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At the end of 2007, China 's outstanding external debt (excluding that of Hong Kong SAR, Macao SAR, and Taiwan Province ) reached USD 373.618 billion, an increase of USD 50.63 billion or 15.68% compared with that at the end of 2006. Specifically, the outstanding long- and medium-term external debt (with the remaining term) reached USD 153.534 billion, an increase of USD 14.174 billion or 10.17% compared with that at the end of 2006, accounting for 41.09% of the total outstanding external debt. The outstanding short-term external debt totaled USD 220.084 billion, an increase of USD 36.456 billion or 19.85% compared with that at the end of 2006, accounting for 58.91% of the total outstanding external debt. In terms of China 's total outstanding external debt, the outstanding registered external debt reached USD240.518 billion and the balance of trade credit was USD 133.1 billion. In terms of the outstanding registered external debt, the outstanding sovereign debt borrowed by ministries under the State Council was USD 34.886 billion, accounting for 14.51%; the outstanding debt of Chinese-funded financial institutions was USD 80.317 billion, accounting for 33.39%; the outstanding debt of foreign-funded enterprises was USD 74.004 billion, accounting for 30.77%; the outstanding debt of foreign-funded financial institutions in China was USD 46.307 billion, accounting for 19.25%; the outstanding debt of Chinese-funded enterprises was USD 4.685 billion, accounting for 1.95%; and the outstanding debt of other institutions was USD 319 million, accounting for 0.13%. The amount of registered long- and medium-term external borrowing in 2007 was USD 36.016 billion, an increase of USD 9.983 billion or 38.35% over that in the previous year. The principal repayment under the long- and medium-term debt was USD 20.267 billion, an increase of USD 2.368 billion or 13.23% over that in the previous year. The interest payment was USD 4.958 billion, an increase of USD 1.853 billion or 59.68% over that in the previous year. Initial calculations reveal that the debt service ratio in 2007 was 1.98%, the ratio of outstanding external debts to foreign exchange income was 27.84%, the ratio of outstanding external debts to GDP was 11.52%, and the ratio of short-term external debts to foreign exchange reserves was 14.40%. All of these indexes are within the safe range of international standards. 2008-04-09/en/2008/0409/865.html
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September 29, 2007 -- At the end of June 2007, China 's outstanding external debt (excluding that of Hong Kong SAR, Macao SAR, and Taiwan Province , the same as below) reached USD327.802 billion, an increase of USD 4.814 billion or 1.49% compared with that at the end of 2006. Specifically, the outstanding long- and medium-term external debt (with the remaining term) reached USD 142.933 billion, an increase of USD 3.573 billion or 2.56% compared with that at the end of 2006, accounting for 43.60% of the total outstanding external debt; the outstanding short-term external debt (with the remaining term) totaled USD 184.869 billion, an increase of USD 1.241 billion or 0.7% compared with that at the end of 2006, accounting for 56.40% of the total outstanding external debt. Among China 's total outstanding external debt, the outstanding registered external debt reached USD 216.702 billion and the balance of trade credit was USD 111.1 billion. Among the outstanding registered external debt, the outstanding sovereign debt borrowed by ministries under the State Council was USD 34.608 billion, accounting for 15.97%; the outstanding debt of Chinese-funded financial institutions was USD 70.648 billion, accounting for 32.60%; the outstanding debt of foreign-funded enterprises was USD 64.036 billion, accounting for 29.55%; the outstanding debt of foreign-funded financial institutions in China was USD 43.843 billion, accounting for 20.23%; the outstanding debt of Chinese-funded enterprises was USD 3.282 billion, accounting for 1.52%; and the outstanding debt of other institutions was USD 285 million, accounting for 0.13%. From January to June 2007, long- and medium-term external borrowing was USD 15.369 billion, an increase of USD 5.492 billion or 55.60% over the previous year. The principal repayment was USD 11.005 billion, an increase of USD 2.653 billion or 31.76% over the previous year. The interest payment was USD1.740 billion, an increase of USD 622 million or 55.64% over the previous year. In the first half year of 2007, the growth rate of Chinas external debt slowed down, and the outstanding registered external debt witnessed negative growth for the first time in the past five years, with the short-term registered external debt dropping greatly and the share of the short-term external debt declining for the first time. 2007-09-29/en/2007/0929/856.html
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At the end of September 2007, China 's outstanding external debt (excluding that of Hong Kong SAR, Macao SAR, and Taiwan Province ) reached USD345.705 billion, an increase of USD 22.717 billion or 7.03% compared with that at the end of 2006. Specifically, the outstanding long- and medium-term external debt (with the remaining term) reached USD 148.047 billion, an increase of USD 8.687 billion or 6.23% compared with that at the end of 2006, accounting for 42.82% of the total outstanding external debt; the outstanding short-term external debt (with the remaining term) totaled USD 197.658 billion, an increase of USD 14.03 billion or 7.64% compared with that at the end of 2006, accounting for 57.18% of the total outstanding external debt. Of China 's total outstanding external debt, the outstanding registered external debt reached USD 226.005 billion and the balance of trade credit was USD 119.7 billion. Of the outstanding registered external debt, the outstanding sovereign debt borrowed by ministries and commissions of the State Council was USD 34.612 billion, accounting for 15.31%; the outstanding debt of Chinese-funded financial institutions was USD 73.175 billion, accounting for 32.38%; the outstanding debt of foreign-funded enterprises was USD 67.616 billion, accounting for 29.92%; the outstanding debt of foreign-funded financial institutions in China was USD 45.576 billion, accounting for 20.17%; the outstanding debt of Chinese-funded enterprises was USD 4.737 billion, accounting for 2.09%; and the outstanding debt of other institutions was USD 289 million, accounting for 0.13%. From January to September 2007, the long- and medium-term external debt was USD 25.472 billion, an increase of USD 7.65 billion or 42.92% over that in the previous year. The principal repayment under the long- and medium-term external debt was USD 14.761 billion, an increase of USD 2.287 billion or 18.33% over that in the previous year. The interest payment was USD 2.666 billion, an increase of USD 817 million or 44.19% over that in the previous year. 2007-12-29/en/2007/1229/863.html
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China 's international investment position of 2005 issued for the first time. 2006-05-25/en/2006/0525/787.html
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Data of China 's external debts at the end of September, 2006 released 2006-12-28/en/2006/1228/818.html
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China 's external debts at the end of March, 2006 2006-06-27/en/2006/0627/791.html
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China 's balance of payments in 2005 released 2006-04-28/en/2006/0428/783.html
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[Wang Yungui]: Good afternoon, friends from the press. Welcome to the Policy Press Conference of the State Administration of Foreign Exchange (SAFE) for March 2016. I am Wang Yungui, director of the General Affairs Department. Today we have with us Wang Chunying, deputy director of the Department of Balance of Payments, Du Peng, director of the Current Account Management Department, Guo Song, director of the Capital Account Management Department, and Zhang Shenghui, director of the Management and Inspection Department. [15:18] [Wang Yungui]: On behalf of the SAFE, I would first like to unveil the latest foreign exchange situations and policies of the foreign exchange administration. [15:18] [Wang Yungui]: Since the beginning of 2016, the SAFE, following the work plans of the CPC Central Committee and the State Council, has focused foreign exchange administration on maintaining the equilibrium of the balance of payments, pushed the foreign exchange administration reform, enhanced monitoring, analysis and assessment of cross-border capital flows, highlighted the requirements on the authenticity and compliance of foreign exchange business, and cracked down on irregularities such as underground banks, in a bid to create a favorable foreign exchange environment for economic development. [15:21] [Wang Yungui] The pressure on China from cross-border capital outflows has been remarkably relieved. First, foreign exchange reserves drops have slowed down. The balance of foreign exchange reserves fell by USD 107.9 billion, USD 99.5 billion and USD 28.6 billion as of December 2015, January and February 2016 respectively. In particular, the foreign exchange reserves hit USD 3.2023 trillion in February, down by a margin that was 71% less on a month-on-month basis. Second, the deficit in foreign exchange settlements and sales has contracted. The non-banking sectors, companies or individuals, registered a deficit of USD 88.1 billion, USD 69.4 billion and USD 35 billion in December 2015, January and February 2016 respectively. In particular, the deficit for February was down by 50% month on month, and the daily average deficit in settlements and sales of foreign exchange has continued to drop since the beginning of March. Third, net cross-border capital outflows have been dropping. The non-banking sectors registered net cross-border capital outflows of USD 72.5 billion, USD 55.8 billion and USD 30.5 billion, and net foreign exchange outflows of USD 40.1 billion, USD 20.1 billion and USD 10.5 billion in December 2015, January and February 2016 respectively. The net cross-border capital outflows for February slumped by 45% month on month and the net foreign exchange outflows for the same month plunged by 48% month on month. The daily average net outflows of cross-border capital have continued to drop since the beginning of March. Fourth, the RMB exchange rate is being stabilized. Since the beginning of 2016, the CNY and the CNH exchange rates against the US dollar have been weakened and then strengthened, slightly dropping in January and stabilized since February, the spread between the CNY and the CNH has contracted, and the RMB nominal effective exchange rate has been stabilized. [15:30] [Wang Yungui] While being committed to monitoring, analyzing and assessing cross-border capital flows, the SAFE has pushed the foreign exchange administration reform with the following measures: [15:32] [Wang Yungui] I. Reforming the foreign exchange administration system for QFIIs [15:32] [Wang Yungui] In February 2016, the SAFE published the Regulations on Foreign Exchange Administration for Domestic Securities Investments by QFII to reform the foreign exchange administration system for QFIIs and further liberalize domestic capital markets. The highlights of the Regulations include: first, easing the upper limit on the investment quota of a single QFII. The SAFE will no longer define a unified upper limit on the investment quota of a single institution and assign an investment quota (basic quota) to the institution in proportion to the size of its assets or assets under management (AUM). Second, simplifying quota approval management. A QFII's application for an investment quota that is within the basic quota will be subject to filing management, while the application for an investment quota that goes beyond the basic quota will be subject to SAFE approval. Third, further facilitating inward and outward remittances of funds. No requirements will be imposed on the deadline for the inward remittance of investment principal by a QFII. QFIIs will be allowed to subscribe and redeem open-end funds on a daily basis. Fourth, the lock-up period will be shortened from one year to three months, but the requirement that funds should be remitted out in batches and installments will remain unchanged, with the monthly total of outward remittance by a QFII no more than 20% of its domestic assets. Overall, the foreign exchange administration reform for QFIIs is centered on further simplifying quota management and facilitating exchange. [15:34] [Wang Yungui] II. Rolling out the pilot program of macro-prudential management of full-scale cross-border financing [15:34] [Wang Yungui] To further push the pilot program of macro-prudential management of full-scale cross-border financing for integrated management of domestic and foreign currencies, the SAFE published in January 2016 with the People's Bank of China the Circular of the People's Bank of China on Rolling out the Pilot Program of Macro-prudential Management of Full-scale Cross-border Financing (Yinfa No. 18 [2016]). This policy introduces the restraint mechanism on cross-border financing based on capital and net assets at the micro level under the macro-prudential principle, which allows pilot companies and 27 pilot banks to independently conduct cross-border financing in domestic and foreign currencies in compliance with regulations. By summarizing the experiences gained from the preliminary piloting of macro-prudential management of external debt and relying on the existing capital account information system and extensive management experience, the SAFE has cooperated with the People's Bank of China in studying and exploring the macro-prudential management framework for full-scale external debt and improved the operation particulars to ensure the implementation of the external debt macro-prudential policy. [15:35] [Wang Yungui] III. Pushing the liberalization of inter-bank bond markets [15:35] [Wang Yungui] In February 2016, in a bid to further push the opening of inter-bank bond markets and facilitate investments in inter-bank bond markets by QFIIs in compliance with laws and regulations, the People's Bank of China published the No. 3 Announcement of 2016, intended to further liberalize China's inter-bank bond markets, encourage foreign investors to invest in the markets as mid and long-term investors, and conduct macro-prudential management of investing activities of foreign institutional investors. Next, the SAFE will introduce detailed rules on foreign exchange administration with respect to investments in China's inter-bank bond markets by foreign institutional investors. [15:35] [Wang Yungui] IV. Pushing Mutual Fund Connect in a good order [15:36] [Wang Yungui]: In November 2015, the People's Bank of China and the SAFE jointly issued the Operating Guidance on the Management of Cross-border Issuance and Sales of Funds by Mainland and Hong Kong Securities Investment Funds, clarifying the quota management rules and relevant operations of the Mutual Fund Connect scheme and marking the official launch of the Mutual Fund Connect scheme. The Mutual Fund Connect opens new channels for mainland and HK investors to invest in securities markets, marking a breakthrough in the capital account convertibility. The policy has been implemented in a smooth and orderly manner, with the funds applied for mutual recognition recognized by each other's securities regulatory commission and issued and sold in mainland and HK. As at the end of January 2016, the cumulated net inward remittance from the issuance and sales of Mainland funds in Hong Kong amounted to RMB 21.5433 million, and the cumulated net outward remittance for the issuance and sales of HK funds in the Mainland, RMB 40.1767 million. [15:49] [Wang Yungui]: V. Cracking down on activities in violation of foreign exchange laws and regulations [15:49] [Wang Yungui] In 2015, the SAFE, while optimizing foreign exchange administration services, required banks to enhance authenticity reviews in compliance with existing regulations, by focusing on the main channels of unusual cross-border capital flows and conducting special inspections of banks, financial leasing companies and rubber companies, and intensifying the crackdown on foreign exchange irregularities such as fabricated trading and underground banks. The SAFE cracked more than 2,000 cases arising from foreign exchange irregularities and collected an administrative penalty of more than RMB 400 million in the year. Since the beginning of 2016, the SAFE has continued intensifying off-site inspections and analysis and on-site inspections of the channels for irregular capital flows and unusual leads, conducted special inspections of foreign exchange business under outflows, and cracked down on foreign exchange irregularities to safeguard a normal order in foreign exchange markets. [15:50] [Wang Yungui] VI. Launching the individual foreign exchange monitoring system [15:50] [Wang Yungui] The SAFE officially launched the individual foreign exchange monitoring system on January 1, 2016. Unlike the previous system, the new system does not require manual input, effectively avoiding secondary input of bank information and saving time for banks and individuals with respect to foreign exchange business. The new system requires the data on individuals' foreign exchange receipts and payments, and their deposits and withdrawals of banknotes, in addition to the data on individuals' settlements and sales of foreign exchange as required in the previous system, realizing the full coverage of the data on individuals' foreign exchange. Moreover, the SAFE uses the system to refine watch list management for nationwide sharing. The new system has run smoothly over the past two months of piloting, ensuring the smooth and orderly processing of individual foreign exchange business. [15:50] [Wang Yungui] VII. Improving management of domestic institutions' receipts and payments of foreign currency banknotes [15:51] [Wang Yungui] To satisfy the development needs of the foreign-currency banknotes business in China, the Measures for Managing Domestic Institutions' Receipts and Payments of Foreign-Currency Banknotes introduced by the SAFE has been implemented starting from February 2016. The highlights of the Measures are as follows: first, adjusting the way of managing the receipts and payments of foreign-currency banknotes to base the management on risk level and utilization frequency. Second, specifying the requirements on banks' reviews for the foreign-currency banknote receipts and payments business. Banks should review the authenticity, legality and necessity of the receipts and payments of foreign-currency banknotes under the three business principles. Third, improving relevant foreign exchange regulations. The SAFE has enhanced data collection and analysis, and intensified ex-post regulation and investigation, further standardizing the management of domestic institutions' receipts and payments of foreign currency banknotes. [15:51] [Wang Yungui] Overall, the measures for the foreign exchange administration reform have been in effect and played significant roles in satisfying normal demand of individuals and companies for foreign exchange, facilitating cross-border investment and financing by market players, and guarding against risks arising from cross-border capital flows. [15:51] [Wang Yungui] Now I will take your questions, with one from each reporter since time is running short. Please tell us your organization before asking your question. Let's get started. [15:52] [CBN Daily] I am wondering whether China's policy tool kit is sufficient to cope with the changes since most policies on foreign exchange administration were for capital inflows before 2014. What are the tools we have now? What policies are being researched into, such as Tobin tax? Are there any guiding philosophies for market expectations management with reference to the lessons from last year? [16:04] [Wang Yungui] Let me answer you in brief. Before 2014, China had been under pressure from net inflows for about a decade, and China's foreign exchange reserves had been rising for many consecutive years. Under such circumstances, we developed many tools, which helped us effectively relieve the pressure on foreign exchange administration and macroeconomic policies from heavy cross-border capital inflows. Since 2014, most emerging market economies have been under the pressure from capital outflows along with interest rate hikes in the US and the changing global financial markets. China is no exception. But we believe the existing foreign exchange administration tool kit is sufficient to relieve the pressure from capital outflows, as having been proved since the second half of last year. This tool kit contains many types of tools. For example, we still highlight authenticity and compliance in the management of existing and opened items under the current account. We require banks to intensify authenticity and compliance reviews of transactions under the current account including trade in goods and trade in services, which has produced positive results. We have spotted foreign capital involved in structuring of trade or fabricated trading through verifications and inspections and solved some cases. This tool has been proved effective. For items that are not liberalized under the capital account, we may adopt trace management. For direct investment that is basically convertible, including FDI and ODI, we require players to register to leave traces when handling transactions with banks, and then track these traces through big data analytics, assessing, analyzing, verifying and investigating relevant institutions, or even inspecting them. These trace tools are effective too. For some liberalized QFII and QDII businesses, we are committed to joint approval and regulation with relevant departments, which have produced positive results. The qualified institutional investor system including QDII is favorable for the two-way opening of capital markets, with foreign capital investing in China's securities, foreign exchange and bonds markets and Chinese players investing in foreign capital markets, and has been proved fruitful. Therefore, we consider this tool kit is effective with aggregate risk within control and the micro-economy being buoyant. Next, we will research and develop more tools, including Tobin tax as mentioned by the reporter. We are also studying other international experiences, like financial transaction tax in Latin American countries. The policy on the URR for forward sales of foreign exchange introduced by the People's Bank of China last year, we believe, is a good instrument. We will continue to study relevant policy measures such as macro-prudential management of external debt, which is also part of the tool kit. In a word, we believe our policy tool kit works, with measures effectively implemented based on active cooperation from banks. [16:11] [Financial News] Could you brief us on the SAFE's monitoring of cross-border capital of late? Thank you. [16:47] [Wang Chunying] We have been closely monitoring relevant data and observe and analyze various data every day. Mr. Director has unveiled recent situation just now, and given the data for last December, this January and February, or even this month, the pressure from foreign exchange outflows has been significantly relieved. For example, foreign exchange reserves have dropped more slowly, and the deficits in settlements and sales of foreign exchange and cross-border receipts and payments have been falling. The daily average estimations by working or trading day show that the outflow pressure was gradually eased in January and February, after adjustment of the Chinese New Year holiday. As of March 18, the daily average deficit in settlements and sales of foreign exchange has dropped by 9% from February, the daily average net outflow of cross-border capital has been 30% lower than that of February, and the daily average net outflow of foreign exchange has gone down by 79% from February, with even net inflows in some days. The RMB exchange rate has stayed stable. The RMB nominal effective exchange rates against CFETS, BIS and SDR baskets of currencies, compiled by China Foreign Exchange Trading System & National Interbank Funding Center (CFETS) yesterday, were down slightly by 2.8%, 2.5% and 1.5% respectively from the end of 2015. Market players are adjusting their assets and liabilities in domestic and foreign currencies in a smoother way. On the one hand, people's pace to hold foreign exchange was slowing down, with the balance of foreign exchange deposits for February rising by USD 8.3 billion, which was USD 11.3 billion less than that of January. On the other hand, companies' pace to service debt was slowing down too. For example, the balance of cross-border financing for imports for February dropped by USD 2.5 billion, which was USD 7.2 billion lower than that of January. [16:47] [Wang Chunying] This is the result of the changing domestic and overseas environments. First, financial markets are being stabilized after fluctuations. Our observations show that the US Dollar Index has sustained narrow fluctuations since it slumped in January, and the VIX that reflects the fluctuations of market aversion has fallen since peaking in mid-February, leading to narrower fluctuations in international markets. Second, the RMB exchange rate remains stable. Despite recent large appreciation, the margins of appreciation and depreciation have been stable these days. Third, no supplementary adjustments have been made to the policies for foreign exchange administration, except highlighting the requirements on the authenticity and compliance of foreign exchange transactions and curbing speculations, which has stabilized market sentiment. [16:47] [Wang Chunying] Cross-border capital flows are expected to stay stable in the near future. The SAFE released the data on settlements and sales of foreign exchange and cross-border capital flows for February at its website on March 16, together with Q&As and a brief introduction. Specifically, trade surplus and actual utilization of foreign capital will remain large. The external debt of companies will be more stable after more than one year's deleveraging. Globally, market expectations of the Fed's interest rate hikes will drop significantly soon. The Fed's adjustment of its monetary policy, if meeting market expectations, will be favorable for stabilizing global financial markets and capital flows. Domestically, China's GDP growth target for this year is 6.5%-7%, which is high at the global level, indicating the fundamentals for attracting inflows of foreign capital remain unchanged. We also have discussed with domestic and overseas experts and scholars the pressure from capital outflows. A prestigious scholar once asked us where we thought we should invest to obtain a stable return of up to 7%. [16:47] [Economic Information Daily] As you have said just now and we pushed on our official microblog in March, the SAFE has raised higher requirements on authenticity reviews by banks starting from 2015. I am wondering whether such reviews will impact companies' imports and exports. Thank you. [17:03] [Du Peng] Promoting trade facilitation to serve the real economy has always been the SAFE's top priority. We carried out the reform of the foreign exchange administration system for trade in goods in 2012. During the reform, we streamlined administration and delegated powers, canceled transaction-by-transaction verifications of imports and exports and adopted classified management of companies by rewarding the excellent and restricting the poor. As at the end of 2015, there were 655,000 companies on the List of Enterprises with Receipts and Payments of Foreign Exchange under Trade, including 5,216 class-B and C enterprises, less than 1% of the total, which indicates that the majority of the enterprises are law-abiding and entitled to policy facilitation, except a minority or less than 1% of the enterprises are subject to restrictions and stringent management. This approach will not negatively impact but boost foreign trade. What I want to stress is that since serving the real economy will always be the top priority of foreign exchange administration, the direction of the foreign exchange administration reform will not change, and so will the policy orientation of boosting trade and investment facilitation. Meanwhile, we will further strengthen risk prevention and control, highlighting the requirements on authenticity and compliance reviews and intensifying monitoring, early warning, verification and crackdown on foreign exchange irregularities. To put it simply, authenticity reviews are necessary to ensure the authenticity and compliance of receipts and payments under trade and safeguard a normal order in foreign exchange markets. Without changing the existing policy framework, the SAFE further clarified and standardized the requirements on authenticity reviews of receipts and payments under trade in goods in 2015, but did not add new regulations. The purpose of specifying and refining relevant review requirements is to guard against risks arising from cross-border receipts and payments, given the usual irregularities involving a minority of enterprises. In recent years, we have spotted arbitrages and illegal allocation of cross-border capital by some lawbreakers through trade in goods, such as receipts and payments of foreign exchange not under trade, overseas fund transfers through trade channels, as well as fabricated trade and acquiring the CNY/CNH spread through offshore switch trade. As a result, intensifying authenticity reviews and special verifications is necessary for guarding against and cracking down on company irregularities, and creating a fair and competitive environment for law-abiding enterprises with integrity, and will not impact market players' reasonable and legitimate requirements for use of foreign exchange, or interrupt their normal trade in goods. [17:03] [Market News International of the US] The Wall Street Journal reported that some Chinese institution has carried out non-public derivatives trade to underpin the RMB. What would you say about this? [17:19] [Wang Yungui] There are various financial products in both domestic foreign exchange markets and offshore markets, such as forward and swap products in domestic markets. These products are developed to support flexible floating of foreign exchange rates and rational risk mitigation by companies and institutions through reasonable and valid processes. Transactions in offshore markets should be in compliance with the requirements of financial regulators there. They may have some impact on foreign exchange rates via various products, which is within control. We don't think derivatives trading has severely impacted the RMB exchange rate. On the whole, the rate is in line with China's tendency to maintain stability. [17:28] [CCTV] There are reports on mainland residents buying insurance in Hong Kong of late. Could you brief us on relevant policy? Thank you. [17:48] [Wang Yungui] We have noted these reports too and I would like to share some of our ideas with you here. First, Chinese residents must comply with the policies and regulations of the Chinese insurance regulator in buying insurance overseas. Second, they should also comply with relevant regulations under the foreign exchange administration policy. There are two cases on Chinese residents buying insurance overseas, which are subject to foreign exchange administration. In one case, Chinese residents buy personal accident insurance or health insurance for travelling, business activities and studying abroad, which are transactions under trade in services and allowed and supported under the policy framework for foreign exchange administration. Anyone who has gone abroad knows that buying such insurance abroad as travel insurance, personal accident insurance and health insurance is subject to no restriction and supported by the foreign exchange administration policy. In the other case, mainland residents buy life insurance and dividend-paying insurance overseas, which are transactions under the financial and capital account. The existing foreign exchange administration policy and regulations have no expressed provisions to support such insurance products, or are not fully opened with respect to these products. We consider such transactions risky. China UnionPay's investigations of January 2016 into overseas acquirers found that some of them were averting the foreign exchange administration policy. What is the foreign exchange administration policy about? In 2004 and 2010, the SAFE published two regulations on bank cards, clearly encouraging domestic residents to buy insurance products under trade in services within the limit equivalent to RMB 5,000 per transaction. China UnionPay, based on the above findings, has required the acquirers to make adjustments, and the acquirers have done so. In a word, we believe it is highly risky for institutions and individuals to operate such overseas insurance products that are not opened as capital account convertibility is pressed ahead with in a good order. [17:49] [Economic Daily] It is generally expected that the Fed will raise interest rates in June, but an Fed official recently hinted that the time might be April. My question is that if the Fed raises interest rates earlier than expected, would China's capital flows and RMB exchange rate come under pressure again? [17:53] [Wang Yungui] We are not in a position to speculate when the Fed will raise interest rates as the Fed sets its pace for interest rate hikes depending on various indicators. But past experiences show that the US dollar interest rate hikes did have strong impact on global capital flows, leaving both emerging economies including China and most developed and developing countries under the pressure from US dollars' flows back to the US, some of which, we believe, are a correction of the massive inflows of the past. For example, as some countries implemented the QE policy after the 2008 global financial crisis, massive cheap US dollars flew into emerging economies including China, who had been under heavy pressure from foreign exchange inflows for some time thereafter. It is a normal cyclical reaction for relevant funds to flow back as the US adopts the interest rate hike policy. Our observations show that the pressure from capital outflows arising from the US dollar interest rate hikes since the second half of 2014 is tolerable and bearable. Some institutions serviced relevant external debt in US dollars in advance and even made structural arrangements for some trade finance products, which were favorable for lowering corporate leverage ratio and guarding against risks. Since June 2014, foreign exchange reserves have dropped by USD 790 billion, which should be bearable, and are USD 3.2 trillion at present. Cross-border capital outflows have been contracting for three months consecutively since December 2015. All these data, either declines in foreign exchange reserves, cross-border capital outflows or declines in the deficit of foreign exchange settlements and sales, show that the impact from the Fed's interest rate hikes on cross-border capital flows is being digested and addressed. [17:54] [Xinhua News Agency] I want to ask Mr. Director more about purchases of insurance overseas. Is it associated with the current pressure from capital outflows in addition to being risky? Is there anyone who transfers funds overseas in this way? [17:55] [Wang Yungui] As I have said just now, two documents released in 2004 and 2010 set forth the policy on how to use bank cards overseas, with the later one covering but remaining coherent with the previous one. We provide foreign exchange for individuals' purchases of accident insurance and health insurance overseas under trade in services without any restrictions, provided that each transaction with payments made through bank cards is no higher than USD 5,000. This policy was effective in 2004, not a new one. Some individuals, however, purchased life insurance or dividend-paying insurance overseas on their overseas trips, some of which, we believe, are for cross-border asset arrangements. But these transactions are under the financial and capital account for foreign exchange administration and are not supported by the policy. We don't think such transactions are related to ongoing capital outflows but are more likely a way of diversified asset allocation. Therefore, I don't think such transactions are a cause of the pressure from capital outflows. [17:57] [Wang Chunying] The policy about overseas insurance that Mr. Director has briefed us on is actually not an adjustment and was introduced in 2004 with clear provisions. The reason that you ask why we say so is that it is in line with our emphasis on enhancing authenticity and compliance reviews. We are fully supportive to authentic transactions under the current account that are in compliance with regulations, and have not set any policy barriers to domestic purchases of foreign exchange to repay the overdrafts that are used to pay for overseas consumption through a bank card. We adopt the same policy for domestic cards such as UnionPay cards and foreign-currency cards issued by international card organizations such as VISA by screening merchants via domestic banks with ATMs and overseas acquirers. What we want to stress and clarify is that management of the amounts of transactions under bank cards, just one of the various payment tools, is aligned with the principle of current account convertibility we have long stuck to, provided that the transactions are authentic and in compliance with regulations. [17:59] [Wang Yungui] The SAFE will always and continue to support use of bank cards in normal consumptions during cross-border travels to facilitate international communications, provided that the transactions are in compliance with regulations. The SAFE's policies such as for domestic purchases of foreign exchange to pay for overseas consumptions will remain unchanged. [18:00] [Securities Times] It is widely expected that the Fed will raise interest rates again in June-September. My question is whether there will be sharp fluctuations at some points of time in cross-border capital flows, though Mr. Director says the flows stay stable at large. Governor Zhou Xiaochuan said last week that efforts may be stepped up to crack down on super short-term speculations in cross-border capital flows. I wonder when you consider would be proper to introduce Tobin tax? Thank you. [18:10] [Wang Yungui] The Fed's interest rate hikes' impact on global cross-border capital flows should be long term, which we have never averted. How heavy the impact would be on China's cross-border capital flows could be assessed with reference to past rounds of interest rate hikes. We think the Fed's interest rate hikes will put China's cross-border capital flows under pressure as US dollars will strengthen in the process. If that happens, domestic institutions that owe external debt or want to make outbound investments or have overseas consumption may have to make some financial arrangements, which we consider normal. We have a large toolkit with various tools to cope with the pressure and the size of capital outflows will be bearable. To put it simply, we have made relevant policy arrangements for possible interest rate hikes, and players have taken actions in response such as buying foreign exchange to repay trade finance funds, which we support and are favorable for micro-players to avert interest rate risks and reducing our dependence on external debt. Foreign exchange administration toolkits are necessary for reducing pressure on cross-border capital outflows, including financial transaction tax or Tobin tax mentioned by Mr. Governor. Tobin tax is not merely a type of tax. A Tobin tax, suggested by US economist Tobin, is intended to slow down global capital flows. All price means that can slow down cross-border capital flows and raise speculators' transaction costs can be called Tobin tax. Further research is needed as for whether Tobin tax will be imposed on short-term cross-border capital flows. We have noted that a financial transaction tax of 6% or so imposed by some countries such as Brazil and Argentina also has short-term effect, indicating the necessity of further assessment. Policy measures should be taken into consideration to increase the trading costs of short-term speculative funds without impacting trade and investment facilitation, based on China's practices and with reference to foreign experiences, theoretically or practically. The SAFE will work closely with the People's Bank of China to make further research and will adopt measures that are favorable for promoting the healthy development of the economy, especially the real economy. [18:12] [Reuters]: We know that the regulator has been stressing the stability of the RMB against a basket of currencies. But the past week's RMB exchange rate index shows that the RMB had been overstated, by a margin many analysts believed to be 10%. Would you believe the RMB will be adjusted to be its fair value at proper points of time this year? [18:22] [Wang Yungui] The policy arrangements made by the People's Bank of China and the SAFE for the RMB exchange rate, I believe, are rational. We now say that the RMB exchange rate is a managed floating exchange rate mechanism based on market supply and demand and adjusted with reference to a basket of currencies. This does not point out where the fair value of the RMB exchange rate should be, but stresses that domestic demand and supply as well as the changes in the value of international currencies should be reflected from the RMB exchange rate mechanism, with the RMB exchange rate floating in a managed way, not freely in the market. Making sure the RMB exchange rate stays stable against other currencies helps us find where the reasonable and balanced value, or the fair value should be. As for whether the RMB exchange rate is overstated, you will learn many institutions say it is understated if you carry out a survey. It is meaningless, I believe, to say the RMB exchange rate is overstated or understated merely based on the price levels, as some players make settlements in US dollars, while some use Euros, Japanese Yen or South Korean Won, but what we stress is the stability of the RMB exchange rate against a basket of currencies. In our opinion, the Sino-US bilateral exchange rate should reflect more of domestic demand. It is normal for exchange rate to rise or fall. So is for any currency to rise or fall or for making the RMB exchange rate against the USD stable. The RMB depreciated against the USD but appreciated against other currencies in the past few months, so the RMB remained stable against a basket of currencies after hedging. As Ms. Director has said just now, the RMB exchange rate against CFETS, BIS and SDR baskets of currencies has been in the same direction despite differences in specific value, suggesting that the RMB exchange rate has stayed stable. Any institution that speculates about or bets on the fair value of the RMB will be faced with policy risk. [18:23] [CBN Daily] Could you brief us on your thinking about policies for foreign exchange expectations management? [18:32] [Wang Yungui] Expectations management is very important as financial markets stress confidence, which has great implications for financial markets. The key to expectations management, we believe, is to tell people the truth. Herd effect is a commonplace in financial markets as many people do not know how the market performs and follow suit as large institutions take actions. We have been stressing that we should look at the fundamentals to assess the RMB exchange rate, such as GDP, productivity, CPI and trade surplus. Governor Zhou Xiaochuan and Deputy Governors Yi Gang and Pan Gongsheng once said, there is no basis for long-term RMB depreciation, which means that it is normal for the RMB exchange rate to rise and fall in the short term, but not in the long term. In my opinion, expectations management is critical and responsible governments and administration institutions should tell people the truth. For example, we often say that China's trade surplus has surpassed USD 590 billion, China is using an increasing number of FDI and Chinese enterprises are cutting down the leverage ratio while servicing their external debt, which are good news. In a word, I would like to reiterate that there is no market basis for long-term depreciation of the RMB. The reason is complex, but I recommend people paying more attention to the fundamentals. The purpose we compile and disseminate various data is to facilitate your understanding of market fundamentals. [18:33] [Shanghai Securities News] Premier Li Keqiang said at a press conference that Shenzhen-Hong Kong Stock Connect will be launched this year. Could you brief us on the SAFE's preparations in terms of the technicality of foreign exchange administration? [18:33] [Guo Song] Shenzhen-Hong Kong Stock Connect is not the SAFE's responsibility. The inflows and outflows of capital are in the RMB and in a closed cycle, so in theory, this does not involve foreign exchange administration. Nor are the daily data on Shenzhen-Hong Kong Stock Connect disseminated by the SAFE, but other market institutions. As a result, the SAFE does not need to make any preparation. [18:34] [Wang Yungui] Thank you for coming to today's press conference. You are welcome to another press conference for data dissemination, which is to be held in mid or late April at the State Council Information Office. Thank you. [18:34] (The original text is available at www.people.com.cn) 2016-12-19/en/2016/1219/1232.html
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· Xi Yanchun: Good morning, ladies and gentlemen, welcome to the press conference of the State Council Information Office. April is the month for releasing economic data, and the State Council Information Office will hold conferences on the economic data for the first quarter in the next few days. Today we are pleased to have with us Ms. Wang Chunying, press spokesperson for the State Administration of Foreign Exchange (SAFE). Now let me invite Ms. Wang to brief you on China's foreign exchange receipts and payments for the first quarter of this year and then she will answer your questions. 2016-04-21 09:34:07 · Wang Chunying: Good morning, friends from the press, welcome to today's press conference. I know you have paid close attention to recent foreign exchange receipts and payments and I wish to take this opportunity for more relevant and effective communication with you. Now I would first like to brief you on China's foreign exchange receipts and payments for the first quarter of this year. Since the beginning of this year, the world economic growth has remained slow, uncertainties and instabilities have increased, and the global financial markets have been in high volatility. Domestically, the economy has continued to grow stably, some major indicators have undergone positive changes and the RMB exchange rate has been basically stabilized. The SAFE has been committed to pressing ahead with the foreign exchange administration reforms, enhanced monitoring, analysis and assessment of cross-border capital flows, and highlighted the requirements on authenticity and compliance reviews of foreign exchange business. Overall, China posted continued cross-border capital outflows but was under eased outflow pressure in the first quarter. In the first quarter, banks settled foreign exchange of RMB 2.29 trillion (USD 350.0 billion) and sold foreign exchange of RMB 3.10 trillion (USD 474.7 billion) on a cumulative basis, with a deficit of RMB 815.2 billion (USD 124.8 billion). Meanwhile, according to the data on foreign-related receipts and payments via banks, in the first quarter, banks registered cumulative foreign-related income of RMB 4.33 trillion (USD 663.1 billion) and made external payments of RMB 5.06 trillion (USD 775.4 billion) on behalf of clients, with a deficit of RMB 734.3 billion (USD 112.3 billion). China’s foreign exchange receipts and payments for the first quarter show the following characteristics: 2016-04-21 09:54:14 · Wang Chunying: First, the balances of foreign exchange settlements and sales by banks, and foreign-related receipts and payments were both in deficit. In the first quarter, in dollar terms, foreign exchange settlements by banks were down by 9% quarter-on-quarter, and foreign exchange sales by banks, down by 14%, resulting in a deficit of USD 124.8 billion; foreign-related income received via banks was down by 19% quarter on quarter, and external payment made through banks was down by 18%, indicating a deficit of USD 112.3 billion, leading to a deficit of USD 36.6 billion in the balance of foreign-related foreign exchange receipts and payments. Second, the recent pressure from cross-border capital outflows has been much lower than the beginning of this year. China registered a deficit of USD 69.4 billion in the balance of foreign exchange settlements and sales via banks in January, which narrowed to USD 35 billion in February and further to USD 33.6 billion in March. Given the Chinese New Festival in February, the daily average deficit in the balance of foreign exchange settlements and sales via banks, estimated based on the trading days each month, was USD 3.5 billion, USD 2.2 billion and USD 1.5 billion in January, February and March, indicating a significant decline. China posted a deficit of USD 55.8 billion, USD 30.5 billion and USD 26.1 billion in the balance of foreign-related receipts and payments via banks, or a daily average deficit of USD 2.8 billion, USD 1.7 billion, and USD 1.1 billion in January, February and March respectively. The deficit in the balance of foreign exchange receipts and payments was USD 20.1 billion, USD 10.5 billion and USD 5.9 billion in January to March respectively, or USD 1 billion, USD 600 million and USD 300 million per day on average in each month. 2016-04-21 09:57:04 · Wang Chunying: Third, companies' desire to buy foreign exchange has been weakened and customers' debt servicing pace has slowed down. The foreign exchange sales rate, or foreign exchange purchased by customers from banks as a percentage of their foreign-related foreign exchange payments, which is the measurement of the motivation to buy foreign exchange, was 80% in the first quarter, or 90% in January, and 74% in February and March, which was down by 16 percentage points from the first month, suggesting customers' desire to buy foreign exchange was weakened. The outstanding domestic foreign exchange loans fell by USD 35 billion in the first quarter, and in January and February in particular, the balance dropped by USD 26.4 billion and USD 8.6 billion, but climbed slightly by USD 30 million in March. The balance of import financing such as refinancing and forward L/C contracted by USD 34.9 billion in the first quarter, and particularly in January and February, the decline was USD 17.7 billion and USD 14.2 billion, but narrowed to USD 3.1 billion in March. The changes in the outstanding domestic foreign exchange loans from declines to increases and the remarkable decreases in the balance of cross-border trade credit indicate that customers' debt servicing speed has significantly slowed down. Fourth, the reform to encourage companies and individuals to hold more foreign exchange has been carried forward smoothly. Foreign exchange sold by customers to banks as a percentage of their foreign-related foreign exchange income, or the foreign exchange settlement rate that measures the willingness of companies and individuals to settle foreign exchange, was 59% in the first quarter, down by 1 percentage point quarter on quarter. The rate was 59% for March, up by 3 percentage points from February, suggesting companies' and individuals' willingness to hold foreign exchange income has stayed stable since the beginning of the year, with the percentage of foreign exchange income sold to banks for March higher than February. The balance of domestic foreign exchange deposits held by companies and individuals went up by USD 33.9 billion in the first quarter, including an astonishing USD 16.7 billion in January, and USD 8.8 billion and USD 8.4 billion in February and March. The much slower growth in foreign exchange deposits held by companies and individuals suggests that companies ' and individuals' desire to hold foreign exchange has been stabilized. 2016-04-21 09:58:34 · Wang Chunying: Fifth, the deficit in the balance of forward foreign exchange settlements and sales by banks has shrunk month by month. In the first quarter, the number of customers contracting for forward foreign exchange settlements with banks was up by 16% quarter on quarter, and the number of customers contracting for forward foreign exchange sales with banks wad up by 31%, leading to a deficit of USD 36.3 billion. The monthly deficit was USD 24.7 billion, USD 6.1 billion and USD 5.4 billion respectively in the quarter, denoting the supply and demand of foreign exchange in the forward markets is being balanced. These are the major statistics I want to disclose regarding the foreign exchange receipts and payments for the first quarter of 2016. Now I will answer your questions. 2016-04-21 09:59:39 · Xi Yanchun: Thank you, Ms. Director. Please remember to tell us the news agency you are working with before asking your questions. 2016-04-21 10:00:18 · CCTV: We noticed that China was faced with lighter pressure from cross-border capital outflows in the first quarter. What would you say about recent changes and future trends? How to guard against relevant risks？Should the management approach be adjusted? Thank you! 2016-04-21 10:00:58 · Wang Chunying: Thank you for your questions. Just as I have just said, there were some volatilities in the first quarter, but overall the pressure from cross-border capital outflows has been much lower than the beginning of the year. As for recent changes and future trends and how to guard against risks and adjust policies, I would like to share my views with you in three aspects as follows: 2016-04-21 10:01:43 · Wang Chunying: First, recent changes show that China's cross-border capital outflows are returning to the fundamentals after short-term volatilities. At the beginning of the year, both domestic and overseas markets experienced short-term volatilities, resulting in drastic adjustments in global major stock markets, heightened risk aversion and a 1% increase in the US index in January, as well as higher expectations of RMB exchange rate depreciation in the domestic financial markets. But the market environment has been stabilized afterwards. Globally, major stock indexes have rebounded, the VIX index that measures the volatility of risk aversion has dropped from the mid-February high, and the US index went down by 1.4% and 3.7% in February and March respectively. Domestically, some major indicators have undergone positive changes. Industrial added value, fixed asset investment, and total retail sales of consumer goods accelerated in March, PMI was back above the boom and bust line in March, and domestic financial markets have become relatively stable. Under such circumstances, market sentiment is becoming sensible again and China's cross-border capital flows are becoming more stable. 2016-04-21 10:04:07 · Wang Chunying: Specifically, the balance of foreign exchange reserves declined more slowly and rebounded in March. China's balance of foreign exchange reserves dropped by USD 99.5 billion and USD 28.6 billion in January and February, and went up by USD 10.3 billion in March. Second, the deficit in the balance of foreign exchange settlements and sales has contracted compared with the beginning of the year, and net cross-border outflows of capital held by non-banking sectors such as companies and individuals has declined. Third, the RMB exchange rate stays stable. The RMB exchange rate against the USD fell slightly in January and has become stable since February. The CNH-CNY spread keeps shrinking, which was 419, 111 and 94 basis points in January to March. The RMB exchange rate against a basket of currencies remains stable too. 2016-04-21 10:09:34 · Wang Chunying: Second, China's cross-border capital flows will remain basically stable in the future. Of the many contributors to cross-border capital flows, mid and long-term contributors are decisive and stable, defining the overall movements of China's cross-border capital flows in a period of time. For example, China's economic prospects are optimistic, and the annual GDP growth of higher than 6.5% set in the 13th Five-Year Plan for the next five years, relatively high among the rest of the world, will be achieved while maintaining large GDP, which will be favorable for attracting persistent inflows of foreign capital, especially long-term capital. China's trade in goods and current account will sustain surpluses, and China is still the world's No. 1 by foreign exchange reserves, which are abundant and much higher than those of other countries. These factors will help stabilize China's cross-border capital flows. 2016-04-21 10:13:38 · Wang Chunying: Along with China's economic development and restructuring, domestic players will have stronger demand for resource allocation in both domestic and global markets, and two-way cross-border capital flows will become more active but after adaptations and improvements, so relevant capital flows will still be within a predictable and controllable range. But this does not mean short-term contributors will not take effect at a certain time, such as impact from emergencies and contributors that are beyond market expectations, but they will not change the mid and long-term trends. 2016-04-21 10:19:57 · Wang Chunying: Third, given that the risks associated with China's cross-border capital flows are within control, further efforts will be made to balance facilitation and risk prevention in foreign exchange administration. To prevent risks, risks should be first objectively assessed. China's capability of making international payments is strong now, with no difficulties in the payments of BOP. Efforts are also made to press companies to adjust and service external debt. After a period of debt deleveraging, the risk of future debt servicing facing China has been reduced, with the outstanding external debt in domestic and foreign currencies as at the end of last year dropping by USD 257 billion from that of the end of last March with comparable coverage. Given this, further efforts will be made to defend the bottom line against risks while continuing to implement the reform and opening up policy in foreign exchange administration. While continuing to serve the development of the real economy, foreign exchange administration reforms will be promoted, with external debt and cross-border capital flows management to be improved under the macro-prudential management framework, to further facilitate market players' use of domestic and overseas markets and to satisfy their demand for use of foreign exchange for trading and investments with authentic backgrounds. On the other hand, efforts will be made to actively prevent the risks associated with cross-border capital flows while enhancing monitoring, analysis and early warning of the balance of payments, to effectively communicate with market players, and to guide banks to conduct authenticity and compliance reviews to crack down on foreign exchange irregularities. In all, China's policies are consistent and coherent, and will enable us to effectively respond to the current state of cross-border capital flows. 2016-04-21 10:27:38 · China Daily: We know that the US Federal Reserve started interest rate hikes last December. Janet Yellen, chair of the Fed, has recently expressed some of her views. Some argue that Yellen is the biggest facilitator behind China's efforts to slow cross-border capital flows. What are your views on the impact of the Fed's interest rate hikes on China's cross-border capital flows? Thank you! 2016-04-21 10:39:56 · Wang Chunying: Thank you for your question. Over the past two years, from the Fed's QE exit to interest rate hikes, the Fed's monetary policy has attracted wide attention. I would here like to share with you some of the ideas. First, the Fed's interest rate hikes are important factors that impact international capital flows. But we are always stressing that this should be viewed objectively. The Fed's previous interest rate hikes had different impact on international capital flows, especially the cross-border capital flows in emerging markets. Since the 1990s, the dollar has gone through three rounds of interest rate hikes, usually along with the strengthened USD exchange rate. Although the two rounds of interests rate hikes in the middle of and at the end of the 1990s did trigger problems in some emerging economies, yet some economies like China withstood the impact. The third round of interest rate hikes between 2004 and 2006 did not result in withdrawal of international capital from emerging markets either, and instead, most emerging markets posted cross-border capital inflows benefitting from continued economic growth. Good macro-economic fundamentals are the basis to resist external impact. Second, the first interest rate hike in this round did have impacted China's cross-border capital flows, but will not change the mid and long-term stability. Soon after the first hike last December, the market began to pay close attention to the frequency and degree of the Fed's interest rate hikes this year. The US index remained strong, risk aversion was heightened, global stock markets and commodity prices were in high volatility, currencies in emerging markets and the RMB exchange rate were under pressure, and China was faced with heavier pressure from cross-border capital outflows. But since March, as insights into the path of the dollar interest rate hikes have become clearer, it is mostly believed that the Fed will raise interest rates gradually while watching out the impact of global financial markets on its economy. Under such circumstances, risk aversion has been weakened, the dollar index has depreciated, especially by more than 5% in February and March combined, currencies have quickly strengthened in emerging markets, with JP Morgan's currency indexes for emerging markets registering a rebound of more than 6%, the RMB exchange rate has been stabilized, China's cross-border capital flows are returning to the economic fundamentals and its receipts and payments of foreign exchange have been more balanced and stable. The good fundamentals can ensure mid and long-term stability of China's cross-border capital flows. Meanwhile, China's recent good economic performance has strengthened its capability to cope with the impact from the Fed's interest rate hikes. For example, China has sustained high-speed economic growth, and is further optimizing its economic structure and committed to deepening reform and economic transformation; it has posted continued surpluses under the current account, maintained high foreign exchange reserves and is faced with the declining external debt serving risk; the economic and financial risks it is faced with are within control, unemployment remains low and social and political situations stay stable. 2016-04-21 10:42:55 · Wang Chunying: Third, China's existing economic and financial policies can help it adapt to the normalization of the Fed's monetary policy. First, sustaining China's economic and financial stability. China will continue to deepen reforms to yield the dividends of policies, hold market expectations of China's economic prospects, enhance market acceptance and recognition of China's new economic normal and cope with risk events in a timely and effective manner. Second, further coordinating and pressing ahead with reforms. China will push forward with capital account liberalization in a proper and orderly manner and build a macro-prudential policy framework for cross-border financing and capital flows to guard against relevant risks. It will press ahead with the market formation mechanism reform to expand and extend the foreign exchange markets. Third, China will impose higher requirements on authenticity and compliance reviews of foreign exchange business, and crack down on financial irregularities such as foreign exchange frauds and underground banking, to enhance the effectiveness of foreign exchange administration and ensure good market order. Moreover, it will strengthen monitoring, analysis and early warning of cross-border capital flows and improve response plans as precautions. 2016-04-21 10:46:56 · Bloomberg: Could you explain why the RMB exchange rate appreciated against the USD but depreciated against a basket of currencies recently? Do you still believe that the RMB stays stable despite the 3.5% fall in the RMB exchange rate index? What's your definition of the stable level? Is there a bottom line for RMB depreciation? 2016-04-21 10:53:38 · Wang Chunying: Thank you for your questions. We are also observing the movements of the RMB exchange rate. We believe that the RMB exchange rate is stable, proper and balanced. As for the movements of the RMB exchange rate against baskets of currencies, the data from China Foreign Exchange Trade System (CFETS) show that the RMB nominal effective exchange rate against the CFETS (13 currencies), BIS (40 currencies) and SDR (4 currencies) baskets of currencies had slightly dropped as at the end of the first quarter, or was down by 2.8%, 2.6% and 1.2% from the end of last year. BIS data show that the RMB real effective exchange rate fell by 1.3% and the RMB nominal effective exchange rate, 2.3%, in the first quarter, which were within the stable range. The CNY-CNH spread also narrowed, being 419, 111 and 94 basis points per day on average in January to March, also indicating the stable RMB exchange rate. 2016-04-21 11:08:16 · Wang Chunying: Our observations show that some currencies were in high volatility and some depreciated by more than 10% in a certain period of time, which however, was rarely seen in the RMB exchange rate. During the NPC and the CPPCC in March, Mr. Zhou, governor of the People's Bank of China, explained the causes behind the volatilities in the RMB exchange rate and shared his view on the outlooks, saying that the recent high volatilities were caused by the fluctuations in domestic and international economic and financial markets as well as the changes in market sentiment, but the foreign exchange markets have returned to normal, to sensibility and to the fundamentals, which is very likely to continue. Last but not least, I would like to reiterate that the RMB exchange rate system is a managed floating exchange rate system based on market supply and demand and relative to a basket of currencies. 2016-04-21 11:14:27 · Economic Daily: While China posted a surplus of nearly USD 600 billion in trade in goods, its foreign exchange reserves contracted remarkably and the balance of foreign exchange settlements and sales via banks that is related to trade in goods was in deficit in 2015, which happened again in the first quarter. Why is this? 2016-04-21 11:28:38 · Wang Chunying: Good question. These data are thought-provoking. Chinese Customs statistics show that China registered a trade surplus of more than USD 590 billion, but a small deficit in the balance of foreign exchange settlements and sales under trade in goods via banks in 2015, resulting in a variance of USD 631.1 billion. There was also a variance of more than USD 100 billion in the first quarter. These were due to different statistical coverage and companies' financial operations. As for statistical coverage, the Customs imports and exports, which are about goods flow, and foreign exchange settlements and sales under trade in goods, which are about funds flow, are different in the scope of statistics and time of recording, and therefore cannot fully match. Companies' financial operation involves three aspects: first, the increase in companies' foreign assets. Some companies' extended collection cycle of export payments will cause their trade credit assets to rise. The export revenue a Chinese exporter fails to collect from its importer is the trade credit the Chinese exporter provides to its importer, and also its asset. Chinese companies' trade credit rose by USD 46 billion in 2015. Some Chinese exporters will also deposit not settle their foreign exchange revenue. The balance of Chinese companies' foreign exchange deposits increased by around USD 25 billion in 2015, and further by USD 22.4 billion in the first quarter, which were largely export revenue. The trade credit data for the first quarter are being compiled at a quicker pace so as to present you the recent changes in companies' trade credit assets as soon as possible. Second, the decrease in companies' external debt. Many of companies' import payments are made to repay previous overseas financing and do not match the imports for the current period. For example, companies' cross-border financing made through refinancing and forward L/C from overseas financial institutions went down by USD 115.1 billion in 2015, and further by USD 34.9 billion in the first quarter. Companies' trade credit debt to overseas counterparts decreased by USD 62.3 billion in 2015. In addition, some of companies' foreign exchange sales under trade in goods are not related to the import payments for the current period but to pay previous foreign exchange loans borrowed from domestic banks. The outstanding domestic foreign exchange loans fell by USD 100.6 billion in 2015 and by USD 35 billion in the first quarter, most of which were trade-related loans. Third, companies' cross-border RMB settlements. China posted more than USD 170 billion in net cross-border RMB income under trade in goods with comparable coverage with Customs in 2015, and less than USD 10 billion in the first quarter, which did not lead to foreign exchange settlements and sales by banks. 2016-04-21 11:30:14 · Wang Chunying: In the long term, along with loose external liquidity and large capital inflows, the variance between the two figures will be quite the contrary. The current variance is the result of the recent changes in market environment but will be reversed in the long run. This indicates that Chinese companies are flexible in conducting financial operations, a significant progress in adapting to the changes in the environment. In day-to-day regulation, we will also consider other factors, such as failure to collect payments, collection of excessive or insufficient payments, and conduct management after explaining the data variance. The changes in foreign exchange reserves are the result of many factors combined, not just trade in goods, but also trade in services, and the capital and financial account. Therefore, the best way to look at the changes in foreign exchange reserves is through the Balance of Payments Statement. In 2015, the balance of foreign exchange reserves fell by USD 512.7 billion, including more than USD 340 billion due to trade, and around USD 170 billion due to asset price changes and exchange rate conversion, as shown by the Balance of Payments Statement. The changes in income from foreign exchange reserves will also impact trade. After the initial data in the Balance of Payments Statement are released, you will see the structural changes in foreign exchange reserves, including the percentages of trade and non-trade factors, and find out more about the supply and demand of foreign exchange. Thank you! 2016-04-21 11:35:44 · TASS: You have just unveiled the foreign exchange data for the first quarter. Could you tell us about the foreign exchange transactions between China and Russia in the period and release relevant data? What are your predications on this year's market, especially the activities? 2016-04-21 12:00:18 · Wang Chunying: Thank you for your questions and your attention to the transactions in and development of the foreign exchange markets between China and Russia. We have country-specific data and you can contact us if you want them. 2016-04-21 12:01:39 · Phoenix Satellite TV: We noted large deficits in the capital and financial account and heavy overseas investments by domestic enterprises since last year. Does this mean less investment opportunities in China? One more question, given that media statistics show that China posted capital outflows of more than USD 100 billion in the first quarter, will the pressure from capital outflows be heightened? 2016-04-21 12:04:52 · Wang Chunying: This issue has drawn wide concern recently. I would here like to make an analysis based on relevant data. First, China's cross-border financing and investments continue to lead to inflows and outflows of capital. According to the Balance of Payments Statement, China's ODI increased by USD 187.8 billion in 2015, up by 53% from 2014; overseas securities investment rose by USD 73.2 billion, 5.8 times that of 2014; and other investment assets like overseas loans and deposits grew by USD 127.6 billion, 61% less than that of 2014. On the other hand, FDI in China remained heavy in 2015, with USD 249.9 billion in net overseas capital inflows under direct investment, and USD 6.7 billion in net foreign securities investment inflows, including USD 35.7 billion in stocks and bonds issued overseas by domestic institutions and bought by non-residents. All these show that overseas investors are still optimistic about the companies and investment projects in China. The preliminary statistics from the SAFE for the first quarter show that China's direct investments in the balance of payments rose by more than USD 50 billion but less than USD 100 billion. The direct investments of USD 100 billion, as unveiled by the media, may include those under negotiation and those that China has intent. 2016-04-21 12:07:19 · Wang Chunying: Second, the increase in China's outbound investments are reasonable and of great significance. The increase in ODI shows China's remarkably strengthened overall strength, a natural byproduct of China's economic development. In some developed countries, companies made heavy investments overseas after a period of rapid economic development. Currently, China is the world's No. 2 by economic aggregate, with per capita GDP nearing 8000 USD, and the world's highest foreign exchange reserves. It has entered into the capital output period from the capital inflow stage. Second, this also shows the demand of optimized global allocation of assets. As economic globalization deepens and competition intensifies, MNCs are expanding and extending their global capital layouts, and Chinese companies are more eager to go global and rebuilding value chains through incorporating overseas organizations and cross-border M&As. The implementation of national strategies such as the Belt and Road Initiative has helped accelerate companies' efforts to go global. The increase in outbound securities investments is an indicator of China's deeper liberalization and further facilitation of purchasing assets such as overseas stocks by domestic residents through channels like QDII and Shanghai-Hong Kong Stock Connect. The increases in other investments like overseas loans also indicate more diversified ways for domestic players to use overseas funds. The capital outflows associated with global capital allocation will support future exports of goods and services and bring capital inflows such as incomes and returns like profits, dividends and interest, marking the beginning of China's deep participation in the global financial markets. Overall, the increase in outbound investments has positive implications, except that some companies or individuals are over-optimistic about overseas markets or blindly follow suit in making outbound investments. 2016-04-21 12:17:06 · Wang Chunying: Third, two-way cross-border financing and investments will be a normal at present and in the foreseeable future. Firstly, the government will encourage and support two-way cross-border financing and investments in policy. The 13th Five-Year Plan proposes that efforts should be made to comprehensively build a new landscape of opening up, fully press ahead with two-way opening, promote orderly flows of domestic and overseas elements, efficient allocation of domestic and overseas resources and deep integration of domestic and overseas markets, enhance the levels of use of foreign capital and outbound investments, expand two-way liberalization of the financial sector and push ahead with the Belt and Road Initiative. Secondly, it is normal for Chinese enterprises to allocate and deploy their assets at home and abroad as they grow, but the future trends depend on the economic fundamentals. In the first quarter, China's many economic indicators stood out, indicating a good start. The IMF downgraded its expectations of the world's economic growth in the World Economic Outlook it issued on April 12, but upped its expectations of one country's economic growth, and it is China. Overseas long-term capital will remain optimistic about China and Chinese companies will make correct judgment. As for the recent rapid increase in ODI, the SAFE holds its usual attitude. We have been stressing that we will support competent companies with qualified conditions to make ODI with authentic backgrounds in compliance with laws and regulations. Meanwhile, we will enhance monitoring and site inspections and crack down on false ODI. We will also cooperate with relevant departments to give necessary risk reminders. 2016-04-21 12:29:25 · CRI: The two-way fluctuations of the RMB exchange rate are obvious at present. What is the SAFE's plan to strengthen the building of the foreign exchange markets? How will the SAFE guide companies and help them mitigate risks? 2016-04-21 12:41:18 · Wang Chunying: It is been the SAFE's priorities to support the real economy and manage foreign exchange rate risks. First, continuing to promote the in-depth development of foreign exchange markets and opening up to the inside and outside. Diversifying transaction categories, expanding market players and improving market infrastructure— all will improve the conditions for companies to manage foreign exchange rate risks. Last December, the People's Bank of China and the SAFE announced that the trading time in the inter-bank foreign exchange market would be extended to 23:30, and QFII would be introduced. So far, 16 overseas central banks have become members of the inter-bank foreign exchange markets in three batches. Overseas banks participating in the purchases and sales of RMB can also become members of the inter-bank foreign exchange markets after filing and interfacing systems with China Foreign Exchange Trade System (CFETS) to conduct RMB foreign exchange transactions to support China's efforts to unify RMB exchange rates both at home and abroad. We will also enhance the flexibility of banks to manage the comprehensive positions of foreign exchange settlements and sales to help them manage foreign exchange risks and provide better transactions services. Moreover, we are considering to liberalize derivatives transactions that meet market demands. We also support the CFETS to launch the swap offsetting business, plan to give banks more flexibility to transact in the inter-bank markets, and help clearing houses provide better liquidation services. These are the directions in expanding and extending the foreign exchange markets and conditions for transaction players to manage foreign exchange risks more effectively. Second, guiding companies to prudentially manage foreign exchange rate risks. The previous panics and insensible trading in the domestic and overseas foreign exchange markets were related to mismanagement of foreign exchange rate risks, simplistic thinking, and bet on RMB exchange rate appreciation or depreciation, as well as failure to build standardized financial discipline for hedging for foreign exchange rate management. The SAFE will continue to increase data transparency, help market players interpret market situations and make sensible judgment, and promote self-discipline management in the market. The market self-discipline management mechanism contains two aspects: one is the self-discipline organization of Code of Professional Ethics and Market Management Commission for Inter-Bank Foreign Exchange Market launched in 2014 through the push of the SAFE; the other is the self-discipline pact under the three business principles. The two organizations are to standardize compliance operations by banks, urge banks to enhance risk education on customers, guide companies to build correct sense of foreign exchange rate risk and properly use derivatives to manage risk exposures. Two points need to be added on correct awareness of foreign exchange rate risk. First, efforts should be made to carefully assess the foreign exchange rate risk facing a company in trading and investments, and understand where the risk arises, how heavy the risk is, how to deal with the risk, bear or hedge, and what tools to use. Second, the functions of derivatives should be accurately defined. Derivatives are neither evils nor tools to make money, but the means to manage risks, and will support the development of a company's principal business if properly used. 2016-04-21 12:42:04 · Xi Yanchun: Thank you, Ms. Director. Thank you for your professional and specific answers. Please contact the press office of the SAFE if you have more questions. This is the end of today's press conference. Thank you all. 2016-04-21 12:46:57 (The original text is available at china.com.cn) 2016-05-09/en/2016/0509/1198.html
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Hu Kaihong: Good morning, ladies and gentlemen. Welcome to the press conference of the State Council Information Office. Mr. Guan Tao, director of the BOP Department of the State Administration of Foreign Exchange (SAFE), will unveil the data on foreign exchange receipts and payments for 2014 and take your questions. Now let us welcome our old friend Mr. Guan. January 22, 2015 09:39:37 Guan Tao: Good morning, ladies and gentlemen. Welcome to today's press conference. I’m very glad to meetthe friends from the press again. If I remember correctly, it has been a year since the SAFE's first press conference on the data on foreign exchange receipts and payments on January 24 last year. Please allow me to extend my heartfelt thanks to you for your vigorous support to the SAFE’s press release effortsduring the past year. Now I am going to unveil the data on the foreign exchange receipts and payments for 2014 and take your questions on behalf of the SAFE. The year 2014 is the first year of China’s efforts to deepen its reforms in an all-round way. During the year, the international environmentremainedcomplex and volatile, the world economy was still under deep adjustments, the monetary policies of themajor economies were differentiated to some extent, and the international financial market experiencedsharper fluctuations; while the domestic economyran within a reasonable range, economic restructuring witnessed positive changes, and the reform and opening up made significant progress. The SAFE actively adaptedto the new normal of economic development, and energetically promoted administrationstreamlining and power delegation, reform and innovation. Overall, China's cross-border capital flows in 2014 were basically balanced amid oscillations. January 22, 2015 09:51:36 Guan Tao: Banks settled foreign exchange of RMB 11.64 trillion (USD 1.90 trillion) and sold foreign exchange of RMB 10.87 trillion (USD 1.77 trillion) in 2014, with a surplus of RMB 768.6 billion (USD 125.8billion). Meanwhile, according to the data on foreign-related receipts and payments through banks, banks registered cumulative foreign-related income of RMB 20.39 trillion (USD 3.32 trillion) and made external payments of RMB 20.14 trillion (USD 3.28 trillion) on behalf of clients, with a surplus of RMB 247.9 billion (USD 40.5 billion) China’s foreign exchange receipts and payments in 2014 show the following characteristics: First, the situation of massive cross-border capital inflows was significantly improved. In the first half of the year, after adjustments for foreign exchange rate factors (the same below), the foreign exchange settled by banks was up 1% year on year and the foreign exchange sold by banks was up 10% year on year, representing andecrease in the surplus of 53%. Meanwhile, the foreign-related income received via banks was up 12% year on year, and external payments made through banks were up 18% year on year, representing a decrease in the surplus of 79%. Second, market players were less willing to settle foreign exchange but more motivated to purchase it. As a measure of the willingness of companies and individuals to settle foreign exchange, foreign exchange settlement through banks as a percentage offoreign-related foreign exchange income (i.e., foreign exchange settlement rate) declinedfrom 77% in Q1 to 68% in Q2 and Q3 and then rebounded slightly to 71% in Q4, representing an annual average of 71%, which was 1 percentage point lower than that in the previous year; foreign exchange sales through banks as a percentage offoreign-related foreign exchange payments (i.e., foreign exchange sales rate) that measures the motivation to buy foreign exchange registered a quarter-on-quarter increase from 61% in Q1 to 73% in Q4 with a year-round average of 69%, and the foreign exchange sales rate gained 6 percentage points over last year. January 22, 2015 09:54:49 Guan Tao: Third, the bidirectional fluctuations of cross-border capital became more evident. The surplus in foreign exchange settled and sold by banks stood at USD 159.2 billion in Q1, dropped to USD 29 billion in Q2, and became a deficit of USD 16 billion in Q3, which further decreased to USD 46.5 billion in Q4. According to the data of foreign-related receipts and payments through banks, there was a surplus of USD45.5 billion and USD40.7 billionin Q1 and Q2 but a deficit of USD20 billion and USD25.7 billion in Q3 and Q4. Fourth, the forward settlement and sales of foreign exchange of banks were more balanced. In 2014, the surplus of contracts for forward settlement and sales of foreign exchange reached USD56.1 billion, 58%lower than the year earlier. Specifically, in the first two months, the monthly surplus of contracts for forward settlement and sales of foreign exchange averaged USD24 billion, a continuation of the high level since the end of 2013. But after March, market expectations for the RMB exchange rate were differentiated and contracts for forward settlement and sales of foreign exchange recorded surpluses and deficits alternatively, and the monthly average surplus from March to December amounted to USD800 million. Fifth, the foreign exchange market realized autonomous balance. In 2014, the balance of spot and forward foreign exchange settled and sold by banks (or the balance of foreign exchange settled and sold by banks and the balance of the combined undue net forward foreign exchangesettled), an indicator of the supply and demand for foreign exchange in the retail market, amounted to a surplus of USD 85.6 billion, down by 74% from 2013. Specifically, thebalance registered a surplus of USD 164.9 billion in the Q1 and of USD 2.5 billion in Q2, and then a deficit of USD 30.5 and USD 51.3 billion in Q3 and Q4 respectively. These are the major statistics I want to disclose regarding the foreign exchange receipts and payments in2014. You can also find the relevant data released on the SAFE's official website. Now I would like to take questions you might have. January 22, 2015 09:59:05 Hu Kaihong: Thank you, Mr. Guan. Now please raise your questions and remember to tell us where you are from before asking your questions. January 22, 2015 10:02:49 Journalist from CCTV: My question is: Since the second half of 2014, China’s import and export trade has maintained a large surplus but the foreign exchangesettled and sold by banks has posted a persistent deficit starting from August, what are the primary reasons? Does it imply the outflow of “hot money” and what is the future trend? Another question is about European debts as the European Central Bank (ECB) will decide today if a massive stimulus package will be introduced to purchase European debts. Some European countries cut their interest rates recently, which was called the “European QE” by the market. What impact will thishave on the cross-border capital flows in China and on the RMB exchange rate? Thank you. January 22, 2015 10:03:10 Guan Tao: Thank you for your questions. Your questions cover two aspects: first, the foreign exchange situation of last year and its future development; second, the influences of the European QE on China. We have noticed that the trade surplus has been widening since the second quarter of last year, while the balance of foreign exchange settled and sold via banks has been on a decline and even swung from surplus to deficit. Thisquestion was raised repeatedly at the last two press conferences. We call this the deviation of trade surplus from the supply-demand relationship of foreign exchange. In the second half of last year, the surplus of import-export trade added up to USD277.8 billion, an increase of 66% over the first half. But meanwhile, spot and forward settlement and sales of foreign exchange witnessed a persistent deficit, with the accumulated balance transferring from a surplus of USD167.4 billion in H1 to a deficit of USD81.8 billion. From the perspective of balance of payments, the surplusunder the currentaccount reached USD72.2 billion in Q3, a significant rise from the quarterly average of USD40.2 billion in H1. However, cross-border capital flows turned from the quarterly average net inflow of USD38.9 billion in H1 to net outflow of USD9 billion in Q3.In the meantime, cross-border capital inflows changed from a quarterly average increase of USD74.3 billion in H1 to a decrease of USD400 million. It is preliminarily estimated the balance of payments in Q4 may resume the trend of “currentaccount is in surplus and capitalaccount is in deficit”. January 22, 2015 10:06:36 Guan Tao: China’s cross-border capital flows became more volatile for three main reasons: first, the floating band of the RMB against the USD was further widened in March 2014, the bidirectional fluctuations in foreign exchange gradually enjoyed popular support, and the expectations for the RMB exchange rate were differentiated, and as a result, enterprises were less willing to settle but more motivated to purchase foreign exchange, and conducted financial operations such as increasing foreign exchange deposits and reducing foreign exchange loans. At the end of 2014, the ratio between domestic foreign exchange loans and domestic foreign exchange deposits dropped 26 percentage points from the start of the year, and the operation of covering short dollar positions appeared in the financial operation strategy of the market. Second, in 2014, the world economy showed signs of an imbalanced slow recovery.The Federal Reserve gradually exited its quantitative easing monetary policy and the USD exchange rate was strengthened across the board with a rise of 12% in the dollar index for the whole year. Under this circumstance, substantial international capital flowed back to the US, putting many emerging markets under the pressure of capital flight and domestic currency devaluation. China was one of the affected. Third, since China’s economic development entered a “new normal” stage, market players have paid more and more attention to Chineseeconomic operations as well as the underlying risks and problems, indicating the market mood is being fluctuating. Besides, the RMB exchange rate has been close to a balanced and reasonable level and widelyaccepted and recognized by the market, thus inspiringdomestic market players to adjust the currency structure of their assets and liabilities. January 22, 2015 10:17:25 Guan Tao: As for how to view this bidirectionalvibration in cross-border capital, there are two key points: On the one hand, it is in line with the directions of macro control and reform. First, with the advancement of the market-oriented reform in the RMB exchange rate formation mechanism, the People’s Bank of China (PBC) has gradually relaxed its normal intervention in the foreign exchange market, and the pattern of “trade surplus and capital outflow” will inevitably be more normalized. Second, banks’ foreign exchange deposits have increased but domestic foreign exchange loans have decreased, which indicates that most foreign exchange deposits have been used by banks for overseas investments. Therefore, foreign exchange is dispersedly held by the market instead of being collectively held by the PBC in the past, which is a process of “making foreign exchange held by the people”. Third, domesticenterprises are accelerating their repayment of large amounts of dollar-denominated debts taken on in the early stage, which will help lowerthe leverage rate of the whole society and reduce currency mismatch. It is an expected and orderly adjustment. On the other hand, the current adjustment is moderate and tolerable. Although China faced certain pressure of capital outflows in H2 of 2014, the basic pattern of foreign exchange supply exceeding demand and increasing foreign exchange reservesremained unchanged for the whole year. Moreover, the market was running smoothly, corporate demand for foreign exchange was basically guaranteed, the liquidity of the foreign exchange market was abundant, and there was no panic stockpiling of foreign exchange by enterprises or individuals. In November and December, the gap between foreign exchange demand and supply was narrowed from USD20-30 billion two months ago to around USD 10 billion. January 22, 2015 10:29:20 Guan Tao: Furthermore, the bilateral RMB/USD exchange rate had a slight fall, but the the RMB exchange rates against currencies of major trade partners remained strong. Last year, the RMB nominal and real effective exchange rate indexes compiled by theBank for International Settlements hit new record highs with an annual appreciation of 6.4%and 6.2% respectively, and both of them have appreciated by 40.5% and 51%, respectively since the exchange rate reform in 2005. In the future, China’s cross-border capital flows will still face many uncertainties and instabilities. But it is certain that China will maintain a surplus under the current account, especially a surplus in trade in goods; China’s economic growth will remain at a high level in the world despite the shift from high speed to medium-to-high speed, and the RMB exchange rate will remain higher than those of major currencies, which can help maintain its attractiveness to international capital, particularly medium- and long-term capital. From the uncertain aspects, market players will continue to keep an eye on domestic economic operations and the financial risks involved, and the diminishinginterest rate spreads between domestic and foreign currencies will speed up the restructuring of asset and liability currencies of market players. There are many global uncertainties as well. For example, the monetary policies of major economies will be further differentiated, the US monetary policy will be normalized, and the quantitative easing monetary policies in Europe and Japan will continue to be intensified, in addition to the price adjustment of bulk commodities, currency turmoil in emerging markets, and geopolitical disputes. Overall, China’s balance of payments will maintain the structure of “a basic currentaccount balance and bidirectional fluctuations in cross-bordercapital flows” in the near future. January 22, 2015 10:50:41 Guan Tao: Now I would like to answer your second question, the influences of the European QE on China. Since the euro zone is a major economy and the euro is a main currency in the world, its macroeconomic policies have enormous spill-over effect which we have been paying close attentionto. It now appears that the QE which might be introduced in the eurozone will exert both positive and negative influences on China. For one thing, as the US monetary policy is being normalized, the European QE can somehowease the restrictive influence of the US QE tapering. For another, the differentiation of the monetary policy trends inleading economies will affect theexchange rates between major currencies, which will aggravate the volatility of the international financial market, especially the foreign exchange market, and increase the difficultyin managing cross-border capital flows and exchange rate expectations by emerging markets. What’s more, the European QE is only one of the important external factors influencing cross-border capital flows and the RMB exchange rate of China and otherfactors shall be considered to make an integrated analysis, a holistic judgment and relevant plans. Thank you. January 22, 201511:04:25 Journalist from the Xinhua News Agency: Good morning, Mr. Guan, you mentioned just now that the monetary policies of the world’s major economies were differentiated, and would be further aggravated. We know that the US Federal Reserve exitedits quantitative easing policy last year and it is widely expected that the interest-rate rise cycle will be initiated earlier or later than the middle of this year. If the Fed initiates theinterest-rate rise cycle, what impact will it have on China’s future cross-border capital flows? How do you make the judgment? What measures shall we take? Thank you. January 22, 2015 11:12:29 Guan Tao: Thank you for your question. Relevant questions were raised three times in the four press conferences last year. Each move in macroeconomic policy of the United States, the world’s largest economy and major reserve currency issuer, will create huge spillover effect,and the Fed's introduction or tapering of the QE monetary policy has drawn wide concerns from us. Currently our judgments are as follows: first, the Fed’s exit from QE had limited impact on China’s cross-border capital flows last year. TheFed’s gradual tapering of QE in 2014 exposed many emerging economies to pressure from capital outflows and currency devaluation. In China, amid the much sharper bidirectional fluctuationsof the RMB exchange ratesince the second half of 2014, the Fed’s tapering of QE, intertwined with the appreciation of the US dollar and other factors, boostedChinese enterprises to quicken their financial adjustment and posed a certain outflow pressure on cross-border capital. However, this did not fundamentally change the general landscape of a basic equilibrium in the balance of payments and foreign exchange supply and demand and a slight increase in foreign exchange reserves in the year, and China's foreign exchange market was basicallystable, with strong exchange rates of the RMB against other currencies, despite slight adjustment in the exchange rate of the RMB against the USD. Second, the continued normalization of the Fed’s monetary policy this year will pose both challenges and opportunities to China’s cross-border capital flows. I remember answering a similar question at the press conference of last January. At that time, we pointed out that we had the confidence and ability to cope with the influence of the Fed’s QE tapering. On the one hand, China’s economy has generally maintainedsteady and rapid growth with robust external accounts, abundant foreign exchange reserves and a high tolerance for the impact on cross-border capital flows. On the other hand, the Fed’s QE exit and monetary policy normalization are based on the prospects of the US economic recovery. If the US economy is well recovered, it means China’s external demand is improved, which is conducive to export expansion. These favorable conditions still exist at present. Meanwhile, we shall also convert the pressure from normalized US monetary policy to our motivation for further reform and openingup and acceleration of the building of a new open economic system. For instance, the normalization of US monetary policy may differentiate expectationsof the RMB exchange rate, which is favorable forthereformof the market-oriented formation mechanism of the RMB exchange rate and may accelerate the restructuring of asset and liability currencies of domestic enterprises. But as a correction of the early large-scale inflows, this can promote China’s balance of payments to a basic equilibrium and help improve macrocontrol. January 22, 2015 11:14:22 Guan Tao: It was specially emphasized at theCentral Economic Work Conference in late 2014 that, in face of the new characteristics of openingup, we should more actively foster a balance between domestic and external demand, between imports and exports and between introducing foreign capital and “going global”, to gradually realize a basic equilibrium in the balance of payments, which therefore remains a current target of macro control. The normalization of US monetary policy may propel domestic enterprises to accelerate debt adjustment, which helps reduce currency mismatch and the external vulnerability of China’s economy. The key point is that China should first put its own house in order,so as to respond to the impacts from external uncertainties and instabilities. Hence, attaching equal importance toreform promotion and risk prevention remains as the priority of foreign exchangeadministration this year: first, proceed with administration streamlining and power delegation in foreign exchange administration; second, keep improving trade and investment facilitation with focus on promotingthe convertibility of the capital accounts; third, enhance the two-way monitoring and early warning of cross-border capital flows, activelybuild a macro-prudential management system for external debts and capital flows, and step up efforts to investigate and punishillegalities and violations regarding cross-border capital flows; fourth, positively cultivate the foreign exchange market to better serve the needs of the real economicdevelopment; and fifth, innovate the application of foreign exchange reserves and keep improving the operation and management of foreign exchange reserves. Thank you. January 22, 2015 11:37:36 Journalist from the Economic Daily: Market institutions recently said that the net errors in China's balance of payments have hit USD300 billion in recent years, which possibly reflects secret capital outflows. Especially in the third quarter of last year,net errors and omissions set a record of USD-63 billion. What would you say about it, Mr. Guan? Thank you. January 22, 2015 11:47:12 Guan Tao: Thank you for your question. We have noticed this too. Ever since 2009, the “net errors and omissions” in the balance of payments of China has been negative with an aggregate value of USD346.3 billion in Q3 of 2014, when the currentaccount surplus was USD72.2 billion, capitalaccount deficit USD9 billion, reserve assets USD100 million less, and net errors &omission USD-63.2 billion. I would like to answer this question in four aspects: First, statistically speaking, the size of China’s net errors and omissions is moderate and the balance of payments statistics are reliable. Givenstatistical techniques, all countries have set the netting item of “net errors and omissions” when preparing the balance of payments statement to equalize debit and credit amounts. And as the balance of payments expands, the net errors and omissions may increase, and the errors in high-frequency data are probably larger than those of low-frequency data. For example, quarterly data may be more volatile than half-year data, which is then more fluctuating than annual data. According to international practice, the balance statement is reliable provided that the size of “net errors and omissions” accounts for less than 5%, positively or negatively, of the total export-import volume of trade in goods under the balance of payments in the same period. Since the international financial crisis in 2008, China’s net errors and omissions have accounted for about 2% of the total export-import volume of trade in goods, with 5.6% in Q3 of 2014 and only 2.4% in the first three quarters. According to the balance of payments statement of Q2 of 2014 just released by the US, the currentaccount deficit reached USD103.5 billion, the capitalaccount surplus was USD10.3 billion, the reserve assets was up by USD800 million, and net errors &omissions stood at USD94 billion, taking up 9% of the total export-import volume of trade in goods in the same period, compared with 15% in Q1 of 2012. January 22, 2015 11:48:04 Guan Tao: Second, whether they were recessive or dominant capital outflows, China’s current account surplus and capital accountdeficit in Q3 of last year were “to be expected”. At present, the PBC has gradually relaxed the normal intervention in the foreign exchange market, so “trade surplus and capital outflow” are an inevitable market result, which is reflected as “currentaccount surplus and capital accountdeficit” in the balance of payments statement. However, it is in line with the direction of control and reform and is a desirable balance of payments structure. In theory, there is an analytical framework which incorporates “net errors and omissions” into the capital account. Third, we need to pay close attention to cross-border capital flows that violate the laws or regulations, but should not overanalyze the economic implications of “net errors and omissions”. For example, the net errors and omissions in Q3 of last year amounted to USD-63.2 billion. There might be two statistical reasons for it – underestimated capital export or overestimated current account surplus, so it could not be simply concluded as the reason of capital flows. Indeed, the direction of net errors and omissions is not necessarily connected with that of capital flows. Since 2009, China’s net errors and omissions have been negative, but by 2013 our country had been under the pressure of capital inflow and appreciation of the RMB except 2012 when it was under an outflow pressure. From the angle of statistical techniques, if a reasonable and stable method is adopted, the specific scale of the two possibilities can be estimated and shall also be included in the corresponding trading items under the balance of payments statement. For instance, one of thediscrepancies between the imports & exports of trade in goods in BOP statement and theCustoms’ imports & exports statistics is because the BOPstatement will record the imports & exports of smuggled goods confiscated by the Customs under the item of trade in goods. If this method is accepted, the illegal capital flows shall be registered under the related trading items. Statistics are only an objective reflection of economic activities, not a tool to manage capital flows. We should monitor and analyze the illegal cross-border capital flows, without focusing on net errors and omissions. January 22, 2015 11:58:57 Guan Tao: Fourth, as data quality is the lifeline of statistics, the quality of balance of payments statistics shall be further improved. In face ofnew conditions and problems, the SAFE will continue to improve the statistical system and methodology to reduce net errors and emissions. For example, the recently implemented external financial assets and liabilities and trade statistical systemdistinguishes the trade changes in externalinvestments and non-trade changes such as currency conversion, namely, the changes in external investments caused by trade and the changes in external assets caused by currency conversion. After they are distinguished, the data quality of foreign investment statistics can be enhanced. This system also collects the overseas consumption statistics via bank cards, which can be used to estimate the statistics of Chinese residents' overseas travelspending more accurately. Besides, in addition to continuing to collect transaction-by-transaction data through enterprise declaration, more sampling surveys and estimations will be conducted to ensure the comprehensiveness and accuracy of statistics at a lower cost and in a more reliable way. Thank you. January 22, 2015 12:14:59 Journalist from China Economic Times: Hello, Mr. Guan, you mentionedjust now that China’s cross-border capital inflows slowed down and bidirectional fluctuationsbecame more frequent in 2014. In the capital market, was there any new change to cross-border capital inflows and outflows after the Shanghai-Hong Kong Stock Connect was launched? What influences do you think will the Stock Connect have on the future cross-border capital inflows and outflows? Thank you. January 22, 2015 12:23:02 Guan Tao: Thank you for your questions. The Shanghai-Hong Kong Stock Connect was officiallylaunchedon November 17, 2014 as a major reform initiative to expand the two-way opening up of capital markets and facilitate the orderly flows of the RMB between Mainland China and Hong Kong.Since its official launch, the system has run smoothly, with theevaluation from relevant authorities meeting expectations. The balance of payments statistics show that in November and December, the northbound trading saw net inflows of capitalthat totaled USD11.4 billion, while the southbound trading saw net outflows of USD1.5 billion. After netting between northbound and southbound funds, the net inflows into the mainland stock market under the Stock Connect stood at USD9.8 billion, but only took a limited share of the overall cross-border capital flows in the same period, and also took a low proportion as compared with thefunds flowing in the same period into the stock market through a variety of legitimate channels, in terms of net capital inflows into the stock market. Therefore, even though the northbound funds were considerable and played a certain role, they were small-scale and at the initial stage. Second,China hasmade clear its intention to make the RMB convertible under the capital account at an earlier date and to expand the two-way opening up of capital markets, which represents thegeneral trend. After the markets are opened, cross-border capital fluctuations are likely to be more frequent. Given this, we shall first be more tolerant and well-prepared for capital outflows and inflows withmeasures, and second, we shall put our own house in order, which is the key for coping with the impact of cross-border capital flows after the openingup. China's steady economic growth will be beneficial to the inflows of long-term capital; if the reform is advanced successfully, some price distortions can be removed; and if a macro-prudential system and mechanism is established for the management of cross-border capital flows, we can deal with the impact from cross-border capital flows. In other words, we would better respond to the new situation of growing convertibility and further opening up of the market in the future if we are more tolerant and handle our internal affairs well. Thank you. January 22, 2015 12:24:55 Journalist from China Review News Agency in Hong Kong: Hello, Mr. Guan, I’d like to know the developments of London and Paris as emerging offshore RMB settlement centers, and their cooperative and competitive relationships with Hong Kong. Thank you. January 22, 2015 12:38:57 Guan Tao: This is a good question, but it has nothing to do with the theme of today's press conference. Thank you. January 22, 2015 12:39:37 Journalist from the Xinhua News Agency: I'm wonderingabout the monitoring of hot money in 2014. At the Davos Forum, Zhou Xiaochuan, governor of PBC, notedyesterday that hot moneywas still affecting the prices of bulkcommodities and the stock market of our country, so I want to learn about the SAFE’s monitoring and supervision in this regard in 2014. 2015-01-22 12:40:06 Guan Tao: Last year the foreign exchange administrationdepartments were closely monitored the inflows and outflows of cross-border capital based on the concept of balanced management. An overalljudgment was made on the situation of cross-border capital flows in thebeginning of the year, the monitoring focuswas adjusted in line with the changing situation in the middle of the year, and the situation of 2015 was forecasted and analyzed at the end of the year.Weproducedperiodic reports on the influences of cross-border capital flows on the stock and bulk commodity markets. Take the influences on the bulk commodity market for example. In early 2014, some domesticenterprises conducted carry trade with bulk commodities, but this arbitrage motivation faded away starting from the second quarter along with the significant intensification of bidirectional fluctuations of the RMB exchange rate and the drastic adjustments to the prices of international bulk commodities. In June in particular, risky events of trade finance took place in some places, which was a significant lesson for the market on risks. We noted that some regulators had tightened their regulatorypolicies, domestic banks had stepped up the authenticity verification of trade finance of bulkcommodities, and some overseas banks had reducedtheirChinese business for fear of possible risks, resulting in tremendous changes to the relevant financing activities in H2 of the year. Based on the trade finance data we monitored, the balance of cross-border trade finance for imports rose by USD42.8 billion in H1 but fell by USD87.7 billion in H2. This was not necessarily the financing under bulk commodities, but it mirrored a certain trend. Thank you. January 22, 2015 12:41:05 Hu Kaihong: This is the end of today's press conference. Thank you, Mr. Guan, and thank you all. January 22, 2015 12:51:37 (The original text is available at www.china.com.cn) 2015-03-06/en/2015/0306/1148.html