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· [Wang Yungui]: Good morning, friends from the press. Welcome to the press conference of the State Administration of Foreign Exchange (SAFE) on policies during the fourth quarter of 2014. I am Wang Yungui, director of the Comprehensive Department at the SAFE. We are very pleased to have with us today Guo Song, director of the Capital Account Department, Zhang Shenghui, director of the Management and Inspection Department, and Xiao Lihong, inspector of the Current Account Management Department. First, I would like to brief you on behalf of the SAFE on foreign exchange administration policies. [10:12] · [Wang Yungui]: Following the spirit of the Eighteenth National People's Congress, the Third and Fourth Plenary Sessions of the Eighteenth CPC Central Committee and the principles of seeking progress while maintaining stability and carrying out reforms and innovations based on the plans of the CPC Central Committee and the State Council, since the beginning of 2014 the SAFE has accelerated administrative streamlining, power delegation, and functional transformation, has further promoted foreign exchange administration reforms, and has enhanced monitoring and management of cross-border capital flows, with the aim of improving the capability of the foreign exchange administration to serve the real economy and to promote restructuring, transformation, and upgrading. The main measures are as follows: [10:13] · [Wang Yungui]: First, improving foreign exchange administration for trade in goods and trade in services to offer conveniences while also preventing risks [10:14] · [Wang Yungui]: Based on the requirements and plans of the State Council to support stable foreign trade growth and to promote the development of trade in services, in 2012 the SAFE promoted foreign exchange administration reform for trade in goods throughout China, canceling the requirements that the foreign exchange receipts and payments of import and export companies be verified; in 2013 it conducted foreign exchange administration reform for trade in services, canceling approvals for cross-border receipts and payments of foreign exchange under trade in services, especially for each transaction of less than USD 50,000. With these two reforms, more than 80 percent of China's foreign exchange receipt and payment transactions are subject to market-based resource allocations, and foreign-related companies have seen significant improvements in the efficiency of foreign exchange turnovers and conversions and in their capability to manipulate capital against international competition. While canceling ex ante approvals, the SAFE has stressed interim and ex post regulation and has established a series of innovative and effective risk prevention measures. Classified regulation measures, for example, require that suspected companies during ex post examinations be classified as class-B or class-C companies for intensive monitoring or inspections of transactions. Another measure is risk warning letters. Mega data analytical technology is used to identify companies with abnormal transactions and then a risk warning letter is sent to warn the companies against incompliance in their use of foreign exchange and requiring them to provide explanations or verifications. With these fundamental reforms, trade facilitation in terms of foreign exchange is maximally ensured and the systems and mechanisms to prevent the risks of systematic cross-border capital flows have been strengthened. [10:15] · [Wang Yungui]: Second, steadily promoting the reform of foreign exchange administration under the capital account, with a focus on addressing the difficulties of foreign-related companies in financing and reducing the costs of financing [10:15] · [Wang Yungui]: There are nearly 800,000 foreign-funded enterprises in China and more than 25,000 Chinese companies overseas. Both have a strong demand for financing but they encounter many difficulties. To address these difficulties and to reduce the costs of financing, since the beginning of this year the SAFE has introduced many measures. [10:16] · [Wang Yungui]: First, simplifying administration procedures for foreign exchange under cross-border credit. Ex ante approvals for external debts, sub-loans of external debts, and external debt registration by financing and leasing companies have been canceled, allowing companies to open accounts, charge to an account, and settle foreign exchange with banks directly after first-time registration, thus significantly reducing their financial costs. Three weekdays can be saved for external debt transactions from the time of account opening to the settlement of foreign exchange. Since this policy was introduced in May 2013, more than 30,000 external debt accounts have been opened, nearly 200,000 transactions of withdrawals, principal payments, and foreign exchange settlements have occurred, recording a daily average business volume of approximately 600 transactions. [10:16] · [Wang Yungui]: Second, significantly simplifying cross-border guarantee procedures for financing. Financing guarantee indicators for banks and for Chinese companies have been canceled for both overseas loans under domestic guarantees and domestic loans under overseas guarantees, for all approvals for signing contracts, for all ex ante verifications of the performance of contracts, and for the majority of the qualification restrictions. For example, previously an overseas Chinese-invested company could not receive loans from a local bank due to the lack of qualified credentials or collateral, but since the reform, its domestic parent company is allowed to provide guarantees so that overseas banks can extend loans. This policy has enabled numerous overseas Chinese-invested companies to receive credit support from its domestic parent company for overseas financing. Likewise, a foreign-invested company in China can receive relatively cheap loans from a Chinese bank through a cross-border guarantee from its parent bank that is based outside of China. Since the launch of the reform, banks and companies have seen stable growth in their cross-border guarantee business, with a low performance ratio, which indicates that banks and companies have strict control over cross-border guarantee risks and are able to identify risks. Estimates show that this policy can help companies save financial expenses by about 2 percent and it can shorten the time for the handling of business. Therefore, it has been applauded by banks and companies. [10:17] · [Wang Yungui]: Third, launching a pilot program of voluntary settlement of foreign exchange capital for foreign-invested enterprises. The payment-based foreign exchange settlement system is currently applicable to foreign-invested enterprises, that is, foreign-invested enterprises can settle foreign exchange to make payments so that their demand to use foreign exchange is satisfied and speculative capital conversions are prevented. However, this policy restricts companies from independently using their settled foreign exchange capital, and, in particular, it presents less risks of loss of exchange to companies as the RMB exchange rate continues to rise. Given the enhanced bidirectional fluctuations of the RMB exchange rate since the beginning of this year, the SAFE has introduced the voluntary settlement policy for foreign exchange capital and has launched a pilot program in seventeen national economic and financial reform and development pilot zones, including the China (Shanghai) Pilot Free Trade Zone, the Shenyang Economic Zone, and the Suzhou Industrial Park. This policy gives companies more freedom to settle foreign exchange, allowing them to choose the method and time of foreign exchange settlement after the inflow of foreign exchange capital. According to the policy, an unpaid foreign exchange settlement account can be opened to deposit the RMB obtained after the settlement so as to prevent the risk of abnormal capital inflows. Companies in the pilot regions have more conveniences in terms of settlement of foreign exchange capital and can freely exchange currencies. From a rational perspective based on the operations and production of the majority of companies, since the launch of the pilot program capital inflows have remained stable, without significant growth in the settlement of foreign exchange capital. [10:17] · [Wang Yungui]: Third, deepening the pilot program for centralized operations and management of the foreign exchange of MNCs to promote innovative development of foreign exchange administration [10:18] · [Wang Yungui]: Numerous MNCs have invested in companies in China and many Chinese companies have invested overseas to become MNCs; hence there has been a huge demand for capital transfers between parent companies and subsidiaries and among subsidiaries. Companies were traditionally restricted from transferring capital among themselves by the foreign exchange administration authorities in accordance with the regulatory requirements, making it impossible for MNCs in China to revitalize their members' internal capital using management resources and making it impossible for overseas Chinese MNCs to support their overseas operations using the capital of their domestic parent company and associated companies. The Regulations on the Centralized Operation and Management of MNCs' Foreign Exchange Capital, launched by the SAFE in April 2014, allows MNCs to build a capital pool for domestic primary accounts and a capital pool for international primary accounts, allows qualified MNCs in China to centralize the collection, payment, and netting of foreign exchange capital under trade in goods and trade in services, allows members of MNCs in China to centralize the transfer of external debt quotas and to conduct voluntary settlements of foreign exchange capital, and allows conglomerates to gather the capital of their domestic members to extend loans to their overseas investment companies. These measures have been applauded by both banks and companies. Some MNCs have saved hundreds of millions of US dollars in financial costs within one year alone and some MNCs have reduced nearly 90 percent of the volume of their annual settlements through netting, thus seeing an obvious acceleration of capital turnovers, and some MNCs have elevated their financial management centers in China to Asia-Pacific capital centers. As a result, China has consolidated and enhanced its regional advantages in terms of using foreign capital and is upgrading from a manufacturing and R&D center to a capital and wealth center. [10:19] · [Wang Yungui]: Fourth, facilitating financial institutions to move into the interbank foreign exchange market to promote the diversity of foreign exchange market players [10:20] · [Wang Yungui]: In 1994 China established an interbank foreign exchange market in the Shanghai Foreign Exchange Trading Center for China's foreign exchange wholesale market. Since the launch of the RMB exchange rate formation mechanism reform in July 2005, the interbank foreign exchange market has developed rapidly, with positive progress made in terms of diversifying market players, improving market rules, solidifying the infrastructure, and promoting self-discipline in the market. On December 5, 2014, the Circular on Adjusting the Management Policy for Offering Financial Institutions More Conveniences to Access the Interbank Foreign Exchange Market was released by the SAFE to encourage further administrative streamlining and power delegation, to facilitate financial institutions’ access to the interbank foreign exchange market, and to continue to promote the building of a management framework of market self-discipline and government regulation. The highlights of this circular are as follows: canceling ex ante access permissions for financial institutions to enter the interbank foreign exchange market and allowing financial institutions, such as banks, security companies, insurance companies, and fund and financial companies, to access the market and conduct transactions of spot exchanges, forward exchanges, swap transactions, and options of RMB against foreign currencies, provided they have obtained spot foreign exchange settlement and sales qualifications from the SAFE and derivatives trading qualifications from the financial regulators, including the China Banking Regulatory Commission (CBRC), the China Securities Regulatory Commission (CSRC), and the China Insurance Regulatory Commission (CIRC); canceling ex ante permission for currency brokers to access the interbank foreign exchange market and allowing them RMB derivative trading against foreign currencies and foreign exchange trading, lending, borrowing, and other services, provided that they abide by the rules and regulations of the interbank foreign exchange market. This policy will come into force on January 1, 2015. [10:20] · [Wang Yungui]: Fifth, clamping down on illegal foreign exchange and keeping a close eye on abnormal foreign exchange capital flows [10:20] · [Wang Yungui]: Since the beginning of this year, the SAFE has further stepped up foreign exchange inspections and cracked down on illegal foreign exchange to safeguard the economic and financial security in China. First, conducting special inspections to prevent false entrept trade and forward foreign exchange settlements, given the abnormalities of false entrept trade arbitrage and forward foreign exchange settlements. From the beginning of the year to November, 1,710 cases of foreign exchange violations were investigated and dealt with, imposing and collecting administrative fines in the amount of RMB 400 million. Second, strengthening cross-departmental financial regulatory cooperation. The SAFE has worked with the Ministry of Public Security to crack down on foreign exchange illegalities, such as underground banks and foreign exchange margin trading. As of the end of October, twenty-seven illegal foreign exchange trading cases such as underground banks had been dealt with, involving RMB 65 billion. Third, intensifying the search for clues about foreign exchange violations using the mega data resources acquired by the SAFE to further enhance the accuracy of the crackdowns and the efficiency of the inspections. From the beginning of the year to November, 538 cases were identified through mega data analysis, imposing fines in the amount of RMB 260 million, accounting for 32 percent of all cases and 65 percent of the total penalties. Fourth, promoting the building of a foreign exchange credit system and expanding the application of information on foreign exchange illegalities. The SAFE has signed an MOU with the Credit Center of the People's Bank of China (PBC), integrating information on foreign exchange illegalities of companies and public institutions into the PBC's credit system to step up efforts to increase the penalties. [10:21] · [Wang Yungui]: To sum up, the SAFE has vigorously promoted administrative streamlining and power delegation and has steadily implemented foreign exchange administration reform measures, thus playing a significant role in revitalizing the market, promoting the stable and balanced development of imports and exports, easing companies' difficulties in financing and reducing their financing costs, and preventing the risks of cross-border capital flows. [10:21] · [Wang Yungui]:Now we will take your questions. Before asking your questions, please remember to tell us where you are from. [10:30] · [Wang Yungui]:We are very glad to have Mr. Xiao, Mr. Guo, and Mr. Zhang with us today, which is a good opportunity for you. Please focus your questions on policies and issues related to the current account, the capital account, and foreign exchange administration and inspections. [10:31] · [Wang Yungui]: Now please raise your questions. [10:31] · [South China Morning Post]: The ruble has recently slumped in the international market. Does the SAFE have any preventative measures and what are its responses? How do you regard the reasons behind this slump? [10:31] · [Wang Yungui]: China and Russia are close trade partners. We are watching for any sharp fluctuations in the exchange rate of the ruble. We hope that companies and institutions can rationally use forward and swap financial tools and avoid and lock up risks in Sino-Russian trade activities to promote the healthy development of Sino-Russian economic and trade relations. [10:35] · [Economic Daily]: You mentioned just now that companies encountered difficulties in financing and were looking for ways to reduce their financing costs. A report released on www.gov.cn yesterday said that we have provided entrusted loans for companies using foreign exchange reserves, and we have provided policy banks, large commercial banks, and small and medium banks with USD 384.8 billion in foreign exchange. I am wondering whether the money is being used as cross-border loans and whether there are special arrangements in terms of the direction of the investments, the interest rate, and the maturity. [10:48] · [Wang Yungui]: We have noted this report, but since your question is about foreign exchange reserves as entrusted loans, we have no more information to disclose here. Thank you. [10:49] · [people.com.cn]:China has witnessed historical records regarding import and export surpluses since the third quarter of this year. It is worth mentioning that Mainland exports to Hong Kong rose very rapidly and exports of precious metals climbed significantly between September and October, while during this period the surplus of foreign exchange under trade in goods settled and sold rose only slightly. What would you say about this? [11:16] · [Xiao Lihong]: We too have noted this. Let's first look at the figures. China's import and export aggregates rose by up to 11.4 percent and 8.4 percent respectively in September and October. Mainland imports from and exports to Hong Kong, especially for the processing trade of gold and jewelry, increased significantly. China's exports of precious metals were up by more than 600 percent and 180 percent respectively in September and October, much faster than the 15 percent average growth during the first eight months of the year. Mainland exports of gold and jewelry to Hong Kong were up by more than 500 percent in September and 120 percent in October, both of which were very high. [11:16] · [Xiao Lihong]: What is the relationship between the significant growth in the export of gold and precious metals and China's capital flows and financing? We too are looking into this. But based on the following analysis we believe they are not highly relevant: [11:17] · [Xiao Lihong]: In aggregate, no capital flows have flooded in with the dramatic increase in the export of gold and jewelry in terms of China's trade balance structure and trade financing this year. First, China has witnessed more inflows than outflows of cross-border capital since the second quarter of this year, which is a major trend. Second, we have observed that foreign exchange settled and received under trade in goods was low, while foreign exchange purchased and paid was high, and, in particular, the balance of foreign exchange settled and sold under trade in goods in October was, for the first time since 2012, in deficit, which was USD 2.4 billion. Third, the balances of trade credit, trade financing, and domestic and international foreign exchange remittances and loans were all on a downward trend. Trade financing was down by USD 36.5 billion and domestic foreign exchange loans were down by USD 21.2 billion during the first three quarters and the figures for October were on the decline as well. Therefore, in aggregate the surge in the export of precious metals did not result in significant inflows of trade capital. [11:17] · [Xiao Lihong]: At the micro level, Shenzhen represented the fastest growing region for the export and import of gold and jewelry to and from Hong Kong in terms of companies' receipts and payments of foreign exchange. The SAFE's Shenzhen Branch conducted a survey of one dozen gold companies with the fastest growth of imports and exports in September and October. This survey shows that their total receipts and payments of foreign exchange were on the decline during these two months, with their trade financing ratio lower than the local average. Therefore, the volume of companies' imports and exports of gold are not closely related to their capital flows. [11:17] · [Xiao Lihong]: Last but not least, policies and regulations. At the end of December 2013 the SAFE released Circular No. 44 to intensify verifications of trade financing. The SAFE and its branches have been committed to clamping down on trade structuring without a real transaction background and has never slackened in these efforts. In implementing Circular No. 44, commercial banks have enhanced their control over trade financing risks, and overseas banks, especially those based in Hong Kong, have not loosened their restrictions on trade financing by Mainland companies. There is limited room for financing arbitrage of trade structuring. [11:18] · [Xiao Lihong]:Trade structuring has not yet returned, and the SAFE will continue to watch out for industries with abnormal imports and exports and companies' cross-border receipts and payments, foreign exchange settlements and sales, and trade financing to guard against the risks of cross-border capital flows [11:18] · [CCTV]: You have briefed us on the policy of the pilot reform of centralized operations of MNCs’ foreign exchange. How will this policy support the state's plans for economic and financial reforms? Will more measures be introduced in the future to facilitate companies' cross-border investments and financing? [11:51] · [Wang Yungui]: The MNC policy is a key reform measure promoted by the SAFE this year. The reform measure for MNCs includes a package of policies covering many comprehensive businesses of the SAFE. These policies aim to facilitate Chinese and foreign-invested MNCs to use their internal funds rationally. · [Wang Yungui]:This policy has proved to be helpful to address the difficulties faced by companies in terms of financing and to reduce their high financing costs, which have been rather difficult this year. The SAFE has actively implemented the plans of the CPC Central Committee and the State and has been dedicated to addressing this issue. The MNC policy has an important institutional design that allows each company to open a domestic primary account and an international primary account. The capital pool of the domestic primary account allows domestic member companies of an MNC to put their capital into the same pool, which means that company A can lend its money to company B when it has money and companies A and B can lend their money to company C. This is very helpful for MNCs to revitalize their internal capital. In particular, this policy allows Chinese companies that have gone global to put together the capital of the parent company and that of the domestic subsidiaries and to lend it to their overseas subsidiaries and branches. [11:51] · [Wang Yungui]: We all know that many going-global companies cannot get loans from local banks or they have to pay a high price for loans. Meanwhile, many domestic large groups have a huge amount of internal capital. This policy allows domestic groups to integrate and transfer domestic funds to support the development of overseas companies. It has proved to be very effective in serving the going-global companies, especially those making overseas investments in areas not reached by Chinese financial institutions. [11:52] · [Wang Yungui]: Next, we will continue to step up efforts to reform policies for MNCs to facilitate better coordination of their capital and to build a more convenient financing environment. [11:52] · [Xinhua News Agency]: Next year will be the last year of the Twelfth Five-year Plan period. Does the SAFE have any plans for capital account reform and what measures will it introduce next year? [12:13] · [Guo Song]: The SAFE has adopted a series of measures to streamline administration and delegate power during the Twelfth Five-year Plan period, based on the uniform arrangements of the CPC Central Committee and the State Council as well as the principles of the "five shifts." In addition to the many reform measures we have taken since the beginning of this year, as briefed by Mr. Wang, over the past few years we have been committed to deepening the reform of the foreign exchange administration system and substantially improving capital account convertibility. During the past five years, we have been stressing the "five shifts.” Now I would like to tell you about the "five shifts." [12:14] · [Guo Song]: To put it simply, the "five shifts" include a shift from focusing on approvals to stressing monitoring, and a shift from ex ante approvals to ex post regulation. Many items that were subject to ex ante approvals have been removed, and our monitoring and analysis capabilities are improving, which is the shift from approvals to monitoring. For example, external guarantees for the capital account used to require ex ante approvals, but, with the exception of one registration procedure, this approval has now been removed. This is the shift from ex ante approvals to ex post regulation. [12:14] · [Guo Song]: The shift from behavioral regulation to regulation of market players is also included. What is behavioral regulation? For example, external debts were subject to approvals of the external debt, and investment was subject to investment approvals. Now they are combined and subject to regulation by market players. The MNC management policy introduced by Mr. Wang is designed according to this logic. [12:14] · [Guo Song]: Of the remaining two shifts, one is the shift from presumption of guilt to presumption of innocence. The reforms of trade in goods and trade in services are cases in point. We used to presume everyone was guilty and therefore required case-by-case inspections, but now we presume everyone is innocent and we identify who is guilty through analysis and monitoring and we classify them as class-B or class-C companies that require strengthened regulation. This is the shift from presumption of guilt to presumption of innocence. [12:15] · [Guo Song]: Another shift is the shift from a positive list to a negative list. The concept of a negative list may be very familiar to you since the establishment of the China (Shanghai) Pilot Free Trade Zone. In fact, this concept was first put forward five years ago. [12:15] · [Guo Song]: There is still a long way to go, to be sure. It is assessed that the capital account now has forty sub-items. Our self-assessment shows that about 85 percent, or thirty-four sub-items, are convertible, or 85 percent of the capital account business can be handled now. This means that significant progress has been achieved in capital account convertibility over the past few years. [12:15] · [Guo Song]: Based on the spirit of the Third Plenary Session of the Eighteenth CPC Central Committee and the Central Economic Work Conference, the SAFE will build and improve the external debt and capital flow management system under a macro-prudential framework, and will deepen reforms in key areas, such as direct investments and securities investments, to further promote the opening up of the capital market. The SAFE will also systematically comb through the experience from the pilot program of centralized operations and management of the MNCs' foreign exchange and the foreign exchange administration policies of the China (Shanghai) Pilot Free Trade Zone and roll out the experience nationwide to gradually achieve convertibility of the RMB capital account. A series of reform measures for administration of foreign exchange under the capital account will be launched in the foreseeable future. Thank you. [12:16] · [China News Service]: You said just now that RMB 65 billion was involved in the underground banks that were destroyed from the beginning of the year to October. But I remember that RMB 2.8 billion was involved in the underground banks destroyed as of this August. Is the large gap because of special inspections or because of the crackdown on major cases? · [Zhang Shenghui]:Clamping down on underground banks has been one of our work priorities. This effort has focused on three aspects this year: first, exploring clues; second, close cooperation; third, extending inspections. [12:43] · [Zhang Shenghui]: First, just as Mr. Wang said just now, the SAFE has massive data and an offsite inspection system, through which we can analyze the foreign exchange receipts and payments and related behavior, identify abnormalities of capital flows, and find clues about cases. The offsite inspections have helped us find numerous clues, following which we have stepped up our efforts to crack down on the underground banks. [12:44] · [Zhang Shenghui]: Second, in terms of cross-departmental cooperation, we have been working closely with the Customs, the SAT, and the discipline inspection commission and the supervision department and we have shared information and resources about the cases. We also cooperate with the public security departments and take joint actions. [12:44] · [Zhang Shenghui]: Third, regarding extending the inspections, we investigate the counterparties and downstream and upstream clues every time we destroy an underground bank, identify upstream and downstream problems, and cooperate with the Customs, the SAT, and the discipline inspection commission to crack down on foreign exchange fraud and arbitrage, smuggling, and anti-corruption. [12:44] · [Zhang Shenghui]: Our efforts in these three aspects have proven to be effective this year. As of this October, the SAFE and the public security authorities cracked twenty-seven cases of underground banks and other illegalities, which involved a total of RMB 65 billion, with RMB 150 million frozen and more than RMB 30 million collected on site, and we caught more than ninety suspects. [12:44] · [Zhang Shenghui]: The rise from more than RMB 2 billion to RMB 65 billion as you have just mentioned was the result of several cases that involved a large amount of money. The time of the investigations varies with the complexity of the cases. It usually takes us several months, or half a year or even longer, to investigate each case. That's why the figures fluctuate. [12:45] · [Zhang Shenghui]: We will continue to step up our efforts to crack down on the underground banks and try to improve the effectiveness of our efforts to safeguard our foreign-related economic and financial security. [12:45] · [Reuters]: Will the recent pressures of capital outflows put downward pressures on the RMB exchange rate? [12:56] · [Wang Yungui]: There has been a new normal in the RMB exchange rate since the beginning of this year, namely, bidirectional fluctuations. This trend has been particularly obvious since the second quarter, with ups and downs in the RMB exchange rate. In this new normal, companies, institutions, and individuals have been more sensible. Rather than settling foreign exchange immediately after capital inflows, some companies deposit their export income overseas instead of transferring it to China and choose not to settle all the export income but rather to deposit it in their foreign exchange accounts. It is therefore normal that there are capital outflows during some months. This is a normal state under the new landscape of economic and financial liberalization and there is no need to worry about it too much. The SAFE will continue to enhance its regulation of foreign exchange capital flows. [12:56] · [Phoenix Satellite TV]: I am concerned about the collapse of the ruble. Some believe that the plunge of the ruble may lead to a depreciation of currencies and capital outflows of other emerging countries. Is the SAFE similarly concerned about the RMB? Will the RMB come under more pressure as the Fed increases the interest rate next year? [13:06] · [Wang Yungui]: There are very complex reasons behind the collapse of the ruble, which has attracted wide concern in the international community. As a large and open economy, China is also paying attention to this and the SAFE is continually monitoring and managing the flow of foreign currencies. Overall, the impact of the collapse of the ruble has not yet become fully apparent and still requires further assessment. [13:07] · [Global Times]: I am also concerned about the RMB depreciation. It has been recently expected that the volatility range of the RMB mid-rate will be further extended next year. What do you have to say about this? [13:17] · [Wang Yungui]: A RMB depreciation or appreciation is normal under the prerequisite of the market determining the RMB exchange rate. In this context, it is normal that the RMB depreciates at certain times or in a month, and it is therefore unnecessary to overanalyze it. [13:18] · [Wang Yungui]: Regarding the mid-rate, the People's Bank of China and the SAFE will continue to promote the marketization reform of the RMB exchange rate formation mechanism. Based on the spirit of the Third Plenary Session of the Eighteenth CPC Central Committee, the SAFE will allow the market to play a more decisive role in the RMB exchange rate formation mechanism, enhance monitoring of cross-border capital flows, and vigorously develop the foreign exchange market to gradually achieve a basic equilibrium in the balance of payments and will create a favorable environment for the development of China's foreign-related economy and finance. Thank you. [13:21] · [Wang Yungui]: Thank you for coming. You have raised very good questions, which will further enlighten us to accelerate trade and investment facilitation and to promote reform of foreign exchange administration to better serve the real economy. Thank you for your attention and support for our work. We are looking forward to meeting you again at our next press conference. [13:22] (The original text is available at www.people.com.cn) 2015-01-06/en/2015/0106/1142.html
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[Wang Yungui]: Good morning, friends from the press. Welcome to the press conference of the State Administration of Foreign Exchange or the SAFE on policies for the second quarter of 2015. I am Wang Yungui, director-general of the General Affairs Department of the SAFE. Today we have with us Du Peng, director-general of the Current Account Management Department, Guo Song, director-general of Capital Account Management Department, and Zhang Shenghui, director-general of the Supervision and Inspection Department. On behalf of the SAFE, I would first like to unveil the latest policies for foreign exchange administration. [10:12] [Wang Yungui]: Since the beginning of this year, the SAFE has actively implemented the work plans of the CPC Central Committee and the State Council. To be specific, it has accelerated promoting the "five shifts" in foreign exchange administration, further deepened the reform of foreign exchange administration in trade in goods, trade in services and direct investments, promoted trade and investment facilitation, and stably pressed ahead with the capital account convertibility, thus effectively improving foreign exchange administration to serve the real economy. Below are the reformative measures that have been taken: [10:13] [Wang Yungui]: First, the reform on foreign exchange administration for insurance business is yielding dividends. [10:13] [Wang Yungui]: The Guidelines for Foreign Exchange Administration for Insurance Business came into force on March 1, 2015, cancelling or handing down administrative approvals for foreign exchange business of insurance companies. This reform is now gradually yielding dividends. First, the policy offers significant convenience to insurance institutions to handle relevant business. According to an insurance company, the reform simplifies the business application materials required and approval process, and cancels the requirements on the validity of the qualification for carrying out foreign exchange-related insurance business, offering great convenience to insurance institutions to handle foreign exchange business, helping reduce HR cost and improving business efficiency. Second, the integrated regulations are easier to implement. Compared with the original policies for foreign exchange-related insurance business, the Guidelines is clear, centralized and transparent, featuring coherent and consistent contents, making it easy for relevant insurance institutions and banks to implement. Third, the reform boosts the development of foreign exchange-related insurance business. Relaxing the requirements on the currency for pricing and settlement solves the problems encountered by most insurance institutions and provides room for introducing policies to promote the development of foreign exchange-related insurance business.[10:14] [Wang Yungui]: Second, reform of foreign exchange administration for direct investments has produced preliminary results. [10:15] [Wang Yungui]: To further simplify and improve foreign exchange administration for direct investments, the SAFE announced in February 2015 that administrative approvals for foreign direct investment (FDI) and overseas direct investment (ODI) will be canceled starting from June 1. From then on, the absolute majority of businesses under direct investment will be processed directly at banks, with no need for companies to register or verify with foreign exchange authorities. [10:15] [Wang Yungui]: Well received by banks and companies, the reform allows banks to provide whole-process services including foreign exchange registration, accounts opening and remittance, which is favorable for banks to improve the level of service and attract and retain quality customers. The cancellation of the verification for the registration of foreign exchange for direct investments has significantly cut the business processing process and links, reducing the costs of companies for moving to and fro between a foreign exchange authority and a bank. In the first week since the implementation of the policy, namely, between June 1 and 7, 43 banks across China conducted foreign exchange registration for 398 direct investments, with the contracts involving USD 12.4 billion in total. These direct investments, FDI or ODI, were registered as new items or for alteration, featuring bidirectional flows of cross-border capital. [10:16] [Wang Yungui]: Third, the reform of voluntary settlement of foreign exchange capital of foreign-invested enterprises (FIEs) has been rolled out nationwide. [10:17] [Wang Yungui]: Based on the experience in voluntary settlement of foreign exchange capital gained in the pilot program in force in China (Shanghai) Pilot Free Trade Zone and 16 other national pilot economic and financial reform and development zones, the SAFE began reforming the administrative approach to settlementof foreign exchange capital at the end of March, announcing the reform of voluntary settlement of foreign exchange capital will be rolled out nationwide starting from June 1, granting companies the full right of decision making and choice in settling foreign exchange capital. Companies will be allowed to choose the time and amount of foreign exchange capital to be settled based on their operating needs, and conduct receipts and payments of the RMB through the account for FX settlement and pending payment. While offering more convenience, the SAFE will continue to supervise the use of funds after the foreign exchange is settled and introduce more measures to guard against and control risks. [10:18] [Wang Yungui]:As the RMB exchange rate falls in the bidirectional fluctuation range, the reform of voluntary settlement of foreign exchange capital provides enterprises with policy space for evading risks associated with the exchange rate fluctuation, and facilitates equity investment in China by FIEs using funds after settlement of foreign exchange, whereby better satisfying FIE's demand for business operations and funds operations, and will thus play a positive role in promoting the foreign-related economic development. [10:18] [Wang Yungui]: Fourth, the Guidance on Foreign Exchange Administration for Mainland-Hong Kong Mutual Fund Connect is forthcoming. [10:18] [Wang Yungui]: Approved by the State Council, the Mainland-Hong Kong Mutual Fund Connect scheme will be launched on July 1. Under this framework, mainland investors can buy HK public offering of funds on the mainland and HK investors can trade mainland public offering of funds in Hong Kong. The initial quota for investment under the Mutual Fund Connect would be RMB 300 billion in each direction. The Guidance on Foreign Exchange Administration for Mainland-Hong Kong Mutual Fund Connect has been developed and is forthcoming. [10:18] [Wang Yungui]: This policy creates a new channel for both mainland and HK investors to invest in the stock market and is the first step to liberalize portfolio investment under the collective investment scheme. With the launch of the Mutual Fund Connect, the "overseas sales or issuance by residents" and "domestic sales or issuance by non-residents" under "capital and monetary market instruments — securities for collective investment" in the transactions under the capital and financial account will no longer be strictly restricted, indicating that two inconvertible capital accounts will be slashed and China's capital account convertibility will be further enhanced. [10:20] [Wang Yungui]: Fifth, cracking down on activities in violation of foreign exchange laws and regulations. [10:20] [Wang Yungui]: Since the beginning of this year, the SAFE has stepped up foreign exchange inspections, cracked down on acts in violation of foreign exchange laws and regulations, and effectively guarded against risks arising from abnormal flows of cross-border capital. First, the SAFE organizes special inspections of banks' compliance with laws and regulations on foreign exchange business and strengthens internal control by and external supervision over banks, so as to promote banks to improve their level of compliance in the foreign exchange business. On-site inspections have been completed while subsequent handling and rectification and follow-up are underway. Second, under the unified arrangement of the Office of International Hunt for Corrupt Officials Who Have Fled Abroad and Recovering Ill-Gotten Gains under the Central Anti-Corruption Coordination Team, the SAFE works with the People’s Bank of China Ministry of Public Security, the Supreme People's Court, and the SupremePeople'sProcuratorate to clamp down on underground banks and illegal acts such as transferring overseas the illegal gains through offshore accounts and non-resident accounts in a centralized manner to eliminate the channels for transferring illegal gains and income such asbribes andgraft. Third, the SAFE organizes special off-site inspections of the main channels, players and businesses with abnormal flows of cross-border capital, and analysis and identification of the clues to foreign exchange transactions in violation of relevant laws and regulations, so as to precisely crack down on players that violate the foreign exchange laws and regulations. [10:21] [Wang Yungui]: Overall, by adapting to the requirements from market players for easier foreign exchange administration, the SAFE was committed to collaboratively pressing ahead with administration streamlining and power delegation, combination of regulation and deregulation and providing optimized services, and stably implemented reformative measures for foreign exchange administration in the second quarter, playing a significant role in making full use of the vitality of market players and promoting the sustainable and healthy economic development. [10:21] [Wang Yungui]: Now we will take your questions and please remember to tell us where you are from before you raise questions. [10:22] [Reporter]: Mr. Wang, I am from the CAIJING Magazine. The State Council recently adopted the policy of limited convertibility for Guangzhou, Tianjing and Fujian Free Trade Zone. I am wondering the differences between the policy and the ongoing capital account reform. When will the detailed provisions be promulgated? [10:24] [Wang Yungui]: Let's invite Mr. Guo Song to answer this question. [10:25] [Guo Song]: In the past, the capital account was administered by business lines such as direct investments, portfolio investment and external debts, with the extent of administration prescribed in each policy dependent on the degree of risk. The limited convertibility is a new approach we are planning to adopt or are exploring. According to this approach, we will no longer determine or distinguish the use of funds within the limit, or no longer follow the traditional way of administration, that is, investors may make direct investments or portfolio investments within the limit. We believe this is a new way of reform. The successful experience from some other countries and regions which have tested such a way shows that this approach will be effective. In our view, if this policy is introduced, the degree of overall convertibility of the capital account in China will be improved significantly. But when this approach will be adopted depends on our internal work processes. [10:25] [Reporter]: I am from China Daily. I have a question for Mr. Wang. According to Governor Zhou Xiaochuan, the Regulations on Foreign Exchange Administration will be revised this year to further liberalize the convertibility of capital accounts. I am wondering the progress of the revision. In what logic will the Regulations be revised? When will the revised version be disclosed? Thank you. [11:06] [Wang Yungui]: This is a very good question, which concerns the academia and media. According to Mr. Zhou, there is still a lot to do to press ahead with the capital account convertibility and one of them is revising the Regulations. The current version came into force in August 2008 after being approved by the State Council. Over the past few years, the Regulations has played significant roles in advancing the foreign exchange administration reform, serving the real economy and guarding against and controlling financial risks. [11:06] [Wang Yungui]: As China enters the new normal of economic development, the administration streamlining and power delegation will be further accelerated, and the foreign exchange administration reform will be deepened. Looking back and into the future, it is necessary to further consolidate the reform fruits by adjusting and revising the Regulations, which is underway under the leadership of the People's Bank of China. The main logic of revising is summarized in four aspects as follows: [11:06] [Wang Yungui]: First, continuing to streamline administration and delegate power. The permission and approval involved in the Regulations on Foreign Exchange Administration for the regulation of the capital account will be canceled, simplified or handed down. It is expected that streamlining administration and delegating power will provide room for the capital account convertibility. As a result, a large part of the revised version will be dedicated to adjustments relating to administration streamlining and power delegation. [11:06] [Wang Yungui]: Second, further intensifying statistical monitoring. After the realization of the capital account convertibility, we believe that the statistics and monitoring of cross-border capital flows will be enhanced, and some transactions will even be recorded. This means that administration will still be required after achieving the capital account convertibility. But how? What's important is that comprehensive and continuous monitoring of cross-border capital flows along the entire chain will be conducted. Therefore, the revised version will emphasize statistical monitoring in terms of declaration of the balance of payments, monitoring of cross-border capital flows, statistics on external debts, and statistics on foreign exchange settled and sold. [11:06] [Wang Yungui]:Third, innovating the concept for financial regulation by learning from the lessons of the international community on financial regulation after the 2008 subprime mortgage crisis. At that time, the international community focused on strengthening macro-prudential management in crisis monitoring, and intensified the regulation of systematic financial institutions. While propelling the capital account convertibility, China needs to draw from the latest international experience and practice in financial regulation. As a result, the revised version will stress macro-prudential monitoring of cross-border capital flows, introduce policies for strengthening macro-prudential management of external debts and highlight provisions on business operations by financial institutions. While liberalizing specific approvals, this means lines of defense against macro risks will be built. [11:06] [Wang Yungui]: Fourth, improving measures for crisis response and stepping up efforts to revise and improve the provisions on guaranteeing the balance of payments. Given that the surplus or deficit of the balance of payments will adversely impact the economic development, preventing and controlling external risks is critical. The revised version sets forth the temporary control terms in case of sharp fluctuation in the balance of payments or in the domestic financial market, which satisfies the special requirements of the IMF on crisis and accords with the international practice. [11:06] [Wang Yungui]: To sum up, we expect to provide room for the capital account convertibility and build lines of defense against risks, making sure no systematic and regional financial risks will occur, which is our bottom line. [11:07] [Reporter]: I am from CBN. Reportedly, the IMF announced on June 12 that a team has been sent to assess China regarding the Special Drawing Right (SDR). Could you tell us about the progress of the assessment? [11:12] [Wang Yungui]: Currently, the assessment of SDR is led by the People's Bank of China (PBC) and carried out by the SAFE. The assessment is now carried out in accordance with the unified requirements of the PBC, so you can consult the PBC about the specific progress. But I want to stress here that having the RMB included in the SDR basket is a key plan made by the CPC Central Committee and the State Council during the reform and opening up and under the new normal of economic development. Including the RMB in the SDR basket is critical for pressing ahead with the RMB internationalization and further reducing the likelihood of currency mismatch in China's foreign-related economy and financial risks. Just as Mr. Zhou and Mr. Yi said, we will actively promote the inclusion of the RMB in the SDR basket, but this should be a natural result. We will cooperate with the IMF in the assessment for including the RMB in the SDR basket, enabling the international community to acquire a clearer and more comprehensive understanding of the use of the RMB in the global market.[11:12] [Reporter]:I am from Xinhua News Agency. I have two questions. First, how does the hunt for corrupt officials who have fled abroad and recovery of ill-gotten gains, which is part of the Skynet Act, turn out?Since the beginning of the year, cross-border e-commerce has boomed, but some small companies have been found having difficulty in foreign exchange settlement for exports. For example, they can only handle receipts and payments under small-sum trade in goods through a third-party payment institution, with a single transaction of not more than USD 50,000. More small companies export goods in small packages and cannot settle foreign exchange, perhaps due to incorrect declaration to the Customs, and have to settle through underground banks. Given this, my second question is how to make it easier and more convenient for companies to settle foreign exchange while promoting and supporting the development of cross-border e-commerce. [11:43] [Wang Yungui]: Let's invite Mr. Zhang to answer the first question. [11:43] [Zhang Shenghui]: I would first like to clarify that cracking down on transferring ill-gotten gains through offshore companies or underground banks is part of the Skynet Act, which has been carried out nationwide by the SAFE, PBC, Ministry of Public Security, Supreme People's Court, and SupremePeople'sProcuratorate since this April. Under the deployment of the Office of International Hunt for Corrupt Officials Who Have Fled Abroad and Recovering Ill-Gotten Gains under the Central Anti-Corruption Coordination Team, this act focuses on clamping down on illegal acts of transferring overseas the illegal gains through offshore accounts and underground banks in a centralized manner to confiscate illegal gains such as bribes and graft as many as possible. Under the command of a special action steering team, the SAFE, highly concerned over this act, has developed an inspection scheme for the special action in the first place, and called on its branches in the key areas to hold meetings to make deployment, in an effort to press ahead with the act by making full use of the experience of foreign exchange authorities in cracking down on illegalities such as underground banks and its own advantages. This act is underway now and it is improper to disclose more details here. But as the act proceeds, we will immediately disclose relevant information to you if necessary. Thank you! [11:43] [Wang Yungui]: Let's invite Mr. Du to brief us about cross-border e-commerce and foreign exchange settlement. [11:43] [Du Peng]: I remember that on the briefing for the third quarter of last year, I introduced something on the third-party payments for cross-border e-commerce, which has produced some results. By summarizing the experience gained on the preliminary pilot program in Beijing, Shanghai, Chongqing, Zhejiang and Shenzhen, we have scaled up nationwide the pilot program on online payments through a third party starting from this January, which means that qualified institutions across the country will be allowed to engage in this business. Regarding the inconvenience to make payments in some places, I'd like to answer as follows: [11:44] [Du Peng]: First, this business is launched to allow companies and individuals to make online deals through third-party payment institutions. Individuals are free from the annual cap of USD 50,000, provided that the transaction is authentic. [11:44] [Du Peng]: To further expand online payment and satisfy companies' and individuals' demand for cross-border business, we raise the cap of original USD 10,000 to USD 50,000 for a single transaction. 1.329 million deals of receipt and payment via e-commerce under the pilot program have been handled since September 2013, involving USD 3.32 billion. In particular, the transaction value for this January through May alone approached the amount involved from the kickoff of the pilot program to the end of last year, indicating this business has grown rapidly. Meanwhile, it is noticed that among these transactions, a single payment involves less than USD 100 on average, far lower than the cap of USD 50,000. [11:44] [Du Peng]: On the other hand, as for the pilot program of cross-border online payment, we recognize the electronic data on all the transaction links of e-commerce, as the ground for authenticity review. This means individuals and companies can have cross-border online payments processed with a payment institution, without the need to present the customs declaration form. [11:44] [Du Peng]: To facilitate foreign exchange settlement in the case of mailing bulk goods overseas, we have launched a pilot program in Zhejiang and Fujian allowing commercial instruments to replace the customs declaration form as the basis for foreign exchange settlement, which has produced positive results. This approach is a desirable response to the failure to get the customs declaration form, the case you said just now. [11:44] [Du Peng]: Next, we will study whether it is viable to further increase the payment cap in accordance with the overall plan for economic and strategic development by the State Council, if the risk is controllable. [11:45] [Reporter]: I am from the Financial News. In the SAFE annual report recently released, I notice that the SAFE identified many clues to foreign exchange transactions in violation of laws and regulations through big data analytics. I'm wondering how the foreign exchange big data review system works and what major and serious cases have been identified through this system? [11:46] [Zhang Shenghui]: This system was developed around 2009 and put into operation in 2010. Its features include: First, wide coverage. This system covers many players of foreign exchange-related transactions as well as information on foreign exchange transactions under the current account and capital account. Second, strong search capability. Capable of screening suspected transaction leads from enormous data on foreign exchange transactions, which is conductive to locking on the players violating laws and regulations and illegal acts. This system has significantly enhanced the relevance and effectiveness of foreign exchange inspections and is of great help to intensify ex-post regulation. [11:46] [Zhang Shenghui]: For example, a branch of the SAFE used this system to identify and confirm that a company conducted false entrepot trade to gain spread between domestic and overseas interest rates. Another branch analyzed and confirmed that a company used fake invoices to illegally settle the foreign exchange that was equivalent to the RMB in value. Overall, this off-site inspection system has played significant roles through big data analytics. [11:47] [Zhang Shenghui]: The use and improvement of the off-site inspection system in recent years have produced positive results in cracking down on foreign exchange violations. From 2012 to 2014, based on the analysis and investigation using this system, the SAFE verified 1,524 cases of foreign exchange violations, imposing an administrative fine of RMB 650 million. Of the cases verified by the SAFE in 2014, up to 1/3 was identified and verified using this system, involving a fine that was 70% of the total. Moreover, the cases identified using this system generally involved a large amount and had serious impact on foreign exchange receipts and payments. [11:47] [Zhang Shenghui]: To sum up, using the off-site inspection system to make big data analytics has been the normal of foreign exchange inspections. Thank you! [11:47] [Wang Yungui]: I'd like to say something more. Over the past few years, especially since 2009, the SAFE has been committed to promoting administration streamlining and power delegation in foreign exchange administration, emphasizing integration of the systems for unified data monitoring. We have since merged and streamlined systems relating to foreign exchange administration on a large scale, and shared some key data, and hence built a platform for monitoring cross-border capital flows, which is chiefly used by the business line under the charge of Mr. Zhang. [11:58] [Wang Yungui]: This system gathers the shared resources of all the SAFE's systems relating to cross-border capital flows, which concern trade in goods, trade in services, direct investments as well as some transactions under the capital account, and cover logistics and capital flows, as well as various company catalogues. With this system, we can understand foreign exchange settlement and sales by companies around the clock.[11:58] [Wang Yungui]: For example, a company may, without filing its information with the SAFE in advance, transfer funds under relevant accounts and settle and sell foreign exchange for cross-border transactions. However, this can be identified using this system. While it will not interrupt any creditable acts in such a case, the SAFE can identify transactions in violation of laws and regulations by using the flexible search modules of the system and regular statements. Although the many cases Mr. Zhang mentioned just now were dealt with by us with limited inspection forces, and many clues are yet to be verified, I want to say here that we will further facilitate trade and investments to provide effective services to market players, but given that many transactions in violation of laws and regulations have been recorded, the SAFE will, in the meantime, identify suspected transactions through this inspection system. Many of the key cases of foreign exchange violations have been identified through off-site big data analytics. Many punished enterprises wonder how the SAFE identified the violations as they were very careful, but this big data system did it. The system is also a key showcase of the CPC Central Committee's and the State Council's emphasis on strengthening ongoing and ex-post management. In my view, the SAFE is forward-looking by building this system, which also accords with the requirements on streamlining administration and delegating power, and intensifying regulation. Thank you! [11:58] [Reporter]: I have one more question. The QDII2 scheme has drawn wide concern recently. It is reported that a pilot program will be carried out in 6 cities. When will the policy on the pilot program be introduced? [12:03] [Wang Yungui]: We have noted the relevant reports on the scheme, too. As far as I know, the People's Bank of China and relevant departments are studying this scheme, and I don't know whether the real scheme will be like the one that has been reported. I am also learning. Anyway, either the QDII or the QFII scheme, or even the QDII2 scheme as you mentioned, is a key strategic plan made by the PBC and the SAFE for uniformly propelling the capital account convertibility in accordance with the plans of the CPC Central Committee and the State Council. For details such as whether the policy will be introduced soon, when it will be introduced, and whether a pilot program will be carried out in 6 regions, you should consult relevant competent authorities. The SAFE will cooperate with relevant departments to vigorously press ahead with the capital account convertibility, improve services to entities and intensify regulation. It is also our hope to pave the way for individuals to make overseas investments through legitimate channels. This also accords with the overall spirit and requirements of the Third Plenary Session of the 18th CPC Central Committee that the market should be given a decisive role in resource allocation. We will keep a close eye on relevant progress. Thank you! [12:03] [Reporter]: I am from Reuters. What about the cross-border capital flows in the second quarter? Is there any change compared with the first quarter or the last year? My second question is that do you think it is possible that we would make an official announcement on the capital account convertibility, just as someone calls for. In other words, is it likely that the government will make an announcement on the full capital account convertibility or capital convertibility? [12:31] [Wang Yungui]: The two questions are very important. As for your first question, the cross-border capital flows in the second quarter, although the data for the second quarter have not been released, I can tell you that the foreign exchange receipts and payments became more balanced in April and May. Despite the deficit in foreign exchange settlement and sales in the first quarter, the situation has become more optimistic since April. The statistical data for May will be unveiled tomorrow. From January through May, China witnessed USD 20 billion in net inflows of cross-border capital. Foreign exchange settlement and sales by banks has turned better after April. To be specific, China saw net sales of foreign exchange by banks in the first four months, but USD 1.3 billion in net settlement of foreign exchange by banks in May. Net sales of foreign exchange by banks persisted for 9 months from August 2014 to April 2015, but turned into net settlement of USD 1.3 billion in May, indicating the market is becoming more balanced. We are delighted to see a more balanced market, which is favorable for market players to deploy their funds and rationally mitigate risks associated with foreign exchange rate and for us to reform foreign exchange administration in a robust environment. [12:31] [Wang Yungui]: As for your second question, my understanding is that the decisions made at the Third Plenary Session of the 18th CPC Central Committee on deepening the economic institutional reform are the key plans of the CPC Central Committee and the State Council, which clearly stated the requirements on the capital account convertibility. Under the new economic normal, the capital account convertibility is a significant arrangement for utilizing domestic and overseas markets and resources in a coordinated manner. Efforts should be made to gradually press ahead with the capital account convertibility, with relevant reforms conducted in a certain sequence. Its logic is that we should guard against systematic financial risks and avoid introducing external risks in the uncertain international economic and financial environment to impact our strategic plans to adjust structure and promote reforms. The PBC and the SAFE will actively and stably press ahead with the capital account convertibility in accordance with the plans of the CPC Central Committee and the State Council to effectively guard against risks. But as for whether it is necessary to announce the capital account convertibility, the IMF and other international institutions have no such requirements. I believe the capital account convertibility in China will be achieved in a step-by-step manner, with relevant reforms advanced one after another. [12:31] [Reporter]: It was reported yesterday that the Shenzhen-HK Stock Connect scheme might be postponed, because the SAFE and the China Securities Regulatory Commission haven't agreed on the quota for cross-border investments. How's everything going now? Will it be postponed like the Shanghai-HK Stock Connect?[12:31] [Guo Song]: As the SAFE is not a major participant, I recommend you consult the China Securities Regulatory Commission. As far as we know, there should be no barrier against the launch. [12:32] [Wang Yungui]: This is the end of today's conference. Thank you for coming.[12:32] (The original text is available at www.people.com.cn) 2015-07-20/en/2015/0720/1163.html
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[Moderator]: Good morning, friends from the press. Welcome to the Policy Press Conference of the State Administration of Foreign Exchange (SAFE) for the first quarter of 2015. The theme of today's press conference is Foreign Exchange Administration Policies for 2015 Q1. [10:16] [Moderator]: I am Wang Yungui, director-general of the General Affairs Department of the SAFE. Today my three colleagues are present at the conference as well. They are Du Peng, director-general of Current Account Management Department, Guo Song, director-general of Capital Account Management Department, and Zhang Shenghui, director-general of Supervision and Inspection Department. [10:17] [Moderator]: First, I’d like to share with you the recent foreign exchange administration policies. Since the beginning of 2015, the SAFE has actively adapted to the new normal of economic development, accelerated "five shifts" in foreign exchange administration, stepped up efforts to streamline administration and delegate power, taken reform and making breakthroughs as its work priorities and promoted the convertibility of capital accounts in a good order, while combining delegation and regulation, and stressing risk prevention and control, thus driving the stable and healthy development of the economy. Below are the reform measures introduced in the quarter: [10:17] [Moderator]: First, deepening the foreign exchange administration reform for cross-border e-commerce [10:18] [Moderator]: The SAFE kicked off a pilot program for foreign exchange payment for cross-border e-commerce in Shanghai, Beijing, Chongqing, Zhejiang and Shenzhen in 2013, allowing payment institutions to handle receipt, payment, settlement and sales of foreign exchange funds under small-sum purchases and cross-border activities including booking air tickets, staying in hotels and studying abroad, which have been widely applauded by the public. Based on this, the SAFE further advanced the pilot program and rolled it out nationwide in January 2015. It simplified the foreign exchange payment process and relaxed the quota on a single online transaction from the equivalent of USD 10,000 to the equivalent of USD 50,000. Meanwhile, the principles of real name and transaction-by-transaction data collection were followed to prevent the risks arising from abnormal transactions. [10:28] [Moderator]: The pilot program has taken shape so far, providing convenient payment support for cross-border online shopping such as overseas purchases by companies and individuals. Payment institutions processed USD 1.7 billion in foreign exchange receipts and payments through the pilot program in 2014, and USD 610 million in foreign exchange receipts and payments between January and February 2015. [10:28] [Moderator]: Second, removing or delegating to lower-level authorities the administrative approval for foreign exchange insurance business [10:29] [Moderator]: The SAFE released the Guidelines for Foreign Exchange Administration for Insurance Business in January 2015 and nullified eight relevant foreign exchange administration rules together with the China Insurance Regulatory Commission (CIRC), including the Interim Regulations on Foreign Exchange Administration for Insurance Business. The Guidelines made it clear that all the qualification approval for domestic insurance companies to run foreign exchange insurance business would be delegated to the SAFE branches, and that the approval for opening or closing foreign exchange accounts by insurance companies would be canceled, except for registration for opening an account for the first time, and that an insurance company's foreign exchange funds can be collected or paid in a centralized way. [10:29] [Moderator]: Third, carrying out a pilot program to reform macro-prudential management of external debts [10:31] [Moderator]: In recent years, the SAFE has stepped up efforts to streamline administration and delegate power, actively explored the replicable and promotable experience in the capital account reform, and combined motivating the market dynamics and accelerating transformation of management models to facilitate cross-border financing and investment by companies, which have delivered progress in capital account convertibility. Overall, the reforms in the Twelfth Five-Year Plan period have effectively promoted the convertibility process. Latest statistics show that of the 40 capital account transaction items, 34 items have been partially convertible or beyond, accounting for 85%. [10:31] [Moderator]: Following the gist of the Decision from the Third Plenum of the 18th CPC Central Committee, the SAFE has taken a crucial step in building and improving the external debts system under the macro-prudential management framework since the beginning of this year. In February 2015, the SAFE approved that a pilot program of macro-prudential management adopting the external debts proportional self-discipline model should be conducted in the Core Area of Beijing Zhongguancun National Self-dependent Innovation Demonstration Area, Jiangsu Zhangjiagang Free Trade Zone, and Shenzhen Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Area. To be specific, the outstanding external debts of a non-financial enterprise in the pilot zone should not exceed twice the net assets of the enterprise for the previous year, and the total debts of a Chinese non-financial enterprise should not surpass 75% of its total assets. This reform has helped balance the treatment of Chinese and foreign-funded companies, and better satisfied companies' demand for cross-border financing, and thus can somewhat ease companies’ difficulties of raising funds and reducing the cost of financing. This policy has attracted strong interest from companies immediately after its introduction. In one week, more than ten companies in the pilot zones raised funds from abroad at a low cost through this policy. These companies are generally Chinese companies with demand for overseas financing and this policy helped them reduce the cost of financing by 2-3 percentage points. [10:31] [Moderator]: Fourth, removing the administrative approval for foreign exchange administration for FDI and ODI [10:31] [Moderator]: The SAFE released in February 2015 the Circular on Further Simplifying and Improving the Policies for Foreign Exchange Administration of Direct Investments and launched many facilitation measures for direct investments, including four reform measures, i.e.: removing the verification for registration of foreign exchange under direct investment, simplifying the management of confirmation and registration of capital contributed by foreign investors under the domestic direct investment, removing filing of foreign exchange for overseas reinvestment, and canceling annual check of foreign exchange under direct investment. Since the launch of the reform, the absolute majority of the businesses under direct investment can be processed directly at banks, and companies need not go to a foreign exchange authority for registration or verification. This indicates that the administrative approval for administration of foreign exchange under direct investment has been basically removed and foreign exchange under direct investment is generally convertible. [10:32] [Moderator]: Fifth, enhancing management of franchised institutions for domestic and foreign currency exchange for individuals and of their business [10:32] [Moderator]: The SAFE issued the Circular on Relevant Issues Concerning Standardizing Domestic and Foreign Currency Exchange Franchise Business for Individuals and Foreign Currency Exchange Business,requiring that the SAFE branches should enhance the market access management for domestic and foreign currency exchange franchise business for individuals and foreign currency exchange business, rigorously review applicants' qualifications, intensify day-to-day supervision and management, and stressing that the SAFE branches must suspend or revoke the business of any franchised institution if it runs the business without permission or beyond its business scope or is suspected of getting involved in online foreign currency speculation, to better maintain the market order. [10:32] [Moderator]: Sixth, cracking down on foreign exchange-related legal and regulatory offences [10:32] [Moderator]: The SAFE has continued to aggressively crack down on abnormal foreign exchange flows since the beginning of 2015 to guard against the risks arising from cross-border capital flows. First, inspecting banks as the main target. At the end of 2014, the SAFE organized special nationwide inspections of banks that operate the foreign exchange business, and emphasized internal control and external regulation of banks. It identifies serious problems and hidden risks associated with the foreign exchange business in banks to clamp down on operation violations. Moreover, it identifies the weak points of banks in implementing the foreign exchange administration policies and regulations to enhance banks' compliance in operating foreign exchange business and curb regulatory and legal offences regarding the foreign exchange business. The special inspection is underway now and expected to be completed by the end of May. Second, continuing with subsequent handling of cases carried forward from the 2014 special inspections such as of entrepot trade and forward foreign exchange settlement, and foreign exchange regulatory offences. The SAFE investigated and dealt with 1903 cases throughout 2014, with an administrative fine of RMB 445 million. In particular, the SAFE cooperated with the public security authorities to uncover 32 cases of foreign exchange legal offences such as underground money shops and confiscated RMB 222.4 billion from these cases, thus effectively intimidating regulatory and legal violators regarding foreign exchange. [10:32] [Moderator]: Overall, the SAFE, based on market demand, has actively promoted the capital account convertibility and steadily implemented a series of foreign exchange administration reforms and measures, which have played significant roles in satisfying domestic individuals' demand for holding and using foreign exchange, facilitating market players like companies to conduct cross-border financing and investment and guarding against abnormal cross-border capital flows. [10:33] [Moderator]: Now please ask your questions on these foreign exchange administration policies and remember to tell us where you are from before raising your questions. [10:33] [Journalist]: I have two questions and the first is about the RMB account convertibility policy. Zhou Xiaochuan, PBC governor, said last weekend that the PBC is expecting to basically realize capital account convertibility by the end of this year, and I am wondering what steps the SAFE would take to achieve this target. In face of the challenges from the global market, including the differentiation of European and American policies and the pressure from capital flight on the emerging capital market, how will the SAFE respond to the risks arising from the implementation of these steps? [10:48] [Journalist]: The second question is about foreign exchange settlement and sales. What other non-banking financial institutions besides Harvest Fund and Guotai Junan will be qualified for running this business? [10:48] [Guo Song]: Capital account convertibility is a significant issue that is to be addressed during the 12th Five-Year Plan period while this year is the last year in the period. Zhou Xiaochuan, PBC governor, has proposed the necessary work to be done, including modifying the foreign exchange administration regulations, further opening the capital market and facilitating individuals' investment or transfer. We have been pursuing capital account convertibility for years from all aspects. As was said earlier, about 85% of the 40 capital account transaction items we assessed are partially convertible now. [10:49] [Guo Song]: How to advance this process? It can be done in multiple ways. What we should do is to streamline administration and delegate power, lessen interference into the transactions and cut approval items. We have done a lot over the past five years, reducing administrative approval items concerning capital account from more than 50 to 17, or by 71%. [10:49] [Guo Song]: What's more, what was prohibited in the past is being opened and done, where we also have done a lot. Given that the capital account convertibility requires coordination and cooperation among multiple departments, the SAFE has introduced within the compass of its power many measures to pursue the capital account convertibility. For example, the centralized management of MNCs' funds enables conglomerates to operate capital within the company more easily. The QDLP pilot program currently in force in three regions aims to identify more channels for going global or bringing in. Moreover, the pilot reform of macro-prudential management of external debts is now carried out in three regions for proportional self-discipline of external debts. All these measures are advancing the process of capital account convertibility. [10:49] [Guo Song]: As for your second question, I would like to say that we did grant the qualifications to two securities firms for foreign exchange settlement and sales. But what they can do after obtaining the qualification is still in question. Will more institutions obtain the qualification in the future? Definitely, provided that the two institutions deliver a good performance. But if the two institutions find nothing could be done, I guess other institutions will not be interested in this in the future. [10:49] [Financial channel of CCTV]: I noticed that China witnessed a trade surplus of more than USD 120 billion, while a deficit of foreign exchange settled and sold of more than USD 120 billion in the first two months of this year. Are the two figures contradicting with each other? Does this indicate massive outflows of cross-border capital? How will the SAFE respond to this? [11:16] [Wang Yungui]: I'd like to use figures to make a clarification. This contains three aspects: first, as is monitored, there is still a net inflow of cross-border receipts and payments. From August to December 2014, there were net outflows of cross-border receipts and payments, or the outflows exceeded the inflows of cross-border receipts and payments by enterprises and individuals via banks, but this situation reversed in January and February 2015. Data show that after deducting cross-border payments from cross-border receipts, there was a net inflow of USD 55.1 billion, representing a year-on-year increase of 38%. Specifically, the net inflow under trade in goods stood at USD44.9 billion, which was 5.6 times that of the same period last year. Therefore, the monitoring data indicate that there is still a considerable net inflow of cross-border receipts and payments. [11:16] [Wang Yungui]: The second figure is about foreign exchange settlement and sales via banks. There was a deficit of USD 25.4 billion in foreign exchange settlement and sales in January through February. What's your idea of this deficit? It should be viewed from two perspectives. First, plenty of export revenue has not been settled but been deposited as foreign exchange. From January to February, the proportion of export revenue translated into the RMB was down by 10 percentage points while the foreign exchange deposit of enterprises and individuals rose by USD 63.9 billion, indicating the surplus or deficit in foreign exchange settlement and sales is a structural adjustment between the central bank's foreign exchange reserves and private foreign exchange savings. In others words, enterprises and individuals are optimizing the currency structure of their balance sheets by holding more USD assets, which doesn't mean capital outflows however. [11:17] [Wang Yungui]: The third figure is about the basic items of the balance of payments. Generally there are two basic items of the balance of payments, namely, trade and direct investment. Customs statistics show that China witnessed a surplus of trade in goods of USD 120.6 billion in January to February 2015, up by 11.8 times year-on-year, and used USD 22.5 billion in foreign capital, up by 17%. The sum of the two figures surpassed USD 140 billion. These basic figures of the balance of payments also show there is no capital outflow. [11:17] [Wang Yungui]: Given these figures, China's GDP is rapidly increasing, compared with its international counterparties, and the investment, consumption and export remain robust, with great potential for growth. China kept adjusting itself over the past few years, with enforced strengths in structural optimization and self-motivation for economic development. Overall, no data is supporting the assertion that China 's economy is on the decline and capital is flowing out of the country. [11:17] [Journalist]: What was your consideration to conduct macro-prudential management of external debts starting from last year? What's the effect? [11:22] [Guo Song]: The macro-prudential management of external debts has been written into the resolution document of the Third Plenum of the 18th CPC Central Committee to build a management system for external debts and capital flows under the macro-prudential framework. To implement the resolution document of the Third Plenum of the 18th CPC Central Committee, the SAFE adopts the proportional self-discipline management of external debts. Proportional self-discipline is a simple concept with the same meaning of a buzzword, macro prudence. Macro prudence takes many factors into consideration, such as the level of a country's total liabilities and the level of corporate liabilities. The proportional self-discipline is being explored on a small scale, aiming to implement the resolution of the Third Plenum of the 18th CPC Central Committee and create a fair market environment. It used to be easy for foreign-funded enterprises to borrow external debts but hard for Chinese companies to do so since the overseas market was not opened and posed many restrictions. The data we released show that almost none of the Chinese enterprises had external debts. The second aim is to create a fair market environment that enables both Chinese and foreign-funded enterprises to have equal treatment in this area. The third aim is to address the difficulties and reduce the cost of financing by enterprises. Overseas financing is surely cheaper than domestic financing, which, just as Mr. Wang Yungui said earlier, is about 1-2 percentage points lower. That's why overseas financing is considered a way to ease the difficulties of and cut the cost of financing. But as the proportional self-discipline measure was just launched and signing a loan contract takes time, there are not many transactions yet. We do not expect many transactions, but do hope that this can satisfy some companies' demand to win fair market competition. In the past, borrowing external debts required approval from the SAFE, which is now replaced by proportional self-discipline, that is, all the companies can borrow money without prior approval from the SAFE, provided that these companies' external debts do not exceed a certain proportion of the approved assets as of the end of the previous year. [11:23] [Journalist]: Can QFII and RQFII access the inter-bank market, according to the foreign exchange policy? [11:28] [Guo Song]: Definitely. QFIIs must make sure that less than 50% of its assets will access the inter-bank market. But there is no similar limit on RQFIIs. All of the assets of RQFIIs can access the market. But they can also choose not to enter the market. [11:28] [Journalist]: It was recently reported that the QFII and RQFII systems may require registration? What would you say about this? [11:29] [Guo Song]: We have been considering reforming the QFII and RQFII systems. It is relatively convenient for RQFIIs to make investments as we carried out some reforms in this regard. We are also considering making some changes to the QFII system. For example, removing the upper limit of USD 1 billion, which I believe will be completed in a couple of days. We are considering facilitating capital inflows and outflows too. [11:29] [Journalist]: The data released by the Bank for International Settlement at the end of last year show that the Chinese companies had overseas debts of USD 1.1 trillion. What about the data that have been monitored by the SAFE? The overseas media have been recently saying that as the US dollar appreciates, these debts would be at stake, putting heavy pressure of capital outflow on China 's economy. [11:54] [Guo Song]: As of last September, China reported a balance of USD 894.8 billion in foreign currency debts, which is quite different from USD 1.1 trillion you just said. The data I said refers to the balance of foreign currency debts the Chinese institutions including the Chinese government owe to overseas counterparties, which exclude the domestic currency. The two figures are different in statistical standards. Some institutions with overseas debts or liabilities might be registered overseas, so in theory they are not Chinese institutions and excluded from our statistics and management. The problem is whether these debts will increase the liabilities of domestic players if transferred into China . We have also noticed that the corporate liability ratio is overly high now. In carrying out the pilot program of proportional self-discipline of external debts in three regions as I said earlier, we attach a restrictive term that the total liability ratio should not exceed 75%. We don't expect to see over-indebted companies, either. But it is likely. Will over-indebted companies affect the country's overall liability risk? This is another question. Currently, China's overall external debts are at a rational level, say, a little more than USD 890 billion, which can match our foreign exchange reserve of USD 3.95 trillion, indicating that China is fully solvent at the country level. A company's solvency is an individual case. Generally speaking, the risk is within control. [11:54] [Journalist]: The IMF will review currencies in the SDR basket in the second half of this year. My question is how likely the RMB will be included in the SDR basket this time? What new actions will be taken or what has been done to promote the inclusion of the RMB in the SDR basket? [11:57] [Wang Yungui]: Mr. Zhou and Mr. Yi answered your questions in detail during the National People's Congress and Chinese People's Political Consultative Conference. We should be objective in having the RMB included in the SDR basket. We would do our best to make it happen, but also assess the situation objectively. [11:57] [Wang Yungui]: While driving the inclusion of the RMB in the SDR basket, we should focus on the domestic reforms, promoting the two-way opening-up of the capital market, further boosting the convertibility of the RMB under the capital account, and enhancing the free use of the RMB in international exchange. With all these efforts, inclusion of the RMB in the SDR basket would become a natural result. [11:57] [Economic Daily]: Mr. Zhou said we might realize capital account convertibility this year, but some scholars are concerned about capital flight given the changes in the domestic and international environment. What would you say about this? What approach is or will be adopted to control the possible capital flight as we are striving to realize capital account convertibility or after capital account convertibility has been realized? [12:09] [Wang Yungui]: It was required by the Third Plenum of the 18th CPC Central Committee that we should realize capital account convertibility. To this end, the PBC and the SAFE have done a lot. As I said earlier, 85% of capital account is convertible now. This means there is only the last mile left on the path to capital account convertibility. In the process, we devoted ourselves to promoting reforms while preventing risks, and fully assessed the possible impact of the capital account convertibility on cross-border capital inflows and outflows. According to the domestic and international authoritative literature, it is very hard to make certain whether a country will witness capital inflows or outflows after the full convertibility of capital account is realized. Persistent efforts should be made to explore and improve the reform schemes as the reforms proceed. Under the leadership of the CPC Central Committee, the State Council and the PBC, the SAFE has always combined the process of convertibility with administration streamlining and power delegation. Meanwhile, by building relevant statistical information system and management information system, the SAFE has closely monitored and analyzed the cross-border capital flows, and collected statistical data. So far, our schemes and reform steps have proved feasible. [12:09] [Wang Yungui]: Whether it is capital inflow or outflow depends more on the macro economic conditions in the domestic and global market. The current domestic economic conditions prove that our efforts in promoting reforms and adjusting structure are effective. We also believe that the absolute majority of domestic and international market players will calmly and objectively assess capital inflows and outflows. I said just now that China witnessed a trade surplus of roughly USD 120 billion and received USD 22.5 billion of FDI in January through February, which indicates that there are net cross-border capital inflows. Therefore, it is viable to stably realize capital account convertibility amid the current reformative environment. In this process, our top priority is to control risks and capital outflows, so as to guard against the systematic and regional financial risks, which is our bottom line. The roles and responsibilities of individual players who fail to put risk prevention measures in place as we pursue capital account convertibility should be defined by the market by clearly defining the ownership, while we are committed to guarding against systematic and regional financial risks. [12:10] [South China Morning Post]: I want to confirm what Mr. Guo said just now. Is it true that we will see the upper limit on QFII exceeding USD 1 billion in a couple of days? [12:10] [Guo Song]: It's true. We will release the data soon, and you will see that. [12:11] [South China Morning Post]: Is it a natural breakthrough, instead of an institutional change? [12:11] [Guo Song]: Institutional change takes time. [12:11] [South China Morning Post]: My second question is what the SAFE would say about the overstatement of the RMB, as said by Asian Development Bank? Both the OECD and Asian Development Bank expect China to improve the RMB exchange rate formation mechanism. What are the new considerations in the RMB exchange rate reform this year? Will the trade-weighted exchange rate be adopted to make the RMB exchange rate more reflective of the market demand? [12:27] [Wang Yungui]: The RMB exchange rate formation mechanism reform has always been a key issue in the exchange rate reform, not merely about the level. We have been stressing that the exchange rate reform should focus on the building and improvement of the mechanism. Specifically, the RMB exchange rate formation mechanism aims to give the market a decisive role in the formation of the RMB exchange rate. As you can see, the central bank phased out the normal interference in the market in the past year, with the bilateral exchange rate between the RMB and US dollar fluctuating by 2% or -2% every day while the exchange rate of RMB against other currencies fluctuating in a broader range, which indicates that the exchange rate is decided by the market is playing a larger role. When studying the exchange rate of RMB against foreign currencies, we should look at the exchange rate of RMB against a basket of currencies, including euro and Japanese yen, not just the US dollar. While the exchange rate of RMB against the US dollar depreciates, it is likely that the exchange rate of RMB against many other currencies appreciates. The RMB has been appreciating all the time, including in the first two months of this year, according to the two exchange rate indexes of the Bank for International Settlements, namely, the nominal effective exchange rate and the real effective exchange rate. In monitoring the exchange rate, other countries focus on the exchange rate against a basket of currencies. The US dollar index, for example, is an index for the USD exchange rate against a basket of currencies. This holds true for China . As the RMB exchange rate formation mechanism reform kicked off in 2005, it was made clear that a managed RMB exchange rate mechanism would be adopted and adjusted with reference to a basket of currencies. Relevant regime design should be conducted under the existing policy framework. [12:28] [Journalist]: A source said yesterday that a foreign-funded company in Shanghai violated laws by having its foreign exchange settled to buy housing, but failed in the lawsuit against a foreign exchange authority. I wonder why a company will be fined after its foreign exchange has been settled, and what's the cause of such a case? [12:35] [Zhang Shenghui]: It is normal that the administrative enforcement authority and the administrative counterpart have conflicts or disputes with each other on some issues. It is everyone's legitimate right to request hearing and administrative reconsideration, or even to file a lawsuit, and we respect such rights. Since every case has its unique features, it is hard to generalize them. Of the more than 1,900 cases we handled in 2014, only 6 cases requested reconsideration, which was low. But it should be noted that people's awareness to protect rights and the state's requirements on law-based administration are increasing, which I believe will ensure that the law enforcement team stringently abide by laws and will protect the rights of administrative counterparts. [12:36] [Moderator]: This is the end of today's press conference. Thank you for your attention to foreign exchange administration and for coming to this conference. A press conference on foreign exchange situation will be held at the Information Office of the State Council by late April. We are looking forward to your attendance to pay more attention to foreign exchange administration in China . Thank you. [12:36] (The original text is available at www.people.com.cn) 2015-06-05/en/2015/0605/1159.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 Balance of Payments Department in the State Administration of Foreign Exchange (SAFE), has been invited to unveil data on foreign exchange receipts and payments for the first quarter of 2015 and to answer your questions. Now, let us welcome Director Guan. April 23, 2015 09:27:53 · Guan Tao: Good morning, ladies and gentlemen. Welcome to the press conference this morning. Today I am going to unveil the foreign exchange receipts and payments data for the first quarter of 2015 and take your questions on behalf of the SAFE. The economic and financial environment both at home and abroad have maintained complex since the beginning of 2015. The global economy sustains mild and unbalanced recovery, with major economies continuing to follow divergent monetary policies, and the global financial market keeps fluctuating. Domestically, China's economy is entering a new normal, featuring a slower but stable and progressive growth, and the bidirectional fluctuations of the RMB exchange rate are becoming more evident. Under such circumstances, China's cross-border capital flows are fluctuating more markedly, recently putting China under pressure from capital outflows, as a result of the domestic market players' efforts to optimize their structures of assets and liabilities denominated in the RMB and foreign currencies. April 23, 2015 09:57:39 · Guan Tao: In the first quarter of 2015, Banks settled foreign exchange of RMB 2.53 trillion (USD 412.0 billion) and sold foreign exchange of RMB 3.09 trillion (USD 503.5 billion) in 2015, with a deficit of RMB 561.9 billion (USD91.4 billion). Meanwhile, according to the data on foreign-related receipts and payments via banks, in the first quarter of 2015, banks registered cumulative foreign-related income of RMB 4.95 trillion (USD 806.8 billion) and made external payments of RMB 4.76 trillion (USD 775. 5 billion) on behalf of clients, with a surplus of RMB 190.9 billion (USD 31.2 billion) April 23, 2015 09:58:53 · Guan Tao: China’s foreign exchange receipts and payments for the first quarter show the following characteristics: First, foreign exchange settlement and sales via banks and the balance of foreign-related receipts and payments via banks on behalf of clients presented divergent trends. Excluding the impact from foreign exchange rates (the same below), in the first quarter, the foreign exchange settled by banks was down 20 percent year on year and that sold by banks was up 41 percent year on year, with a deficit of USD91.4 billion, up 97 percent from that of the fourth quarter 2014; The foreign-related receipt via banks on behalf of clients was consistent with the figure for the same period of the previous year and the external payment was up by 1 percent year on year, thus achieving a surplus of USD 31.2 billion, down by 29 percent year on year, and reversing the persistent deficits in the past two quarters. April 23, 2015 10:00:01 · Guan Tao: Second, cross-border capital flows fluctuated more markedly. The foreign exchange settled and sold via banks recorded a deficit of USD 8.2 billion in January, which rose to USD 17.2 billion in February and further to USD 66 billion in March. The foreign-related receipts and payments via banks on behalf of clients recorded a surplus of USD 36.7 billion in January, which dropped to USD 18.3 billion in February and turned into a deficit of USD 23.8 billion in March. It should be noted that cross-border capital flows fluctuated sharply in March, due to the slump of the import and export surplus in the month against the previous two months. April 23, 2015 10:01:28 · Guan Tao: Third, letting the general public hold foreign exchange continues to take effect. As a measure of the foreign exchange settlement willingness of businesses and individuals, foreign exchange settlement via banks on behalf of clients as a percentage of foreign-related foreign exchange receipts (i.e., foreign exchange settlement rate) was 69 percent, down by 3 percentage points quarter on quarter and 8 percentage points year on year. As a result, the domestic foreign exchange deposits rose by USD 78.3 billion in the same period, a year-on-year increase of USD 39.4 billion. April 23, 2015 10:02:43 · Guan Tao: Fourth, companies accelerated repayment of foreign exchange loans and external debts. In the first quarter, foreign exchange sales via banks on behalf of clients as a percentage of foreign-related foreign exchange payments (i.e., foreign exchange sales rate) that measures the motivation to buy foreign exchange registered a quarter-on-quarter increase of 6 percentage points, and the foreign exchange sales rate gained 18 percentage points year on year. The domestic foreign exchange loans rose by USD 500 million only in the same period, representing a decrease in year-on-year growth by USD 62.4 billion. The balance of cross-border financing for imports such as import bill advance by overseas institution and forward letter of credit this year was down by USD 22.7 billion, compared with an increase of USD 24.1 billion for the same period of the previous year, but the monthly average decline rate was down by 48% from the figure for the second half of 2014. Fifth, the forward settlement and sales of foreign exchange was in deficit, versus a surplus in the previous quarter. In the first quarter, the number of contracts signed between banks and clients for forward settlement of foreign exchange was down by 65 percent year on year, while the number of contracts signed for forward sales of foreign exchange was up by 34 percent, recording a deficit of USD 47 billion, compared with a surplus of USD 5.3 billion in the fourth quarter of 2014. To be specific, the forward settlement and sales of foreign exchange posted deficits of USD 5.9 billion, USD 15.4 billion and USD 25.8 billion respectively in January to March. As at the end of March, the outstanding net forward sales of foreign exchange was USD 16.1 billion, compared with net settlement of USD 12.5 billion as at the end of 2014, which suggested that banks purchased USD 28.6 billion in foreign exchange in advance from the interbank foreign exchange market in the period to hedge the exposure of forward settlement and sales of foreign exchange. In the first quarter, the spot and forward settlement and sales of foreign exchange by banks (or the total of the difference of foreign exchange settled and sold by banks and the changes in the balance of outstanding forward settlement and sales of foreign exchange), an indicator of the supply and demand for foreign exchange in the retail market, registered a deficit of USD 120 billion. April 23, 2015 10:04:17 · Guan Tao: These are the major statistical data I am going to disclose regarding foreign exchange receipts and payments during the first quarter of the year. You can also find the relevant data released on the SAFE's official website. Now I would like to take questions you might have on China’s foreign exchange receipts and payments. April 23, 2015 10:07:02 · Hu Kaihong: Thank you, Director Guan. Now please ask your questions. April 23, 2015 10:07:37 · Journalist from CCTV: Chinese banks' settlement and sales of foreign exchange has recorded persistent deficits since the second half of 2014, and increased further in the first quarter of this year. Does this mean that China is under pressure from cross-border capital outflows? What would you say about the current situation and future trends? April 23, 2015 10:09:23 · Guan Tao: Achieving basic equilibrium in our balance of payments is a key task in macro control. The SAFE has been closely watching the impact of cross-border capital flows on the balance of payments. I would like to answer your questions in three aspects: First, there are capital outflows at present. The Customs unveiled that the imports and exports recorded a surplus of USD 123.7 billion in the first quarter while the spot and forward settlement and sales of foreign exchange by banks posted a deficit of USD 120 billion, suggesting the full-scale balance of payments including those from banking and non-banking sectors must report "a surplus under the current account and a deficit under the capital account", which was consistent with what has been since the second quarter of 2014. April 23, 2015 10:11:40 · Guan Tao: Second, capital outflows are expected adjustments, which cannot be equated to illegal activities or secret capital flight. Firstly, such adjustments are expectable and show the pro-cyclical financial operation by market players. Given the greater downward pressure on the domestic economy, the global economy in profound adjustment, and the strengthening US dollar, domestic institutions and individuals continue to increase foreign currency assets and deleverage debts as they did last year, leading to the decreased spot and forward settlement of foreign exchange and increased purchases of foreign exchange. In March in particular, when the foreign trade surplus slumped, coupled with internal and external factors above-mentioned, the pressure from cross-border capital outflows for the period increased substantially. Moreover, the absolute majority of the transactions were in compliance with laws and regulations. In fact, the ratio of export income to export volume in China was 100% in the first quarter, 8 percentage points higher than the average rate of foreign exchange receipts in the previous two years, the peak season for capital inflows. April 23, 2015 10:14:46 · Guan Tao: Secondly, such adjustments can be explained and letting the general public hold foreign exchange and deleveraging debts remain the main channels for capital outflows. In the first quarter, after excluding the factor of the cross-border use of the RMB, foreign exchange receipts and payments by banks on behalf of institutions and individuals registered a deficit of USD 21.9 billion while the foreign exchange settlement and sales by banks on behalf of clients recorded a deficit of USD 79.5 billion, calculated on a comparable basis. The balance of USD 57.6 billion can be explained by the balance of USD 77.8 billion of the new foreign exchange deposits at bankshigher than the foreign exchange loans in the same period. This means that companies preferred depositing to selling foreign exchange they had, resulting in an increased deficit in foreign exchange settlement and sales. Meanwhile, companies accelerated payments for imports and repayments of debts. In the first quarter, the payments for imports both in RMB and other currencies as a percentage of the import value was 118 percent, 16 percentage points higher than the average rate for 2013 and 2014. In addition, the balance of cross-border trade finance for imports dropped by USD 22.7 billion, versus an increase of USD 24.1 billion in the same period last year. Further, as the forward settlement and sales of foreign exchange of companies changed from a surplus to a deficit, banks purchased USD 28.6 billion in foreign exchange in advance to hedge the exposure of forward settlement and sales of foreign exchange, thus further boosting the use of external assets by the banking sector for the period. April 23, 2015 10:25:15 · Guan Tao: Last but not least, such adjustments are tolerable. The foreign exchange market runs stably now and meets the control and reform targets. Equilibrium of the balance of payments, a target for macro control, does not mean balancing the budget or zero balance, but can be considered so even with some surplus or deficit. In fact, even if the preliminary transaction price of the RMB exchange rate was at or approaching the ceiling of the floating range, the supply of foreign exchange in the market would be sufficient, without triggering market panic. Although investments in funds outstanding for foreign exchange are on the decline, the central bank ensures the sufficient liquidity of the RMB through cutting interest rate and the reserve requirement, and targeted control, and therefore, the financing cost is declining. As the central bank drastically cut the required deposit reserve ratio on April 20, the interest rate has plummeted against the beginning of the year. Further, China has long been encouraging companies and individuals to hold and use foreign exchange as much as possible. Latest data show that official international reserve assets accounted for 61 percent of China's external financial assets by the end of 2014, down by 4 percentage points from the end of 2013, which also means that a growing amount of foreign exchange assets have been held by market players, an apparent shift from centralized holding by the state. April 23, 2015 10:36:02 · Guan Tao: Third, the cross-border capital flows in China will continue to fluctuate in the future. On the one hand, if the factors that led to capital outflows in the first quarter continue to take effect, this outflow trend will likely persist. On the other hand, as the reform and opening up policy pays more and more dividends and the national fine tuning measures take effect, China's economy will remain resilient, boasting strong potential and large room of maneuver, with no fundamental changes in the fundamentals to sustain a rational impetus for growth and big room for improvement in the overseas demand for the RMB assets allocation, which will be strong support to a stabilized RMB exchange rate and equilibrium of the balance of payments. Externally, although the US economy maintains a strong momentum for recovery, yet the recent uncertain performance of some economic indicators indicates that there will likely be large uncertainties in the monetary policy adjustment in the US and the trends in the USD exchange rate. Further, the recent rapid growth in the purchases of foreign exchange in China is a result of purchasing foreign exchange in advance to avert foreign exchange rate risks, or preventative purchases of foreign exchange, by some enterprises. Given their future demand for external payments, they unleashed it in advance and may not buy foreign exchange again in the future. To sum up, if positive changes occur to both domestic and international market environment, cross-border capital outflows will slow down, or even be replaced by net inflows. In fact, as the domestic and international environment have become more favorable since the end of March, the shortfall of foreign exchange between supply and demand in China has been made up quickly and the spread in the RMB exchange rate both at home and abroad has dropped significantly. April 23, 2015 10:50:21 · Guan Tao: Generally speaking, the key takeaways are as follows: first, there are capital outflows in China now; second the capital outflows are expected sequenced adjustments, which cannot be simply equated to illegal activities or secret capital flight; third, the future cross-border capital flows in China will continue to fluctuate. April 23, 2015 11:04:14 · Journalist from China News Service: The IMF pointed out at its recent annual spring meeting that the US dollar has grown dramatically recently, hitting a new high since 1981, and warned that the interest rate increase by the FED will likely trigger super taper tantrum. What's your idea of this? What impact will this have on China's cross-border capital flows? April 23, 2015 11:06:11 · Guan Tao: This spillover effect mentioned by the IMF does exist at present and is an alert to the emerging economies that have borrowed heavily in the global market, especially in US dollars. We have been closely watching, tracking and assessing the impact of this on China's cross-border capital flows, especially on the security of its external debts. So far we have concluded in three aspects as follows: April 23, 201511:09:43 · Guan Tao: First, the impact of the normalization of the US' monetary policy and the appreciation of the US dollar on China's cross-border capital flows is becoming more evident but limited on the whole. In the past, interest rate rise in the US and USD appreciation were the key causes of debt crisis and monetary crisis in emerging markets. In mid-2013, the FED aroused the expectations of QE tapering, triggering capital outflows and currency depreciation in emerging markets, while China witnessed massive capital inflows and significant growth in foreign exchange reserves. In 2014, the FED exited the QE policy and successfully stopped buying bonds by the end of the year, thus impacting the emerging markets again, including China where cross-border capital inflows at the beginning of the year were replaced by outflows but net inflows of capital and growth in foreign exchange reserves were sustained for the whole year. Since the beginning of this year, the interest rate rise by the FED and the accelerated USD appreciation, among other things, have somehow facilitated the cross-border capital outflows in China, but this is still the expected sequenced adjustment. April 23, 201511:13:23 · Guan Tao: Second, China is fully confident in and capable of resisting external impacts, but could not ignore related risks. Featuring a large economic size, a large surplus in trade in goods, sufficient foreign exchange reserves and increased elasticity of the RMB exchange rate, China has large room of maneuver. According to the indicators for risks associated with China's external debts in foreign currencies, all the external debt security indicators except the percentage of short-term external debts are below the international warning level, suggesting China's external debts are secure. Further, to adapt to the changes, domestic enterprises have recently begun actively adjusting their assets and liabilities structures to reduce external debts. The latest statistical data show that China's balance of external debts in foreign currencies amounted to USD 895.5 billion as at the end of 2014, down by USD 11.8 billion from the end of June 2014, or up by 2.5 percent year on year, which was down by more than 10 percentage points from the average growth rate for 2009-2013. This was positive adjustment by enterprises, with no widespread difficulty in solvency in the process. But it was true that some enterprises were heavily burdened with external debts and mismatch between durations and currencies, with their solvency highly related to their financial positions. We have reiterated that overall debt security does not mean zero debt risks to individuals and requires that enterprises should make external borrowings based on their needs and take appropriate measures to hedge exchange rate exposures. April 23, 201511:19:27 · Guan Tao: Third, China should work domestically and externally to actively respond to challenges. The impact of the FED's normalization of the monetary policy diverges by countries in the emerging markets, i.e., limited impact on those with good fundamentals while heavy impact on those with poor fundamentals. The reason why the impact of the adjustment is tolerable on the whole in China is that with stable economic growth and domestic prices, current account surplus, and sufficient foreign exchange reserves, China is regarded as an emerging market with good performance. The key to responding to the challenges from the likely interest rate rise and adjustment of the USD exchange rate is that China should focus on its domestic business by ensuring the economy runs stably within a rational range, and possible risks and problems arising from an economic downturn be properly addressed, so as to keep enhancing and strengthening the confidence in China's economy in the market. Foreign exchange authorities should focus on three aspects of work: First, promoting the reform by continuing to press ahead with trade and investment facilitation to accelerate the cultivation and development of external markets; second, guarding against risks by accelerating the building of an external debt and capital flow management system under the macro-prudential management framework and improving relevant plans to actively respond to the risks arising from cross-border capital flows; third, consolidating the foundation by improving the statistical monitoring of cross-border capital flows, keeping enhancing the data transparency and intensifying education to market players to guide them to control risks rationally. April 23, 201511:29:17 · Journalist from the Economic Daily: The foreign exchange settlement and sales in the first quarter of this year presented a deficit. In the context of cross-border capital outflows, will the SAFE take some measures to control the outflows? April 23, 201511:40:30 · Guan Tao: This is a question of wide concern. We introduced some temporary measures in face of the pressure from capital inflows but currently will not adopt new measures to control outflows, but actively respond to the challenges from abnormal fluctuations of cross-border capital flows in the following three aspects: First, enhancing monitoring and keen observation. The capital outflows, mainly through channels such as letting people hold foreign exchange and payments of external debts, are expected sequenced adjustments at present. As the balance of payments and the RMB exchange rate are balanced and rationalized, cross-border capital may sometimes flow out and sometimes flow in, which will be a new normal, with changes becoming more and more frequent. We should look at it in a rational way and not overanalyze it. Based on the real situation, foreign exchange authorities will further enhance monitoring and analysis of cross-border capital flows, streamline the new situation of and the new changes in cross-border capital flows to immediately assess the situation and provide warnings for reference by decision makers. Second, attaching equal importance to streamlining and controlling and promoting balanced management. On the one hand, by capturing the opportunity arising from the equilibrium of the balance of payments and the supply and demand of foreign exchange, the temporary measures preliminarily introduced to control inflows should be promptly adjusted and the foreign exchange system reform should be deepened further. Since the end of last year, the foreign exchange authorities have introduced a policy that decouples the foreign exchange loan-to-deposit ratio from the overall position of foreign exchange settlement and sales to expand the floor of the overall position of foreign exchange settlement and sales of banks, promoted across the country the reform on voluntary settlement of foreign exchange by foreign-invested enterprises and increased the overall scale of the quotas for outstanding short-term external debts of domestic financial institutions, among other things. These measures are objectively favorable for hedging the pressure from capital outflows. On the other hand, the current situation has triggered the regulatory policy for the direction of capital outflows, which is based on existing policies, not new measures. For example, the special inspection regarding export without receiving foreign exchange is conducted to intensify regulation of splitting purchases and payments of foreign exchange by individuals and crack down on foreign exchange irregularities like underground banks. April 23, 201511:41:44 · Guan Tao: Third, improving plans and increasing tools. Cross-border capital flows will possibly continue to fluctuate in the future due to many uncertainties and instabilities. Under such circumstances, scenario analysis and stress test should be conducted to design policies for different situations and to respond to various possibilities. Efforts should also be made to actively guard against the impact from cross-border capital flows, stick to the bottom line to ensure no systematic and regional financial risks occur, accelerate building the external debts and capital flow management system under the macro-prudential framework and keep increasing the policies and tools relating to counter-cyclical adjustment. Thank you. April 23, 201511:53:08 · Journalist from China Financial and Economic News: You said just now that the current changes in foreign exchange situation reflected the optimization of the assets and liabilities structures of market players. Could you recount what has been optimized? And what would you say about the commentary of the press that the "one belt one road" strategy may lead to changes in China's foreign exchange strategy? April 23, 201512:03:01 · Guan Tao: For your first question, the assets and liabilities structures of market players are optimized in the following two ways: First, letting people hold foreign exchange. Enterprises used to sell their foreign exchange to banks, which then sold the foreign exchange in the interbank foreign exchange market to increase foreign exchange reserves. Currently, however, market players hold and use foreign exchange themselves. For example, according to the international investment position data, the official international reserve assets as a percentage of external assets dropped last year, suggesting a growing proportion of foreign exchange assets is held by market players, not the central bank. Second, paying debts. In the past, as the RMB exchange rate appreciated unilaterally and the positive carries between the domestic currency and foreign currencies remained large, many enterprises borrowed heavily. But now as the situation changes, the bidirectional fluctuation of the RMB exchange rate has become more evident and the interest rate spread between the domestic currency and foreign currencies has been adjusted, many enterprises are accelerating payments of external debts. April 23, 201512:04:06 · Guan Tao: As for the second question, I would like to clarify that, first, the "one belt one road" strategy is not a one-way but a bidirectional opening up strategy, encouraging both "going global" and "bringing in". While supporting SOEs to expand overseas investments through the strategy, China encourages overseas capital to invest in China; and while encouraging driving exports of homemade products through overseas investments, China actively promotes imports from other countries, which are a key part of Chin's new open economy system. By capturing this opportunity, foreign exchange authorities should keep facilitating trade and investments. Second, foreign exchange reserve management should be aligned with the implementation of the "one belt one road" strategy. China has made some beneficial attempts in expanding the channels to use foreign exchange reserves. Of the USD 10 billion in initial capital for the Silk Road Fund, launched at the end of last year, foreign exchange reserves contributed 65%. In the future, new measures will be introduced for diversified use in foreign exchange reserve management to coordinate with the implementation of the national strategy and enhance the benefits from using foreign exchange reserves. April 23, 201512:18:27 · Journalist from NHK: In terms of the ownership of US treasury, Japan has recently surpassed China as the largest creditor of the US. What would you say about this? My second question is what's your view on the RMB internationalization according to the recent cross-border capital flows, such as the impact of cross-border capital outflows and the RMB depreciation against the USD? April 23, 201512:28:57 · Guan Tao: I would like to answer your first question in three aspects: First, the US treasury bonds held by foreign exchange reserves are just a part of the US treasury bonds held by China that have been released by the US Department of the Treasury. Since we don't know the statistical methods and coverage used by the US, we cannot comment on the data. Second, it is a normal investment behavior that the foreign exchange reserves operating organs buy or sell the US treasury bonds based on the market. Third, the US treasury bonds, the key investment and trading category in the global bonds market, feature a large market capacity, strong liquidity and high risk return, and therefore, the US treasury bonds market is a key investment destination for countries to operate and manage foreign exchange reserves. April 23, 201512:31:31 · Guan Tao: For your second question, I would like to say, first, the RMB exchange rate is fluctuating bidirectionally, with no tendency adjustment. Despite the bidirectional fluctuation of the RMB against the USD, the overall adjustment is limited and the RMB is appreciating against other currencies, so the RMB is still a strong currency. Second, based on the data we have monitored, the RMB has become China's top-2 settlement currency for cross-border trade over the euro since 2011, which will continue in the future. In 2014, the cross-border receipts and payments of the RMB in the non-banking sector accounted for 24 percent of cross-border capital flows, up by 7 percentage points from the previous year, and the figure was 27% in the first quarter of this year. A growing number of domestic enterprises are using the RMB for cross-border settlement. Therefore, the RMB internationalization has not slowed down, but is accelerating, in terms of either the market or the policies. April 23, 201512:36:04 · Reporter from Reuters What's your idea about trends in RMB exchange rate? China is facing the pressure from capital outflows while witnessing the constant appreciation of the RMB against non-USD currencies. Will this affect China's exports and macro economy? April 23, 201512:45:16 · Guan Tao: Thank you for your question. Premier Li Keqing talked about the RMB exchange rate in his interview with the British Financial Times on March 31, which was focused on three aspects: First, the bidirectional fluctuation of the RMB against the USD is a result of the strengthening USD; second, China does not want to see continued depreciation of the RMB, which may affect China's economic restructuring; third, China expects major economies to enhance the coordination of their macro policies to avoid depreciation of their currencies. April 23, 201512:46:51 · Hu Kaihong: This is the end of today's conference. Thank you for coming. April 23, 201512:52:05 (The original text is available at www.china.com.cn) 2015-06-17/en/2015/0617/1161.html
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The State Administration of Foreign Exchange (SAFE) has recently disseminated China's external debt data as at the end of December 2018. The SAFE spokesperson and Chief Economist Wang Chunying answered media questions on China’s recent external debt situations. Q: Could you brief us on China's external debt for the year of 2018? A: China’s external debt continued to increase in 2018, while the overall growth rate slowed down. As at the end of December, the full-scale outstanding external debt (including domestic and foreign currencies) hit USD 1.9652 trillion, representing an increase of USD 207.3 billion from the end of 2017, up by 12%. In the four quarters of 2018, the quarter-on-quarter change of China’s external debt was 7.5%, 1.5%, 2.7% and -0.2% respectively. Specifically, the first quarter registered the fastest growth, while the second and third quarters witnessed obvious slowdown of growth rate. The structure of external debt has continued to improve. With respect to currency structure, the external debt in domestic currency increased by 16% year on year, which is higher than the 10% increase in foreign currency external debt. In terms of term structure, the medium- and long-term external debt increased by 13% year on year, slightly faster than that of short-term debts, which posted an 11% growth rate. As regards debt instruments, it is mainly attributed to increase of debt securities, currency and deposits, as well as trade credit and advance payment, which contributed to 44%, 23% and 20% respectively to the increase of external debt. Q: How shall we view the external debt risks facing China now? A: China’s national economic operation in 2018 was generally stable. The SAFE has deepened foreign exchange administration reform on an ongoing basis, steadily promoted the opening-up of the financial market, therefore the demand of overseas investors for allocating domestic RMB bonds has continued to rise, and the structure of debt instruments has become more stable. At the end of 2018, the outstanding debt securities accounted for 22% of the full-scale outstanding external debt, up by 2.6 percentage points from the end of 2017. The external debt risks facing China are controllable on the whole. As at the end of 2018, the external debt/GDP ratio, or the ratio of outstanding external debt to GDP was 14.4%; the debt ratio, or the ratio of outstanding external debt to export income from trade in goods and services was 74.1%; the debt servicing ratio, or the ratio of payments of principal and interest on external debt in the middle and long term and payments of interest on external debt in the short term to export income from trade in goods and services, was 5.5%, and the ratio of short-term external debt to foreign exchange reserves was 41.4%. All of the above indicators are within the internationally accepted safe range. In the future, the SAFE will further refine the two-pronged administration framework featuring macro-prudential and micro-regulatory approaches for cross-border capital flow, keep a keen eye on the changes in external debt situations, and strengthen the prevention of external debt risks while persisting in serving the real economy with foreign exchange administration, so as to safeguard China's economic and financial security. 2019-03-29/en/2019/0404/1501.html
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Q: The latest data on foreign exchange reserves disseminated by the State Administration of Foreign Exchange (SAFE) show that China's foreign exchange reserves as of the end of March 2019 rose by USD 8.6 billion month on month. Could you brief us on the causes of such changes? What will be the future trends of foreign exchange reserves? A: As at the end of March 2019, China posted USD 3.0988 trillion in foreign exchange reserves, up by USD 8.6 billion or 0.3% month on month. In March, under the impact of China-US economic and trade negotiations, expected monetary policy adjustment of European and US central banks as well as the uncertainty of Brexit of the UK, the US dollar index rose slightly. However, the prices of financial assets also rose. Due to the combined impact of exchange rate translation and changes in asset prices etc., China’s foreign exchange reserves increased modestly. Since the beginning of this year, despite the imbalance of external environment and a number of uncertainties, China’s economy has sustained the development trend of overall stable growth while ensuring progress, and the future prospects tend to be positive. China's foreign exchange market is running more smoothly and the cross-border capital flow through major channels has been further improved, which provides a solid foundation for the stability of the foreign exchange reserves. Looking forward, the global political and economic situations will be complex with rising uncertainties. Economic growth will be confronted with downward pressure, prices of financial assets will remain high, and the international financial market is expected to become more volatile. However, China's economy will operate within a reasonable range. As the flexibility of RMB exchange rate increases, the function of exchange rate as "automatic stabilizer" will gradually become evident, which is generally conducive to maintaining the stability of China's foreign exchange reserves. 2019-04-07/en/2019/0412/1503.html
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As the world economy recovered slowly and economic and trade globalization were faced with tough challenges, General Secretary Xi Jinping proposed in 2013 the initiative of jointly building the Silk Road Economic Belt and the 21st-Century Maritime Silk Road. The Belt and Road Initiative, integrating China's development with those of the countries along the routes, and Chinese dream with the best wishes of the peoples of the countries alongside, is set to become a great undertaking that enhances the wellbeing of the peoples across the world. While following the gist of the key speeches by General Secretary Xi Jinping on the Initiative, and adhering to the general work guideline of making progress while maintaining stability, the State Administration of Foreign Exchange (SAFE), as an important foreign-related economic management department, has conformed to the development philosophy of innovation, coordination, greenness, opening and sharing to build a new pattern of opening up that features mutual benefit, openness and transparency, equality and inclusiveness. It also has been committed to deepening the system reform for foreign exchange administration, enhancing trade and investment facilitation, and leveraging resources on the domestic and foreign markets, in a bid to create a benign, healthy and stable environment for the Initiative. Shaping New Patterns for the Connectivity between China and the Rest of the World under the Belt and Road Initiative Since the outburst of the global financial crisis in 2008, the world's economic and financial patterns have undergone complex and profound changes. For lack of dynamics for growth, the world economy has recovered slowly and in a divergent way. The global economic governance has fallen behind and could hardly adapt to the new changes in the world economy, while the global investment and trade patterns and multilateral investment and trade rules are to go through remarkable adjustments. As the global development is imbalanced, and trade protectionism, anti-globalization and populism rise, countries are faced with complex and tough challenges in the course of their development. How to make the world economy more vibrant, inclusive and sustainable? How to unleash more positive effect of economic globalization? Under such circumstances, China proposed the Belt and Road Initiative. In the spirit of open regional cooperation, the Initiative is designed to safeguard the global systems for free trade and the open world economy to rebalance the economic globalization. While serving the fundamental interests of the international community, and being aligned with China's basic national strategy of reform and opening up, the Initiative is favorable for China to build a new pattern of all-round opening up and deepen the linkage between China and the rest of the world to allow China to be further integrated into the world economic system. First, favorable for rebalancing the world economy. China has not only benefited from economic globalization but also contributed to it. The China-proposed Belt and Road Initiative is in line with the common demand of the countries along the routes, and opens a new opportunity window for these countries to complement each other and open up, which will be favorable for China and these countries to achieve common development and for further balancing the global economic development. In August 2016, General Secretary Xi Jinping stressed at the seminar on pressing ahead with the Belt and Road Initiative that strengthening cross-border connectivity, enhancing trade and investment cooperation and boosting global production capacity and equipment manufacturing cooperation by capitalizing on the opportunities the Initiative presents are in nature to generate new demands by increasing effective supplies so as to rebalance the world economy. In particular, in the face of the sluggish world economy, exporting the huge production capacities and construction capabilities developed in the pro cycle to meet the pressing needs of the countries along the Belt and Road for advancing industrialization and modernization and enhancing the level of infrastructure will be conducive to stabilizing the world economic conditions. Over the past three years, Chinese enterprises have invested more than USD 50 billion in these countries, with myriads of key projects implemented, thus driving the economic development of the countries and creating many job opportunities for them. Originating in China, the Initiative has delivered benefits well beyond its borders. Second, favorable for enhancing China's impact on the world economy. The Initiative, which embodies China's national strategy of opening up to seek mutual benefit, charts the new course for China's opening up and will become the new growth point of China's economy. Jointly building the Silk Road Economic Belt will be favorable for consolidating the basis for cooperation between China and Central and Southeast Asia, shaping the road towards common development of China and the countries along the Belt and Road, promoting the opening up of inland and border regions, and improving the development and competitiveness of the central and western regions of China while boosting the transformation, upgrading and outbound investments of East China to create a new landscape for joint development, drive the implementation of the supply-side structural reform and achieve the Chinese dream of great national rejuvenation. Over the past three years, over 100 countries and international organizations have given warm responses and support to the Initiative. More than 40 countries and international organizations have signed cooperation agreements with China, and our circle of friends along the Belt and Road is growing bigger. Third, providing good opportunities for cross-border capital flows. Cross-border capital flows, the natural products of economic globalization, help boost the effective allocation of capital around the world and drive the proliferation and flows of advanced technologies and management experience to promote global economic growth. Jointly building the Belt and Road is designed to promote orderly and free flows of economic factors, highly efficient allocation of resources and deep integration of markets, which will be favorable for boosting the two-way liberalization of China's financial market, enhancing cross-border trade and investment facilitation, driving convertibility of the capital account and pressing ahead with RMB internationalization. While supporting Chinese enterprises to go global, the Initiative attracts long-term foreign capital to flow in to create the healthy, benign and stable order of cross-border capital flows and to ensure China's balance of payments is basically balanced and robust. Creating Favorable Policy Environment for the Belt and Road Initiative through Foreign Exchange Administration Reform By following the gist of a series of General Secretary Xi Jinping's speeches, foreign exchange authorities have been committed to ensuring opening and cooperation, harmony and inclusiveness, market operation and mutual benefit in accordance with the Vision and Actions on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road, with focus on policy coordination, facilities connectivity, unimpeded trade, financial integration and people-to-people bonds. To create a favorable policy environment for the Initiative, we will adhere to two basic principles for foreign exchange administration: First, we will persevere in reform and opening up to support and boost two-way liberalization of the financial market, further enhance cross-border trade and investment facilitation and serve the real economy. We will support capable enterprises that meet relevant conditions to carry out authentic outbound investing activities in compliance with regulations to better serve the Initiative. Second, we will be on guard against risks arising from cross-border capital flows and the impact from the disorderly flows of cross-border capital on the macro economy and financial stability, so as to maintain the stability of the foreign exchange market, create a sound market environment for reform and opening up and the Initiative, and promote joint growth and common prosperity of other countries. Promoting Sound Economic and Trade Cooperation to Ensure the Smoothness of the Belt and Road Initiative Trade and investment cooperation is a key part of the Initiative. General Secretary Xi Jinping said in his keynote speech at the opening ceremony of the 2017 annual meeting of the World Economic Forum that we must persevere in supporting free trade and investment worldwide and boosting trade and investment liberalization and facilitation while opening up, and guarding against protectionism. In recent years, foreign exchange authorities have been committed to enhancing trade and investment facilitation, removing investment and trade barriers, deepening linkage between trade and investing activities, expanding the scope of trade and investment, optimizing trade and investment structure, exploring new growth points for trade and investment, promoting the balanced development of cross-border trade and investment, and creating sound business environment inside and outside the region to unleash cooperation potential and expand and improve cooperation with the rest of the world. First, implementing the foreign exchange administration system reform for trade in goods in all respects. Trade development is a key part of the Initiative, with trade in goods being the top priority. In 1996, China accomplished convertibility of the current account. In recent years, the verification on a transaction-by-transaction basis of foreign exchange receipts and payments under trade in goods has been cancelled to allow banks to review electronic documents for eligible enterprises and allow class-A enterprises' foreign exchange receipts under trade to be transferred directly into the foreign exchange account under the current account. Efforts have been made to enhance the facilitation of foreign exchange receipts and payments under trade in goods, and consolidate and expand traditional trade to serve the Initiative. Second, deepening the foreign exchange administration reform for trade in services. Efforts have also been made to build and refine the systems in favor of trade in services, cancel prior approval for trade in services, and hand down foreign trade receipts and payments under trade in services to banks, with documents significantly simplified. The reform has effectively reduced the operating costs for enterprises, which is favorable for developing modern trade in services, and optimizing trade structure, thereby vigorously supporting the Initiative. Third, promoting diversified foreign trade development. The SAFE will continue to enhance facilitation of border trade and individual trade, cancel administrative permission for border trade accounts, accelerate turnover of capital and simplify document requirements for individual trade to expand trading under the Initiative. Fourth, supporting the development of new formats. The SAFE has been active in supporting the development of cross-border e-commerce comprehensive pilot zones and expanding the zones to cover 12 cities including Tianjin. In 2015, the pilot program for cross-border e-commerce payments business was rolled out nationwide. Since then, 33 pilot payment institutions across the country have registered an accumulated USD 24.6 billion in cross-border receipts and payments, and supported the development of cross-border e-commerce such as the Internet+, which is favorable for innovating the way of trading and developing new business formats such as cross-border e-commerce to explore the new growth points for trading under the Initiative. Fifth, actively supporting Chinese enterprises to go global. Direct investment is a key channel for Chinese enterprises going global to support the joint building of the Belt and Road. In recent years, foreign exchange administration for direct investments has been significantly simplified and basically convertible and enterprises have remarkably picked up speed to go global. The statistics from the Ministry of Commerce show the ODI from non-financial Chinese enterprises was USD 170.1 billion in 2016, up by 40% year on year. The rapid increase in China's ODI shows the enhanced comprehensive national strength, the higher level of opening up, and the steady advancement of the Initiative, the global production capacity cooperation and administration streamlining and power delegation, which is conducive to boosting China's economic transformation, and promoting economic growth in the globe and the host countries to accomplish mutual benefit and common development of China and the countries along the Belt and Road. At the same time, countries will be faced with various risks in building the Belt and Road, such as country risk, market risk, legal risk and labor risk. As a foreign-related economic administration department, the SAFE has always encouraged enterprises to participate in international economic competition and cooperation, and in joint building and production capacity cooperation under the Initiative to promote the transformation and upgrading of the domestic economy and deepen mutual benefit and cooperation between China and the countries along the Belt and Road. By following the outbound investment management principle that "under the guidance of the government, enterprises will play a dominant role based on market orientation and international practices", the SAFE supports capable Chinese enterprises that meet relevant conditions to make authentic outbound investments in compliance with regulations. Deepening Financial Integration to Expand New Channels for the Belt and Road Initiative The Belt and Road Initiative champions wide-ranging, multi-dimensional, and multi-level connectivity, and financial connectivity is a strong support for the Initiative. General Secretary Xi Jinping emphasized at the 2015 Boao Forum for Asia that the Belt and Road should be jointly built through consultation to meet the interests of all, and integrate development strategies and complement each other's advantages. In recent years, the SAFE has been dedicated to expanding the funding channels for enterprises, innovating the ways of financing, and driving enterprises to go global with capital that has gone global. The SAFE has participated in the Initiative and international production capacity and equipment cooperation by making use of China's capital and experience, as well as its advantages in high-end technology and equipment. At the same time, the SAFE has brought in advanced international technology to achieve integration, cooperation and mutual benefit in terms of technology, management, culture and markets with relevant countries. As at the end of 2016, China's banking industry registered USD 147.6 billion in assets in the countries along the Belt and Road, up by 12% year on year. First, new breakthroughs have been achieved in the two-way opening of portfolio investment. Portfolio investment is a key area for the connectivity of asset allocation. In recent years, the SAFE has harnessed the opportunities from the equilibrium of foreign exchange to refine the systems for qualified foreign institutional investors (QFII) and qualified domestic institutional investors (QDII) in the logic of "balanced regulation and two-way flows" and launched the system for RMB qualified foreign institutional investors (RQFII). It implemented the foreign exchange administration reform for QFIIs and expanded the pilot program for RQFIIs, and simplified the approval procedures for QFIIs and RQFIIs. Moreover, it loosened the upper limit for investments by a single institution, facilitated inward and outward remittances, and eased the restriction of the lockup period, thereby further boosting the opening up of China's capital market. By the end of December 2016, 278 QFIIs obtained the quota of USD 87.309 billion, and 177 RQFIIs obtained the quota of RMB 528.475 billion. Second, the macro-prudential management policy for full-scale cross-border financing has been adopted nationwide. External debt is the key channel for expanding domestic market participants' support for the sources of financing for the Initiative. In recent years, the SAFE has canceled prior approval for external debt and overseas guarantee. In 2016, while summarizing the experience gained from the pilot program for macro-prudential management of external debt, the SAFE rolled out nationwide the macro-prudential management policy for full-scale cross-border financing and innovated the way of supporting investment and financing, in a bid to reduce the difficulties and the cost of financing for enterprises going global. In 2016, Chinese enterprises, including non-banking Chinese financial institutions, registered a contracted amount of USD 102.1 billion for external debt, 2.3 times that of 2015. Third, China's bond market has been further opened up. The SAFE facilitates the issuance of panda bonds by foreign institutions in the Chinese market, allows foreign institutional investors to invest in the domestic inter-bank bond market without imposing limit on a single institution or a total limit, and allows foreign institutional investors who have invested in China's bond market to participate in the foreign exchange derivatives markets both at home and aboard based on real demand to satisfy foreign institutional investors' demand for risk aversion. As of the end of April 2017, there were 48 foreign exchange settlement agencies. Driving enterprises to go global with capital that has gone global is favorable for expanding capital sources for the Initiative to support facilities connectivity. As at the end of 2016, in China's interbank bond market, panda bonds of RMB 63.1 billion had been issued and involved more than 400 foreign investors, with the balance of investment nearing RMB 800 billion. Optimizing Use of Foreign Exchange Reserves to Open New Windows for the Belt and Road Initiative Capital going global plays a fundamental role in the Initiative. As a national strategy-oriented administrative institution for foreign exchange reserves, the SAFE has been committed to improving operation and management of foreign exchange reserves, strengthening coordination and risk control for diversified use of foreign exchange reserves, actively supporting significant strategies such as the Belt and Road Initiative and international production capacity and equipment manufacturing cooperation so as to build a system of external investment and financing platforms that are complementary and cooperative to each other. First, building capital platforms for the Initiative. The SAFE has been dedicated to expanding diversified use of foreign exchange reserves and taken a multi-level approach to support the Initiative through equity, debt and funds. In addition to entrusted loans, the SAFE took the lead to establish the Silk Road Fund and China-Africa Production Capacity Cooperation Fund. The Silk Road Fund boasts a total investment of USD 40 billion, with the first installment of USD 10 billion, while the latter has a total investment of USD 10 billion. Moreover, the SAFE has invested in CIC International, CNIC Corporation, China Development Bank and the Export-Import Bank of China and supported bilateral and multilateral funds in various ways such as China-Africa Development Fund, China-Eurasian Economic Cooperation Fund and China-Arab Investment Funds. Since their inception, these establishments have made explorations in functional positioning, investment concept, business practice and corporate governance and delivered a wealth of initial outcomes. Second, serving national strategies based on market orientation. Through commercial operation, the SAFE focuses on supporting projects under the Belt and Road Initiative such as infrastructure, resource development, industrial cooperation and financial cooperation so as to achieve mid and long-term financial sustainability and good returns on investment. It also has been committed to providing investment and financing support to the economic and trade cooperation between China and relevant countries and regions, and to bilateral and multilateral connectivity. Third, performing an investor's roles and responsibilities. The SAFE endeavors to guide investment institutions to conduct standardized and professional management in terms of corporate governance and the leadership of CPC. The SAFE strengthens the leadership of CPC and improves the systems and mechanism for CPC building, and makes full use of CPC's core role in corporate governance. The SAFE also devotes itself to improving corporate governance, and refining the incentive and constraint mechanisms, achieving significant progress in business expansion, company building, risk control and internal systems. Making Progress while Maintaining Stability in Foreign Exchange Administration to Further Support the Belt and Road Initiative The advancement of the Belt and Road Initiative will play a key role in creating the new pattern of comprehensive opening up, expanding China's development space, and safeguarding security and stability of neighboring countries and regions, and also creates significant opportunities for China and relevant countries to press ahead with connectivity, cooperation and common development. While adhering to the general work guideline of making progress while maintaining stability, foreign exchange authorities will continue to follow the relevant plans of the CPC Central Committee and the State Council to advance reform and opening up, build a new pattern of opening up for common development, inject new life into joint development, so as to systematically, effectively and forcefully advance the Initiative, play a due role of the facilitator, server and safeguard for the Initiative, and lend much momentum to an open world economy, so that the Initiative could better benefit different peoples. To this end, five aspects shall be ensured as follows: First, the Initiative follows market orientation. An open window will not be closed again. The SAFE shall continue to enhance trade and investment facilitation, and expand trade and investment areas, to improve the efficiency and quality of market participants in using domestic and international markets and resources. The SAFE shall also deepen the investment and financing linkage system and further study and implement the mutual benefit policies. It shall welcome foreign enterprises to invest in China and encourage domestic enterprises to participate in the infrastructure building and industrial investment in the countries along the Belt and Road, to promote connectivity under the Initiative. Second, the Initiative is open for cooperation. Efforts shall be made to further open up and facilitate domestic capital market, bond market and foreign exchange market. To achieve the current objective of balancing the supply-demand relationship of the foreign exchange market, and the long-term goal of boosting the opening up of the financial market, the SAFE shall boost the capital account convertibility in a prudential and systematic way. The SAFE shall also work to expand the liberalization of the bond market and facilitate foreign institution's entry into China's bond market to issue and invest in bonds and expand the funding sources for the Initiative. Efforts shall be made to refine the exchange rate formation mechanism, enhance exchange rate elasticity, enrich risk hedging tools in the foreign exchange market and build more friendly and convenient system environment to satisfy the needs of foreign investors for managing exchange rate risks. Third, the Initiative is balanced and robust to make good use of the intangible hand and the tangible hand. With the market laws and international rules under the Initiative observed, efforts shall be made to make full use of the market's decisive role in resource allocation and the roles of enterprises and the government to build a system for macro-prudential management of cross-border capital flows and micro market regulation to prevent the risks arising from unusual cross-border capital flows and build a healthy, stable, and benign order in the foreign exchange market for the Initiative. Fourth, the Initiative seeks mutual benefit to optimize the use of foreign exchange reserves. Under the philosophy of commercial operation, mutual benefit, openness and inclusiveness, the SAFE shall attempt new measures for diversified use while showing respect for the international economic and financial rules to invest in infrastructure, resource development, industrial cooperation, and financial cooperation under the Initiative, through a variety of financing and investment vehicles, especially equity investments to promote common development and prosperity of China and the countries along the Belt and Road. Fifth, policies are integrated to strengthen coordination and cooperation. The SAFE shall boost the policy communication with the countries and regions along the Belt and Road, strengthen connectivity and cross-border cooperation of market infrastructure, and enhance communication and exchanges with foreign investors to make the foreign exchange market more transparent. (The original text is available in the ninth issue of China Finance for 2017) 2017-05-05/en/2017/0505/1263.html
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The national foreign exchange administration work conference has been recently held in Beijing. By following the spirit of 18th CPC National Congress, the Third, Fourth, Fifth and Sixth Plenums of the 18th CPC Central Committee, and the Central Economic Work Conference, the conference reviewed foreign exchange administration in 2016, deeply analyzed the current state of the economy, finance and balance of payments, and discussed and made plans for foreign exchange administration for 2017. Pan Gongsheng, administrator and secretary of the Party Leadership Group of the State Administration of Foreign Exchange (SAFE), delivered a work report at the conference, with deputy administrators, and heads of the SAFE branches (including foreign exchange administration departments), and departments of the SAFE present. The meeting pointed out that, by following the work plans of the CPC Central Committee and the State Council, and the guidance of the CPC Committee of the People's Bank of China, foreign exchange authorities stuck to problem orientation and bottom-line thinking, coordinated the relationship between promoting trade and investment facilitation and guarding against cross-border capital flow risks, and deepened the reform of "delegation, centralization and services" in 2016. To be specific, foreign exchange authorities rolled out nationwide the macro-prudential management policy for full-scale cross-border financing, further liberalized interbank bond markets, and carried out the QFII foreign exchange administration reforms. Under the existing policy framework, foreign exchange authorities strengthened management and execution, worked with other departments for joint regulation, intensified authenticity and compliance reviews, and cracked down on foreign exchange irregularities, in a bid to safeguard the stability of foreign exchange markets. Foreign exchange authorities also enhanced operation and management of foreign exchange reserves, and improved diversified utilization of foreign exchange reserves to safeguard the equilibrium of balance of payments and the national economic and financial security. The meeting emphasized that the year 2017 is key to the implementation of the 13th Five-year Plan and to the deepening of the supply-side structural reform. In the year, foreign exchange authorities are required to implement the spirit of the Central Economic Work Conference and the work plans of the CPC Central Committee and the State Council, adhere to the general work guideline of making progress while maintaining stability and follow the guidance of the CPC Committee of the People's Bank of China to take bold steps to effectively enhance trade and investment facilitation, serve the development of the real economy, intensify authenticity and compliance reviews, and crack down on foreign exchange irregularities, and guard against risks arising from cross-border capital flows, so as to embrace the 19th CPC National Congress with excellent performance. The meeting made plans for the priorities of foreign exchange administration for 2017: first, continue to press ahead with administration streamlining and power delegation and reform in key areas, and further boost trade and investment facilitation to support the development of the real economy. Second, enhance authenticity and compliance reviews, intensify inspections and punishment with regard to foreign exchange irregularities, and maintain a tough stance on crimes such as underground banks and evasion and cheated purchases of foreign exchange, in a bid to safeguard the health and stability of foreign exchange markets. Third, strengthen ongoing and ex-post management, enhance the level of offsite monitoring, analysis and early warning in relation to cross-border capital flows, and refine the management framework for macro-prudential cross-border capital flows. Fourth, improve the operation and management of foreign exchange reserves, to safeguard the security, flows, value growth and maintenance of foreign exchange reserves. Fifth, implement the requirements for strengthening the Party's self-discipline, and continue to step up efforts to build the CPC, clean up undesirable work styles and uphold integrity, and enhance teambuilding and internal management. 2017-01-06/en/2017/0106/1241.html
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In 2016, the State Administration of Foreign Exchange (SAFE) received and processed 39 proposals and motions from the delegates to the NPC and the members of the CPPCC, which covered supporting enterprise going global, boosting RMB internationalization, providing financial support for the Belt and Road Initiative, RMB capital account convertibility and supporting the development of pilot FTZ. The SAFE attached great importance to the processing efforts, arranged relevant work, and made great efforts to carry out the related tasks. As a result, the processing of the relevant proposals and motions for 2016 was completed successfully, which can be attributable to the following aspects: first, close attention from the leadership and thoughtful arrangements. With the significance of the proposals and motions processing stressed by the SAFE's Party Leadership Group, the leaders in charge of this processing effort convened a special meeting to make arrangements and raise requirements for the processing. Second, improved systems and standardized processing. A special measure has been developed to make sure the processing is institutionalized and standardized. Third, good coordination and communication to enhance the processing level. The SAFE took various measures to communicate with the delegates and further listened to their opinions and suggestions to ensure the quality of the processing. Fourth, strengthened training and rigorous overseeing. Training was provided for the persons processing the proposals and motions and supervision was improved to make sure every proposal and motion was replied and every inquiry got response. After the completion of the processing, a wrap-up meeting was held to identify and summarize the experience gained and good practices in this processing effort. 2017 is a year of great importance in the 13th Five-year Plan period and a year when the supply-side structural reform will go deeper. The SAFE shall make the processing of proposals and motions from the 2017 NPC and CPPCC testimony to the implementation of the gist of the 18th CPC National Congress, the Third, Fourth, Fifth and Sixth Plenums of the 18th CPC Central Committee and the Central Economic Work Conference, and continue to improve its work styles and work hard to do well in the processing of the proposals and motions from the 2017 NPC and CPPCC, and embrace the 19th CPC National Congress with real actions. 2017-02-27/en/2017/0227/1250.html
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On December 21, 2016, Pan Gongsheng, Administrator of the State Administration of Foreign Exchange (SAFE), met with a delegation from China Banking Association Foreign Bank Working Committee in Beijing. A seminar was held with 15 foreign bank delegates. They exchanged ideas on the conditions of foreign exchange markets, regulation of foreign exchange markets, and banks' compliance and self-discipline. According to Administrator Pan Gongsheng, building healthy and orderly foreign exchange markets is the common pursuit of market players. Currently, the cross-border capital flow risk is within control and there are long-term fundamental factors that support the stability of foreign exchange markets. Adhering to the general work guideline of making progress while maintaining stability, foreign exchange authorities have been committed to achieving short-term targets through balancing foreign exchange receipts and payments, and guarding against cross-border capital flow risks, and also to making long-term achievements in boosting the liberalization of financial markets, by balancing facilitation and risk mitigation, strengthening regulation of foreign exchange markets and cracking down on foreign exchange irregularities. Commercial banks are required to follow the business principles and intensify authenticity and compliance reviews in handling foreign exchange business. They should perform their social responsibilities and promote the reform measures with regard to foreign exchange administration. They also should guide market players to rationally use the funds and immediately report problems once they are spotted, so as to jointly safeguard the stability of foreign exchange markets. 2016-12-22/en/2016/1222/1238.html