreign exchange by transnational enterprise groups. The SAFE actively carried out the netting clearing business of inquiry trading on the inter-bank foreign exchange market in order to lower market operation risks and to increase market activity. Fifth, administrative procedures for the examination and approval of foreign exchange business have been improved, and efforts to adjust the foreign exchange regulations have been strengthened. The SAFE delegated the examination and approval authority for ten foreign exchange businesses under the capital account from the headquarters to its branches so as to facilitate the handling of the business by enterprises. Efforts were strengthened to straighten out the existing foreign exchange administration regulations; 91 regulatory documents on foreign exchange administration were declared null and void, thus facilitating the efforts of enterprises and banks to grasp the relevant foreign exchange administration regulations. Sixth, foreign exchange fund flows in breach of the regulations have been actively investigated and punished so as to maintain good order on the foreign exchange market. The SAFE successively organized and implemented special examinations and investigations of foreign exchange business, and made concerted supervisory efforts in various departments to further improve the supervision of abnormal foreign exchange fund flows. The SAFE continued to carry forward the spirit of revitalizing business with integrity and credibility, to do a good job for the disclosure of illegal information about foreign exchange transactions, and to make major efforts by harshly cracking down on illegal acts and acts in breach of the regulations. Seventh, the safety of foreign exchange reserve assets has been guaranteed, and the operation and management of foreign exchange reserves have been improved. The SAFE persisted in prioritizing risk prevention, conducted deep analysis of market changes and economic trends, earnestly summarized the experiences and lessons in coping with the international financial crisis, and actively explored operation and management systems and mechanisms that are suited for implementation in China. Eighth, education on building clean government and construction of an internal control system have been strengthened. The campaign of the Caution and Education Month for Building Clean Government was carried out in the headquarters of the SAFE in April, and the year of 2009 has been designated as the Year of Standardized Administrative Enforcement of the SAFE. Vigorous efforts have been made to improve the internal management system. For key departments, businesses, and procedures involving administrative approval, self-examination activities have been conducted in line with the requirements of the Administrative Licensing Law and other relevant provisions. The functions of various positions in the administrative enforcement departments have been examined in an all-round manner, the enforcement procedures have been standardized, and an appraisal and assessment mechanism and responsibility investigation mechanism for administrative enforcement have been established. It was agreed at the symposium that Chinas economy has entered a critical period of stabilizing and recovery. Generally, the nations foreign exchange collection and payments on the whole so far this year have been stable, with a certain amount of net inflows and no massive outflows of capital. In the upcoming period, the balance of payments and foreign exchange collection and payments will still confront relatively great uncertainty and complexity. In this regard, the foreign exchange administration will continue to adhere to the policy orientation of preventing massive outflows of funds and warding off the sudden inflow of funds. Meanwhile, under the guidance of the scientific outlook on development, the various plans of the CPC Central Committee and the State Council shall be resolutely implemented. Continued efforts will be made to emancipate the mind, actively upgrade the concepts of foreign exchange administration, further strengthen service-oriented awareness in foreign exchange administration, and incorporate cost control and market-oriented awareness into foreign exchange administration, in order to constantly improve social transparency, service quality, and the management level of foreign exchange administration, to maintain the security of the national economy and finance, and to promote the sound and rapid development of the national economy. Priority will be given to the following areas: First, so as to facilitate foreign exchange collection and payments of various market entities, efforts will be made to further enhance service-oriented awareness in foreign exchange administration. The SAFE will step up the reform of the writing-off and verification system for exchange collection and payments for imports and exports, improve foreign exchange administration for trade in services, streamline procedures for submitting tax certificates for external payments in foreign exchange for trade in services, conduct research on the formulation of measures for the administration of overseas deposits of foreign exchange collections from exports, steadily promote product innovation on the foreign exchange market, and provide enterprises with more risk prevention instruments. Second, priority will continue to be placed on broadening capital outflow channels, and the reform of capital account administration will be steadily pushed forward. Research will be carried out on expanding the scope of centralized domestic operations of foreign exchange funds of enterprise groups so as to further facilitate the efforts of enterprise groups to raise the efficiency of fund use. The regulations on foreign exchange administration of QFII and DFII will be improved in order to provide domestic residents with more channels for investment. The SAFE will also team up with relevant departments to promote the development of the domestic capital market. Third, intensified efforts will be made for system integration, and the statistical monitoring system for cross-border funds will be improved. The SAFE will make major efforts to develop the foreign exchange account system and will continue to study the integration of data and the system in order to provide better services for cross-border fund flows and statistical monitoring and analysis of the balance of payments. Efforts will be made to perfect the statistical and declaration system of the balance of payments, improve the statistics of overseas assets, liabilities, profits, and losses of financial institutions, enhance the timeliness and transparency of statistics of the balance of payments, study the establishment and perfection of the statistical monitoring system for external claims and liabilities, and improve the system functions such as trade credit registration, direct investment, etc. Fourth, balanced management of cross-border funds will be strengthened, and the contingency mechanism for the balance of payments will be further improved. Efforts will be made to investigate the building of an overall claims and liabilities management system, to persist in and perfect the assessment system for the implementation of foreign exchange administration policies by banks, to consolidate the effects of such assessment, to reinforce the construction of an early warning risk system for the balance of payments, and to improve the multi-level dual-direction early warning framework for risks in the balance of payments. Intensified efforts will be made to investigate major and significant cases and to struggle against illegal acts or acts in breach of the regulations, such as the operation of underground money shops and network speculation in foreign exchange. Special inspections and investigations will be carried out to facilitate the operations of enterprises involved in exchange transactions in compliance with the relevant regulations. Fifth, efforts will be made to further improve the operation and administration of foreign exchange reserves. The SAFE will continue to improve the operation and management mechanism for foreign exchange reserves to meet the specific requirements of the Chinese economy, further intensify studies on the operation and development patterns of economic cycles and the financial market, and improve the long-term profitability of reserve assets based on maintaining asset security and liquidity. Sixth, efforts will be made to further increase the transparency of foreign exchange administration and promote the construction of the foreign exchange administration regulation system. Intensified efforts will be made to straighten out the regulations for a better understanding of the foreign exchange administration policies and regulations by market entities. Efforts will also be made to strengthen communications between the SAFE, the general public, and the relevant departments in order to create a sound external environment for foreign exchange administration. Seventh, the construction of clean government and of an internal management system will be further strengthened. Efforts will be made to strengthen supervision of leading cadres and to incorporate the building of clean government into the comprehensive responsibility target management of Party organizations and the administrative leadership teams at various levels. Party members and leading cadres at various levels should earnestly carry out the principle of dual responsibilities for one post, strengthen construction of the internal management system, and intensify training for cadres and education on the building of clean government. At the symposium it was required that the foreign exchange administrations at various levels shall thoroughly implement the scientific outlook on development under the guidance of Deng Xiaoping Theory and the important thought of the Three Represents, shall consolidate conviction, work steadfastly, and make great endeavors to achieve all the annual targets, so as to make greater contributions to the steady and rapid development of the national economy and to greet the 60th anniversary of the founding of New China with practical work and outstanding achievements. Participants at the symposium included the leaders, chief economists, chief accountants, chief leaders of all departments, the Party Committee, and all institutions of the SAFE, as well as the general deputy directors (deputy directors) responsible for foreign exchange work in all branches of the foreign exchange administrative departments. 2009-09-23/en/2009/0923/900.html