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Q: The latest data disseminated by the State Administration of Foreign Exchange (SAFE) on foreign exchange reserves show that China’s foreign exchange reserves as at the end of January 2019 increased by USD 15.2 billion month on month. Could you tell us why such a change occurred? What would you say about the future trends of foreign exchange reserves? A: As at the end of January 2019, China’s foreign exchange reserves stood at USD 3,087.9 billion, up by USD 15.2 billion or 0.5% month on month. In January 2019, the supply and demand of China’s foreign exchange market maintained basic equilibrium, and the cross-border capital flow was generally stable. In global financial markets, the exchange rate of major non-US dollar currencies witnessed a rise against US dollar, and the price of financial assets also rose to certain extent. Affected by valuation factors such as exchange rate translation and asset price changes, China’s foreign exchange reserves increased slightly. Presently, the global economic growth is confronted with the pressure of slowdown, and the international environment is unstable and uncertain. However, China’s economy has continued to maintain overall stability and steady progress, and the balance of payments has presented a pattern of autonomous balance, which provides a solid foundation for the stability of China’s foreign exchange reserves. Looking ahead, despite the complex and severe global economic and financial environment, China’s economy will maintain a sound development momentum, continue to press ahead with opening-up in an all-around manner, and the foreign exchange market’s operation mechanism will become increasingly mature, enabling China to maintain overall stability of cross-border capital flow and basic balance of supply and demand in foreign exchange market. Due to a combination of factors at home and abroad, China’s foreign exchange reserve is expected to maintain overall stability amid fluctuations. 2019-02-11/en/2019/0211/1492.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 by the end of February 2019 rose by USD 2.3 billion month on month. Could you tell us why such a change occurred? What would you say about the future trends of foreign exchange reserves? A: By the end of February 2019, China's foreign exchange reserves stood at USD 3,090.2 billion, up by USD 2.3 billion or 0.1% from the end of January. In February, China's foreign exchange market maintained smooth operation. On the international financial market, the US Dollar Index rose by 0.6%, and the prices of financial assets were mixed with both rise and fall. Under the combined impact of exchange rate translation and changes in asset prices and other factors, the foreign exchange reserves rose slightly. Since the beginning of this year, the global political and economic environment has still faced many uncertainties, the momentum of economic growth has weakened, and the international financial market has witnessed considerable fluctuations. However, China's economy has maintained sound development, the foreign exchange market expectations continue to improve, cross-border capital flow through major channels and foreign exchange receipts and payments situations have both witnessed positive changes, and foreign exchange reserves has remained stable on the whole. Looking forward, in the face of the complex and volatile international economic and financial situations, China will continue to deepen the structural reform on the supply side, keep the economy operating within a reasonable range, so as to lay a solid foundation for maintaining the stability of cross-border capital flows and independent equilibrium of balance of payments. Under such factors at home and abroad, China's foreign exchange reserves are expected to remain stable on the whole amid fluctuations. 2019-03-07/en/2019/0402/1497.html
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Q: The latest data on foreign exchange reserves disseminated by the People's Bank of China show that China's foreign exchange reserves as of the end of March 2018 rose by USD 8.3 billion month on month. Could you brief us on the causes of such change? What will be the future trends? A: As at the end of March 2018, China posted USD 3.1428 trillion in foreign exchange reserves, up by USD 8.3 billion or 0.27% month on month. In March, China's foreign exchange supply and demand in major channels found a basic equilibrium, indicating a balanced foreign exchange market. Due to the combined impact of the rising risk aversion in the global financial market, appreciation of major non-USD currency exchange rates against the US dollars and changes in asset prices, China's foreign exchange reserves recovered. Since the beginning of the year, China's economic performance has sustained a strong momentum for growth while maintaining stability, with economic structure upgrading optimized and quality/benefits improving. The RMB exchange rate against the USD has fluctuated in two directions and maintained basic stability. The overall equilibrium in cross-border capital has been strengthened. Going forward, as the global economy continues to recover, the domestic economic stability is consolidated with a strong momentum for growth, and the reform and opening up goes deeper, China's balance of payments will sustain a basic equilibrium and cross-border capital flows will stay stable. Meanwhile, as the global economic and political environments remain complex and changing, the financial market may continue to be uncertain. Under such circumstances, China's foreign exchange reserves are expected to remain stable. 2018-04-08/en/2018/0408/1465.html
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On March 22, Pan Gongsheng, Administrator of the State Administration of Foreign Exchange (SAFE) met with Peter T. Grauer, Board Chairman of Bloomberg L.P. and his delegation. The two sides exchanged views on such issues as the global economic situations, the development of the bond market as well as the inclusion of Chinese bonds into the Bloomberg Barclays Bond Index. 2019-03-27/en/2019/0402/1500.html
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On March 26, 2019, Pan Gongsheng, Administrator of the State Administration of Foreign Exchange (SAFE) met with Stephen A. Schwarzman, Chairman, CEO and co-founder of Blackstone Group and his delegation. The two sides exchanged views on the global economy and financial market among other issues. 2019-03-28/en/2019/0402/1498.html
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China 's balance of payments report in 2005 published 2006-04-28/en/2006/0428/784.html
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· [Wang Yungui]: Ladies and gentlemen and friends, welcome to the press conference of the State Administration of Foreign Exchange. Beginning from 2014, every quarter a press conference on the foreign exchange situation and statistics has been held at the State Council Information Office for friends from the press, and a press conference on the foreign exchange administration policy has been held at the SAFE. [10:10] · [Wang Yungui]: Today we have Du Peng, director of the Current Account Department, Guo Song, director of the Capital Account Department, and Wu Ruilin, deputy director of the Administration and Inspection Department. They are very happy to share information with you. The theme of today's conference is recent progress in foreign exchange administration policies. Given that many friends from the press are very much concerned about foreign exchange administration and have well interpreted the policies on foreign exchange administration, we are going to unveil here the foreign exchange administration policies during the first half of this year, especially those during the first three quarters. [10:11] · [Wang Yungui]: First, allow me to release the foreign exchange administration policies for 2014 on behalf of the SAFE. Guided by the decisions and plans of the CPC Central Committee and the State Council and based on practices in foreign exchange administration, the SAFE has been seeking progress while maintaining stability by carrying out reforms and innovations since the very beginning of 2014, focusing on accelerating the streamlining of administration and delegating more power to lower-level departments, stressing interim and ex-post management, promoting capital account convertibility in good order, and actively guarding against financial risks, thus enhancing the capability of foreign exchange administration to serve the real economy. [10:11] · [Wang Yungui]: Advancing the reform of foreign exchange administration under the current account to promote the healthy development of foreign trade [10:12] · [Wang Yungui]: First, deepening the reform of the foreign exchange administration systems for trade in goods and services. In August 2012 the SAFE launched a nationwide reform of the foreign exchange administration system for trade in goods by cancelling the export and import verifications. In September 2013 the SAFE launched a nationwide reform of foreign exchange administration for trade in services, cancelling approvals for foreign exchange under trade in services and significantly simplifying the document examination requirements via banks. According to the requirements, in theory banks do not need to examine transaction documents for receipts and payments of foreign exchange of less than USD 50,000 under trade in services, and the examination of transactions of over USD 50,000 have been simplified. · [Wang Yungui]: Since implementation of the reforms of trade in goods and trade in services, companies and banks can more easily and more quickly conduct their businesses, thus significantly reducing their social costs. Compliant companies, which account for more than 95 percent of the total, fully enjoy the conveniences offered by the policy regarding the receipts and payments of foreign exchange under trade in goods, accelerating their receipts and payments of foreign exchange and significantly improving their capability to independently allocate foreign exchange resources; approvals for each transaction totaling less than USD 50,000 or the equivalent of receipts and payments in foreign exchange under trade in services have been cancelled. Such transactions account for 87 percent of the total. [10:12] · [Wang Yungui]: Since the beginning of this year, the SAFE has shifted the focus of its supervision from ex-ante approvals for trade in goods and trade in services to interim and ex-post management. Based on data monitoring and analysis, a risk-warning letter is sent to companies engaged in trade in goods if their goods and capital flows are seriously mismatched, and they are required to explain why they have received excessive foreign exchange or have paid insufficient foreign exchange. Those companies that fail to provide a response or to make a convincing explanation within 10 days will be downgraded by the SAFE according to the law. Those that are downgraded to class-B companied are required to have their import and export documents examined by banks and are not allowed to handle advance receipts and postponed payments of foreign exchange for more than 90 days or receipts and payments of foreign exchange under entrept trade for more than 90 days. Those that are downgraded to class-C companies are required to submit an application to the SAFE for each transaction and are not allowed to receive or make payments in advance or to receive and pay foreign exchange under entrept trade. [10:13] · [Wang Yungui]: By stressing interim and ex-post regulation, compliant companies have a "green light" for their foreign exchange business, while companies with abnormal transactions are often questioned and verified or even limited. As of the end of August, of the 550,000 listed foreign trade companies, there were 3,194 class-B companies and 709 class-C companies. · [Wang Yungui]: Second, expanding the pilot program among payment institutions for receipts, payments, sales, and settlements of foreign exchange under cross-border e-commerce. [10:14] · [Wang Yungui]: In 2013 the SAFE launched a pilot program among payment institutions with respect to foreign exchange under cross-border e-commerce in order to centrally process the receipts, payments, sales, and settlements of foreign exchange under cross-border e-commerce via 17 payment institutions in 5 regions, including Shanghai, Beijing, Chongqing, Zhejiang, and Shenzhen. In February of this year, five other payment institutions were included in the program. Pilot payment institutions, such as Alipay, ChinaPay, and PayEase, are allowed to handle the purchase of small amounts of foreign exchange, as well as cross-border receipts, payments, sales, and settlements of foreign exchange for buying air tickets, reserving hotel rooms, studying abroad, and purchasing software for both parties in e-commerce transactions, thus facilitating cross-border payments under e-commerce. As of July, 22 payment institutions had processed 692,000 transactions of cross-border foreign exchange receipts and payments, worth USD 630 million, and 8.579 million transactions of cross-border foreign exchange sales and settlements, worth USD 650 million. [10:15] · [Wang Yungui]: Third, further facilitating the settlement of foreign exchange under border trade. [10:15] · [Wang Yungui]: Based on market demand, in March the SAFE adjusted the foreign exchange administration policy for border trade companies, including cancelling administrative approvals, further simplifying documents, clarifying the grounds for settlement of foreign exchange in cash, and improving the relevant off-site verification and management indicators based on the characteristics of the border trade companies, thus playing an active role in accelerating the turnover of capital in border trade, enhancing the capital utilization rate, and promoting the sustainable, healthy, and rapid development of border trade in China. [10:15] · [Wang Yungui]: Fourth, simplifying the requirements for document examination of the receipts and settlements of foreign exchange under individual trade. [10:15] · [Wang Yungui]: As the existing current account management model remains basically unchanged, in March the SAFE introduced a pilot program in Zhejiang and Fujian, where individual trade is fairly developed, to replace the Customs declaration forms with commercial documents, for instance, logistics documents, as evidence for the receipts and settlement of foreign exchange to further facilitate individual trade. [10:16] · [Wang Yungui]: Second, advancing capital account convertibility to improve the investment and financing environment [10:16] · [Wang Yungui]: First, reforming round-trip investments via SPVs (special purpose vehicles). In July 2014 the SAFE launched foreign exchange administration reform for round-trip investments. It clarified that domestic institutions and individuals should register with the SAFE before establishing or controlling an overseas company using their legal domestic or overseas assets and overseas companies should register with the SAFE in accordance with the regulations for FDI before establishing an enterprise in China. Meanwhile, the foreign exchange registration process for overseas investments by domestic individuals has been simplified, only requiring a standard and formatted application form, a capital legality commitment, ID evidence, and relevant authenticity evidence. Domestic residents are allowed to buy and pay in foreign exchange to establish SPVs overseas and to use as overseas working capital. Limitations on the use of capital from overseas financing are also relaxed. [10:16] · [Wang Yungui]: Second, expanding the pilot program to some regions for the reform of willingness exchange settlements for foreign exchange capital of foreign-invested enterprises. Given the success of the pilot program in the China (Shanghai) Pilot Free Trade Zone and Tianjin Binhai New Area, in July the SAFE replicated and promoted the policy for the willingness exchange settlement for foreign exchange capital of foreign-invested enterprises in 16 national pilot economic and financial development zones, including the Shenyang Economic Zone and Suzhou Industrial Park, allowing foreign-invested enterprises in the pilot zones to choose the time and method of foreign exchange capital settlement based on their operational needs and to receive and pay for foreign exchange in RMB through the unpaid foreign exchange settlement account. To guard against risks, it is required that unless otherwise specified, RMB capital for willingness exchange settlements should not be used beyond the business scope or for securities investments, entrusted loans, or real estate investments. Since implementation of the pilot program, foreign-invested enterprises in the relevant regions have become more flexible in their use of capital, which is favorable for settling foreign exchange at an appropriate time and for mitigating foreign exchange rate risks. · [Wang Yungui]: Third, further simplifying management of foreign exchange under direct investments. First, liberalizing management of the preliminary expenses for overseas direct investments (ODIs). If the accumulated outward remittances of the preliminary expenses for ODI are less than USD 3 million or less than 15 percent of the total Chinese investment, domestic institutions are allowed to buy or pay for foreign exchange through banks after registering their preliminary expenses with a local foreign exchange bureau by presenting their business license and the organizational code certificate. Second, liberalizing management of overseas funding by domestic companies. Domestic companies are allowed to fund overseas companies with which they have equity relations, and the limit of 2 years of validity for funding is canceled. Third, simplifying the submission of outward remittances of profits by domestic institutions. [10:22] · [Wang Yungui]: Fourth, implementing the foreign exchange administration reform for cross-border guarantees. To ease the difficulties in financing and to reduce the staggering financing costs, in May the SAFE introduced the Regulations on Foreign Exchange Administration for Cross-border Guarantees to implement the foreign exchange administration reform for cross-border guarantees. Administration streamlining and decentralization have been significantly promoted, with ex-ante approvals related to cross-border guarantees, ex-ante verifications for the performance of guarantees, and most limitations on business qualifications replaced by proportional self-disciplined management and registration management to unify the policies on domestic loans with the overseas guarantees for foreign and Chinese enterprises in China. Measures against risks associated with cross-border guarantees have been intensified. Since implementation of the reform, cross-border guarantees have been stable, with no abnormal growth in the performance of cross-border guarantees. According to feedback from enterprises and banks, business processing has become easier and more convenient, companies' financing channels have been expanded, and financing costs have been effectively reduced since implementation of the reform. Before implementation of the reform, it would take enterprises at least one week to undergo the entire process, including applying for a financing limit, signing a contract, and registering a guarantee, whereas since implementation of the reform, enterprises only need to register and it takes them only one day to complete the financing under guarantees. On average, banks need 1 4 hours, rather than the original one week, to process overseas loans with domestic guarantees, provided that the enterprises have completed the pledge processes for collateral and have submitted the completed application materials. [10:23] · [Wang Yungui]: Fifth, streamlining administration and decentralizing cross-border credit. This primarily includes three points. First, simplifying administration of foreign exchange under sub-loans by canceling the processes for registration per transaction, account opening, and verification, and introducing centralized registration of creditors for sub-loans. Second, simplifying management of external claims registration for financing and leasing companies by introducing ex-post registration of financing and leasing companies and canceling the processes for account opening and verification. Third, simplifying foreign exchange administration for accepting assigned domestic non-performing assets by foreign investors by canceling the SAFE approval for the receipt and payment of foreign exchange and the relevant exchange involved in the disposal of non-performing assets by financial asset management companies and simplifying the relevant registration processes. · [Wang Yungui]: Sixth, promoting the streamlining of administration and decentralization under securities investments. On the one hand, improving management of foreign exchange market access of securities companies by replacing the three-year license renewal requirement with an annual reporting system. On the other hand, simplifying the operating processes for RQFII (RMB Qualified Foreign Institutional Investors) by simplifying or canceling approvals for postponed inward remittances and quota adjustments, thus facilitating the institutions’ flexible use of their quotas based on market needs. [10:24] · [Wang Yungui]: During the reform, the SAFE has focused on streamlining and integrating the regulations in an attempt to provide a more transparent and clearer policy framework for market players. Currently, administrative approval items under the capital account have been slashed by 66 percent, from the original 58 sub-items to 20 sub-items. During the first half of this year, as the reform proceeded a total of 18 regulatory documents under the capital account were abolished, including 12 documents under cross-border guarantees. [10:25] · [Wang Yungui]: Third, advancing the pilot program for the centralized operation and management of the foreign exchange of MNCs. [10:26] · [Wang Yungui]: In June, the "upgraded version" for the centralized operation and management of the foreign exchange of MNCs was promoted nationwide. The main content of the "upgraded version" includes: first, expanding the scope of the pilot program to benefit more companies. China- and foreign-funded MNCs are allowed to apply to join the program provided that they have a genuine demand, have foreign exchange that was received and paid in the previous year, have sound internal controls, and have not committed any grave violations within three years. Second, MNCs are allowed to coordinate the use of capital both at home and abroad to improve their operating efficiency. MNCs can open a principal domestic account and a principal international account to centralize management of the capital of their domestic and overseas members. Third, centralized receipts and payments and netting settlements are applicable to capital under the current account of a principal domestic account, while willingness exchange settlement is applicable to the principal and external debts. MNCs can coordinate the use of external debts and external funding limits of its member companies to transfer the balance among its member companies. Fourth, strengthening measures to guard against risks. Collecting information on the receipts and payments of the foreign exchange of MNCs, including centralized receipts and payments and netting settlements, and conducting timely on-site verifications and inspections of anything suspicious identified in the off-site monitoring to adhere to the bottom line of foreign exchange administration to guard against risks. [10:27] · [Wang Yungui]: Fourth, intensifying foreign exchange inspections to clamp down on foreign exchange illegalities and crimes. [10:29] · [Wang Yungui]: Since the beginning of this year, the SAFE has organized many inspections against areas and links with abnormal flows of foreign exchange and has cracked down on foreign exchange illegalities and crimes, which have had a positive effect in promoting foreign exchange market players to run their businesses in compliance with the laws and regulations and in maintaining national economic and financial security. · [Wang Yungui]: First, continuing to increase inspections of key areas and links with abnormal flows of foreign exchange and intensifying punishments, and conducting special inspections against false entrept trade and forward foreign exchange settlements. From January to August, 967 cases of foreign exchange violations were identified and dealt with, collecting administrative punishments in the amount of RMB 180 million. [10:30] · [Wang Yungui]: Second, strengthening cross-departmental cooperation for financial monitoring. The SAFE signed an MOU with the Anti-Smuggling Department of the General Administration of Customs to jointly clamp down on chains of smuggling capital activities. The SAFE also worked with the Ministry of Public Security to crack down on foreign exchange illegalities, such as underground money shops and fraudulent foreign exchange letters of credit. As of the end of August, six underground money shops had been discovered and one illegal foreign exchange margin trading case had been dealt with, involving a total amount of RMB 2.8 billion. [10:30] · [Wang Yungui]: Third, intensifying searches for clues about foreign exchange violations via the foreign exchange inspection system to further enhance the accuracy of the crackdowns and the efficiency of the inspections. Between January and August, 353 cases were filed using clues identified from monitoring analysis, involving fines in the amount of RMB 118 million and accounting for 36.5 percent and 65.5 percent of the total respectively. [10:30] · [Wang Yungui]: Overall, foreign exchange administration measures were smoothly implemented during the first three quarters. The streamlining of administration and the delegating of more power to lower-level departments have substantially reduced the operating costs for market players, have remarkably fueled the enthusiasm of foreign-related companies for operations, and effectively promoted trade and investment facilitation, thus playing a significant role in stabilizing growth, adjusting the structure, and serving the common good. Meanwhile, by enhancing monitoring analysis and promptly adjusting pre-plans to guard against risks, the SAFE's capability to guard against systemic risks have been improved dramatically. [10:30] · [Wang Yungui]: Now please ask your questions. [10:31] · [Journalist]: I would like to ask Director Guo a question. We know the Fourth Plenary Session is forthcoming. You proposed at the Third Plenary Session that capital account convertibility should be accelerated, which requires building and improving a management system for external debts and capital flows under a macro-prudential management framework. I am wondering what steps the SAFE has taken thus far and what measures the SAFE will launch in the future in this regard. Could you please share some information with us? [10:36] · [Guo Song]: It has been 2 3 decades since the concept of capital account convertibility was first raised in China. Thus far we have been trying to realize capital account convertibility step by step in accordance with the requirements of the Third Plenary Session of the 18th CPC Central Committee and previous conferences of the CPC Central Committee. Capital account convertibility is a gradual process and cannot be achieved overnight. As Director Wang just mentioned, several key reform measures under the capital account that have been introduced by the SAFE since the beginning of this year, including the reform of foreign exchange administration under round-trip investments, the pilot program for foreign exchange capital settlements, cancellation of the administrative approvals for external guarantees, as well as cancellation of the management of sub-loans of external debts and cancellation of approvals for the disposal of non-performing assets, have significantly enhanced the level of capital account convertibility. In addition to these national policies, the SAFE has carried out some pilot programs, such as promotion of the expansion of the management policy for the foreign exchange of MNCs, which thus far has been proceeding smoothly. Other pilot programs are also being conducted, such as the reform of external debt management under the macro-prudential framework which has been launched in the Heilongjiang Yanbian Development Zone and in Pingtan, Fujian. All of these measures have played some role in promoting capital account convertibility. [10:41] · [Guo Song]: We are also accelerating study and implementation of the management system for external debts and capital flows under the macro-prudential framework, which was proposed at the Third Plenary Session of the 18th CPC Central Committee. For example, the macro-prudential management framework is taken into consideration during verification of the short-term external debts indicators of financial institutions, with more attention being paid to the banks' net assets. Of course, net assets are just one of the indicators, that is, a certain proportion of the net assets is used to verify the indicators. It is likely that many indicators may be balanced to achieve the intentions of a macro-prudential framework. We will continue to gradually remove the restrictions on capital account convertibility, to give market players more decision-making power in terms of investments, and to offer them more conveniences to use foreign exchange, which will be our top priority in the near future. [10:46] · [Guo Song]: Thank you! [10:46] · [Journalist]: I am a reporter from CCTV. I am concerned about the Qingdao port trade financing case that has recently attracted wide concern in the press. Was the SAFE involved in the investigation and will there be any punishment for the violators? · [Wu Ruilin]: First, it should be made clear that the case does not only concern foreign exchange administration. It also involves foreign exchange financing and home currency financing, thus it concerns many financial regulators, while the SAFE is chiefly responsible for regulation of foreign exchange financing in China. Last April, before the case was identified, we launched a special campaign against false entrept trade and conducted special inspections of large amounts of entrept trade in 13 provinces and cities. This year we expanded the scope of the inspections to 24 provinces and cities and inspected banks handling entrept trade, with the aim of curbing false entrept trade. We also carried out an inspection in Qingdao. The inspection involved some parties in the Qingdao port case. During the investigation, we found many companies were using fake or altered commercial documents, or were repeatedly using property documents, or were applying general documents for trade in goods with imports declared for trade structuring, making entrept trade a tool for speculation and arbitrage or even a channel for flows of hot money or illegal cross-border capital flows. [10:49] · [Wu Ruilin]: Some banks failed to assume their responsibility to verify the authenticity of the transactions before handling financing and receipts and payments under entrept trade for companies and were instrumental in the abnormal growth of entrept trade financing and in the increase in false entrept trade transactions. · [Wu Ruilin]: False entrept trade will seriously harm the receipt and payment of foreign exchange, even the entire macro economy. It increases pressures from inflows of hot money and provides a channel for cross-border flows of illegal capital, thus curbing the development of the real economy by allowing capital to depart from the real economy and to flow into the virtual economy, and distorting the statistics on foreign trade data and impacting judgments on the macro situation. Thus far the SAFE has verified false entrept trade documents involving nearly US$ 10 billion, of which 15 cases have been handed over to the public security authorities for criminal sanctions. As the crackdown on false entrept trade proceeds, false entrept trade is being effectively contained and speculation and arbitrage through false entrept trade are decreasing. In the future, the SAFE will continue to crack down on false entrept trade in accordance with the inspection arrangements and plans and will seriously punish foreign exchange violations in accordance with the foreign exchange administration regulations, and will turn over foreign exchange crimes to the public security authorities for criminal sanctions. Meanwhile, the SAFE will cooperate with relevant departments in the investigation of financing under false entrept trade. Thank you! [10:52] · [Journalist]: I am a reporter from people.cn. Could you please share with us something about the use of the annual limit of USD 50,000 for the sale and settlement of foreign exchange for Chinese individuals? Can this limit satisfy individuals' demand for foreign exchange? Will this annual limit be properly raised in the near future? Thank you! [10:52] · [Du Peng]: Thank you for your question. To offer more conveniences to individuals to use foreign exchange and to reduce social costs, in 2007 the SAFE launched the convenience measure of the USD 50,000 limit for the sale and settlement of foreign exchange for individuals. This means that individuals can go directly to banks to buy or settle foreign exchange of less than USD 50,000 by presenting their ID cards, while individuals are required to present to the banks the relevant transaction documents with authentic backgrounds to buy and settle foreign exchange totaling over USD 50,000. Meanwhile, individuals going abroad can settle foreign exchange overseas using their bank cards and they are not restricted by the USD 50,000 limit when buying foreign exchange for repayment after returning to China . [10:55] · [Du Peng]: In general, individuals' demands for the permitted use of foreign exchange under the capital account, as well as the current account, after the authenticity and legality are verified, are basically satisfied. The SAFE conducted a questionnaire-based survey of 1,671 bank outlets in 12 provinces from March to June. More than 54,000 respondents completed the questionnaire, which revealed that 80 percent of the individuals' demands for foreign exchange are met. Statistics show that 80 percent of the individuals used foreign exchange totaling less than USD 10,000 annually, and 99 percent used foreign exchange totaling less than USD 50,000 annually, suggesting that 1 percent of the individuals might use foreign exchange beyond the annual limit. But these people can apply for the use of foreign exchange by presenting the relevant documents. It has been concluded that the current USD 50,000 limit is aligned with the current level of economic development and the level of public affluence. But as individuals become more involved in international communications, their demand for foreign exchange may increase and the types of foreign exchange they demand may become diversified, which we are also studying. [10:58] · [Du Peng]: Overall, the SAFE is working to further satisfy individuals' demands for buying, using, and settling foreign exchange, guided by the principles of further facilitation and risk controllability. [10:59] · [Journalist]: I have a question regarding the liberalization sequence of the capital account. It is known that China's overall financial reform is being conducted in a certain sequence. As interest rates and foreign exchange rates are not liberalized, we should be cautious about liberalizing the capital account. If economic theory and international lessons are any guide, liberalizing the foreign currency debts of domestic banks and companies is actually one of the most risky sub-items of the 100 sub-items required by the IMF. As the interest rate was liberalized due to the unilateral appreciation of the RMB in the first half of this year, many enterprises that went public in Hong Kong suffered huge exchange rate losses, some of which even reached more than RMB 1 billion. So could you please share with us the policy on the foreign currency debts of domestic companies and the SAFE's ideas on the liberalization sequence of the capital account? [11:02] · [Guo Song]: The capital account liberalization projects, or the capital account convertibility projects, that we have carried out over the years have been divided by risk. Direct investments, for example, are fairly liberalized, and cross-border direct investments (FDI and ODI) are basically convertible, only requiring a registration processes. [11:02] · [Guo Song]: We are very prudent in liberalizing securities investments and external debts. Limit-based management is adopted for external debts, including limit-based management for banks by imposing a restriction on the size of the annual external debts. Chinese companies are subject to more restrictions in borrowing money overseas, which is basically forbidden except in individual pilots. Foreign-invested companies are subject to a management model that focuses on the difference between investment and registered investment, under which they enjoy more freedom to borrow money overseas. Regarding the external debt risks that you asked about, we are more concerned about China's overall external debt risks rather than those of one company. Companies' external debt risks are more concerned about exchange rate risks, except for depending on their solvency, that are to be addressed using risk mitigation tools, and their selection of the type of currency they borrow is also impacted by the exchange rate and the interest rate. We have released data on the country's external debts in the first quarter and are about to unveil data for the second quarter. In the first quarter, the country's external debts in foreign currency amounted to USD 883.8 billion, while its foreign currency reserves were nearly RMB 4 trillion. This means the risk is under control from the perspective of payments according to international common risk measurements. But it is inevitable that individual companies remain exposed to external debt risks. It is hoped that companies will make more efforts to study risk mitigation measures. Thank you! [11:12] · [Journalist]: I am a reporter from Phoenix Satellite Television. It is said that the outstanding abnormal foreign exchange funds in August was a result of accelerated outflows of capital and were temporary. Is there any policy in response to this? [11:18] · [Guo Song]: Relevant data for August show that in general capital inflows and outflows were balanced. Statistics from the People's Bank of China show an increase of USD 15.4 billion in foreign currency deposits and a decline of USD 3.3 billion in foreign currency loans in August. According to the data, based on the current foreign exchange rate and the interest rate, more market players have adopted such a way to manipulate their capital, instead of merely focusing on the increase or decrease in inflows and outflows of capital, which shows that market players have gained more power to independently use their foreign exchange; foreign traders can independently decide when to receive or pay foreign exchange and when to settle or buy foreign exchange using their owned capital or loans. [11:37] · [Journalist]: Could you please share with us something about the RQFII scheme? Is the SAFE going to raise the RQFII quota? [11:38] · [Guo Song]: It has been 2 3 years since the RQFII scheme was launched. As of the end of August, a quota of RMB 278.6 billion had been doled out under this scheme. Other than in Hong Kong, approvals for the scheme in places such as Singapore, the UK, and France have just begun and there is no shortage in the quota. As of the end of August, RMB 265.3 billion of an aggregate quota of RMB 270 billion had been allocated in Hong Kong, so the quota is rapidly exhausted, which we are studying in partnership with other departments. [11:38] · [Journalist]: I am reporter from Economic Observer. The Shanghai Hong Kong Stock Connect is about to be launched and the two points of arbitrage and regulatory arbitrage have attracted wide concern. Do you think the risks of capital inflows and outflows entailed by such arbitrage are controllable? What are your ideas about the Shenzhen Hong Kong Stock Connect? [12:05] · [Guo Song]: Whether capital flows move northbound to Shanghai or southbound to Hong Kong depends on people's interest in A-shares and H-shares and it is hard to tell right now. As for arbitrage, if there is a regime that can address a price difference, which is a characteristic of full marketization, I believe this is good. We should not always regard arbitrage as a negative concept. Will there be capital arbitrage? Sure, it is inevitable as some A-shares are cheaper or some H-shares are cheaper. [12:05] · [Guo Song]: As far as regulatory arbitrage is concerned, we believe there is very limited room for arbitrage in the transaction regime of the Shanghai Hong Kong Stock Connect, despite the regulatory differences in the two regions, such as the trading time, the trading day, and the price limits. [12:05] · [Guo Song]: Therefore, the Shanghai Hong Kong Stock Connect should be a very good system and will be an important step in achieving overall capital account convertibility. The SAFE will give full support to the design of this system and its future progress. But no information on the Shenzhen Hong Kong Stock Connect is available now. [12:05] · [Wang Yungui]: I would like to say something more on this issue. First, the central government's overall arrangement for northbound capital to Shanghai and southbound capital to Hong Kong is to allow both channels to match in aggregate. Data from the relevant department’s show that the aggregate quota for the two channels — northbound to Shanghai and southbound to Hong Kong — is basically the same, so these departments have developed a good design in terms of the aggregate quota and capital will not be seriously mismatched. As far as the policy design is concerned, the two channels — northbound to Shanghai and southbound to Hong Kong — are both closed channels that will not have a serious impact on cross-border capital flows. If stocks are bought from a market, only cash can be retrieved when selling the stocks and no other form of investment is allowed. [12:06] · [Wang Yungui]: Thank you for attending today's press conference! Relevant events will be arranged for the fourth quarter. A press conference on the foreign exchange situation and data will be held next month at the State Council Information Office. You are warmly welcome to attend. [12:06] (The original text is available at www.people.com.cn.) 2014-11-26/en/2014/1126/1132.html
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· Hu Kaihong: Good morning, ladies and gentlemen. Welcome to the press conference of the State Council Information Office. Today we have with us Ms. Wang Chunying, spokesperson of the State Administration of Foreign Exchange (SAFE), to release the foreign exchange receipts and payments data for the first half of this year and answer your questions. This is the first time Ms. Wang has met with you. Now let us invite Ms. Wang for some opening remarks. July 23, 2015, 09:46:58 · Wang Chunying: Good morning, ladies and gentlemen, and friends from the press. I am delighted to attend today's press conference and meet with you. First, I would like to unveil the foreign exchange receipts and payments data for the first half of 2015 and then I will take your questions. Since the beginning of this year, the economic and financial environment both at home and abroad have remained complicated. The world economic recovery has been sluggish, chiefly due to the continued divergence of the major economies' monetary policies. The domestic economy has been running slowly but stably and within a reasonable range. Recently, the major economic indicators have changed for the better, the economic structure has been optimized, and deepening the reform has produced further positive results, thus leading to a stable RMB exchange rate. Under such circumstances, China has witnessed bidirectional fluctuations of the cross-border capital flows, and recently balanced supply and demand of foreign exchange. July 23, 2015, 09:55:54 · Wang Chunying: Banks settled foreign exchange of RMB 5.31 trillion (USD 866.5 billion) and sold foreign exchange of RMB 5.96 trillion (USD 971.9 billion) in the first half of the year, with a deficit of RMB 647.4 billion (USD 105.4 billion). Meanwhile, banks registered cumulative foreign-related income of RMB 10.09 trillion (USD 1.6461 trillion) and made external payment of RMB 9.82 trillion (USD 1.6016 trillion) on behalf of clients, with a surplus of RMB 271.6 billion (USD 44.5 billion), according to the data on foreign-related receipts and payments via banks. July 23, 2015, 09:57:42 · Wang Chunying: China's foreign exchange receipts and payments were characterized by the following in the first half of the year: First, foreign exchange settlement and sales by banks registered a deficit while foreign-related receipts and payments for clients recorded a surplus. In the first half of 2015, in US dollar terms, the foreign exchange settled by banks was down by 10% year on year, while the foreign exchange sold, up by 25% year on year, leading to a deficit of USD 105.4 billion. Meanwhile, the foreign-related income received via banks on behalf of clients was up by 1% year on year while the external payment made through banks was up 3% year on year, leading to a surplus of USD 44.5 billion. This changed the double deficits of foreign exchange settlement and sales and foreign-related receipts and payments through banks on behalf of clients in the second half of the previous year. The deficit between foreign exchange settled and sold was USD 62.5 billion and that between foreign exchange received and paid through banks on behalf of clients was USD 49.1 billion in the second half of the previous year. Second, the cross-border capital flows remained volatile but have been stabilized recently. The deficit between foreign exchange settled and sold by banks amounted to USD 91.4 billion in the first quarter of 2015, or USD 30.5 billion per month on average, and shrank significantly to USD 13.9 billion in the second quarter. In April, the deficit fell to USD 17.3 billion and became a surplus of USD 1.3 billion and of USD 2.1 billion in May and June respectively. The foreign-related receipts and payments through banks on behalf of clients registered a monthly average surplus of USD 27.5 billion in January and February, a monthly average deficit of USD 22.3 billion in March-April and then rebounded to a monthly average surplus of USD 17 billion in May and June. July 23, 2015, 09:59:08 · Wang Chunying: Third, market players' willingness to settle foreign exchange was enhanced while their motive to buy foreign exchange was weakened. In the first quarter, foreign exchange settled by banks into RMB on behalf of clients as a percentage of foreign-related foreign exchange income (or foreign exchange settlement rate), the measurement of the willingness of enterprises and individuals to settle foreign exchange, was 69%, down by 3 percentage points quarter-on-quarter, while in the second quarter, the rate was 74%, up by 5 percentage points quarter-on-quarter. In the first quarter, foreign exchange sold via banks to clients using RMB as a percentage of foreign-related foreign exchange payments (or foreign exchange sales rate), which measures the motivation to buy foreign exchange, was 79%, up by 6 percentage points quarter-on-quarter, while the rate was 75% in the second quarter, down by 4 percentage points quarter-on-quarter. These suggest that enterprises have adjusted their foreign-related receipts and payments behaviors along with the market changes since April. Fourth, forward settlement and sales of foreign exchange by banks registered a deficit that showed a significant decline. In the first half of 2015, the number of clients contracting for forward foreign exchange settlement with banks was down by 47% year on year, while that of clients contracting for forward foreign exchange sales with banks was up by 31%, leading to a deficit of USD 68.6 billion in forward foreign exchange settlement and sales contracted with banks, compared with a surplus of USD 50.4 billion for the same period last year. The forward foreign exchange settlement and sales contracted with banks registered a deficit of USD 47 billion in the first quarter, which dropped to USD 21.5 billion in the second quarter, suggesting market expectations of the RMB exchange rate has been stabilized since the second quarter. July 23, 2015, 10:02:16 · Wang Chunying: Fifth, the supply and demand of foreign exchange moved towards equilibrium. In the first half of 2015, the balance of spot and forward foreign exchange settled and sold by banks (or the balance of foreign exchange settled and sold by banks and the change in the outstanding net forward foreign exchange settled combined), an indicator of the supply and demand of foreign exchange in the retail market, fluctuated sharply, registering a deficit of USD 120 billion in the first quarter, indicating a monthly deficit of USD 40 billion, which dropped significantly to USD 32.6 billion in the second quarter, and further to USD 18.5 billion, USD 7.1 billion and USD 7 billion in April to June respectively. These are the major statistical data I want to unveil regarding foreign exchange receipts and payments in the first half of this year. You can find out relevant data at the SAFE's official website. Next, I will take your questions on the foreign exchange receipts and payments. July 23, 2015, 10:04:39 · Hu Kaihong: Thank you, Ms. Wang. Now we will take your questions and please remember to tell us where you are from before raising your questions. July 23, 2015, 10:05:53 · China Daily: Expectations of interest rate rise by FED have been increasing recently and the US' monetary policy will be normalized in the future. Although the threat from Greece's exit from the euro zone is removed for now, yet Europe will still face great uncertainties in the future. What impact will the dramatic changes in the international environment have on China's cross-border capital flows? What policies will the SAFE adjust in response to such changes? July 23, 2015, 10:06:18 · Wang Chunying: Thank you for your questions. The changes and impacts of the FED's monetary policy have drawn wide concern from society, such as from the SAFE, who has made real-time assessment of this issue's impact on China's cross-border capital flows. On behalf of the SAFE, we have elaborated on this issue at the previous data dissemination press conferences, and still can make the following judgments based on the current situation: Firstly, the impact from the normalization of the FED's monetary policy has become evident, but is within control for the time being. The FED's winding down of the QE monetary policy in 2014 has impacted most of the emerging economies. China reported further bidirectional fluctuation of its cross-border flows, but still witnessed net inflows of cross-border capital and increase in foreign exchange reserve assets under balance of payments throughout the year. In the first quarter of this year, due to expectations of interest rate rise by the FED, the US dollars appreciated rapidly, with the DINI up by 9% and exceeding 100 in the upper-middle of March, thus significantly driving China's cross-border capital outflows. But as both domestic and international macro-environment changed, capital outflows slowed down and the supply-demand of foreign exchange was basically balanced in the second quarter, indicating the impact from the normalization of the FED's monetary policy is still acceptable for the moment. July 23, 2015, 10:07:53 · Wang Chunying: Secondly, the normalization of the FED's monetary policy means both challenges and opportunities for China's cross-border capital flows. With respect to challenge, the interest rate rise by the FED and the appreciation of the US dollars may affect financial operation by domestic enterprises, thus increasing the fluctuation of China's cross-border capital flows and the uncertainties in the market and threatening the RMB exchange rate policy. Meanwhile, the normalization can bring the following opportunities. First, stimulating external demand. The normalization of the FED's monetary policy will take effect step-by-step, with the impact felt gradually. Further, this shows an optimistic outlook of the US' economic recovery, which is favorable for increasing China's external demand. Second, promoting reforms. The pressure from the normalization can be regarded as an impetus for deepening the reform and opening up and accelerating the building of an open economic system in China. For example, the normalization may diverge the expectations of the RMB exchange rate, which is conducive to the reform of the RMB exchange rate formation mechanism, and may increase the outflows of cross-border capital, which is a correction of the massive and long-term inflows in the early stage, thus helping promote balance of payments towards equilibrium, and may lead to shrinks in global liquidity, which will help force domestic enterprises to pay more attention to risk management and to reduce currency mismatch. The financial adjustment of "holding assets denominated in foreign currencies and deleveraging liabilities", for example, kicked off in the second half of 2014, suggesting people are more willing to hold assets denominated in foreign currencies and expect to service debt as soon as possible or have less external debt. July 23, 2015, 10:19:09 · Wang Chunying: Thirdly, China is confident in and capable of tackling the impacts, but could not ignore relevant risks. Given the large economic size, a surplus of trade in goods, abundant foreign exchange reserves, and enhanced elasticity of RMB exchange rate, China is able to fend off the impact from cross-border capital flows. However, even if macro risks are within control, China must pay close attention to micro risks faced by individuals. In case of heavy debt burden, and serious term or currency mismatch, individual enterprises should make active adjustments based on their own situations. Fourth, the key to rising to the challenge of the normalization of the US' monetary policy is to handle China's own business well. Efforts should be made to make sure the economy runs within a reasonable range and the risks and problems are properly addressed, so as to consolidate and enhance the confidence in China's economy. Foreign exchange authorities are required to: first, continue to develop the foreign exchange market and expand the width and depth of the market to better mitigate both domestic and external impacts; second, further intensify the monitoring and warning of cross-border capital flows, speed up establishing and improving an external debt and capital flow management system under the macro-prudential management framework, increase policy tools for countercyclical adjustment and improve relevant response programs; third, step up efforts to educate market players about risk mitigation, urge and guide enterprises to better manage their risks by various means and require enterprises to actively use the existing tools and channels in the market; fourth, continue to increase data transparency by improving the data dissemination and information disclosure system to further help the market assess and analyze changes more comprehensively and accurately. July 23, 2015, 10:30:23 · Wang Chunying: As for Greece, its debt has not severely impacted China's cross-border capital flows. Recently, the Greek government has reached an agreement with international creditors on the new round of bailout, thus temporarily easing the pressure from Greece's exit from the euro zone. Nevertheless, the economic and financial conditions both at home and abroad remain complex at present, and if there is any change to Greece's debt crisis, the international foreign exchange market will be affected, thus indirectly influencing China's cross-border capital flows, indicating further observation is needed with other factors such as EUR ad USD taken into consideration. In the future, China will continue to track the development and evolution and the external transmission channels of Greece's debt crisis, pay close attention to responses from the international financial market and assess their impacts on China's cross-border capital flows in a timely manner to make response plans. Thank you. July 23, 2015, 10:43:19 · Chinanews.com: The data recently released by the central bank show that the balance of foreign exchange reserves shrank as at the end of June by USD 150 billion from the end of the previous year. Does this mean that China came under heavy pressure from capital outflows in the first half of the year? But you said just now that the foreign-related receipts and payments hit a surplus in the period. How to understand this? July 23, 2015, 10:49:08 · Wang Chunying: This is a very good question. Currently many data can reflect capital flows, such as BOP, foreign exchange sales and settlement, foreign-related receipts and payments, as well as foreign exchange reserves and International Investment Position. These data show different aspects of capital flows, and sometimes even indicating surplus or deficit, the opposite directions, making it difficult to understand. I would hereby like to make a clarification to help you better understand it. Foreign-related receipts and payments refer to the cross-border capital receipts and payments by companies and individuals via banks, excluding cross-border capital flows of banks. As overseas deposits have not been fully liberalized, foreign-related receipts and payments reflect the fundamentals of cross-border capital flows. Foreign exchange sales and settlement refer to exchanges between the RMB and foreign currencies by enterprises, individuals, banks and other financial institutions, representing full-scale data on the exchanges between RMB and foreign currencies. By looking at foreign exchange sales and settlement, foreign-related receipts and payments as well as foreign exchange deposits and loans combined, one can understand whether a client's foreign exchange income is converted into RMB or becomes foreign exchange deposits, and whether a client's external payment is made using his/her foreign exchange deposits, or foreign exchange purchased with RMB, or foreign exchange loans borrowed from a bank. July 23, 2015, 10:51:20 · Wang Chunying: The balance of foreign exchange sales and settlement is closely related to the changes in foreign exchange reserves, which may result from changes in banks' foreign exchange position, income from reserves, prices of assets invested using reserves and exchange rate. For example, in the case of a surplus in banks' foreign exchange sales and settlement, if banks are willing to hold more foreign exchange positions, foreign exchange reserves will not rise. On the contrary, in the case of a deficit, if banks are willing to cut its foreign exchange positions, which means direct provision of sources of foreign exchange to clients, foreign exchange reserves will not drop. Moreover, the SAFE releases the Balance of Payments Statement and International Investment Position, which combined can fully reflect China's foreign-related economy, including trade in goods, trade in services, primary and secondary income under the current account, as well as direct investment, portfolio investment, other investments and financial derivatives under the capital and financial account. July 23, 2015, 11:11:30 · Wang Chunying: According to the data available, sustained and massive capital outflows did not occur in the first half of the year, and the pressure from capital outflows was weakened and balanced in the second quarter, compared with the first quarter. The changes in the balance of foreign exchange reserves show that foreign exchange reserves dropped by USD 113 billion in the first quarter and USD 36.2 billion in the second quarter, which was much lower than the former. The foreign exchange sales and settlement registered a deficit of USD 91.4 billion in the first quarter, which dropped significantly to USD 13.9 billion in the second quarter. The foreign-related receipts and payments by banks on behalf of clients hit a surplus of USD 31.2 billion in the first quarter and USD 13.2 billion in the second quarter. Despite the drop, there was still a net inflow of foreign-related receipts and payments by banks on behalf of clients. The supply-demand of foreign exchange in the retail market registered a deficit of USD 120 billion in the first quarter, which dropped significantly to USD 32.6 billion in the second quarter. These data show that the pressure from capital outflows was eased and the foreign exchange receipts and payments became more balanced in the second quarter. July 23, 2015, 11:20:39 · Wang Chunying: Why were foreign-related receipts and payments in surplus while the balance of foreign exchange reserves dropped? First, foreign-related receipts and payments refer to the cross-border receipts and payments in domestic and foreign currencies in the non-banking sector. The cross-border RMB-denominated receipts and payments were in surplus while the cross-border foreign currency-denominated receipts and payments were in deficit in the first half. Foreign exchange reserves will change after the cross-border foreign currency-denominated receipts and payments are sold or settled. If a company receives foreign exchange and deposits it, foreign exchange reserves will not rise; if a company buys foreign exchange and deposits it at a bank rather than making payments, foreign exchange reserves will drop, which is a reflection of "encouraging people to hold more foreign exchange". The foreign exchange deposits of enterprises rose by USD 38.4 billion in the first half. Second, the changes in foreign exchange reserves are also related to the changes in asset prices and exchange rate, or the changes in book value. For example, as the euro depreciated against the US dollars in the first half, if China's foreign exchanges reserves in euro were converted to US dollars with the price remaining unchanged, the foreign exchange reserves in US dollars would fall, which means that even if foreign-related receipts and payments and foreign exchange sales and settlement are in surplus, foreign exchange reserves are likely to fall. In addition, the changes in the balance of foreign exchange reserves include the operating income of foreign exchange reserves, which is usually a factor for the increase in foreign exchange reserves. Thank you! July 23, 2015, 11:25:49 · Bloomberg: Could you explain why the exchange rate of RMB against USD has been falling since the second quarter? July 23, 2015, 11:33:00 · Wang Chunying: The RMB exchange rate remained stable in the first half, with the middle rate of RMB against USD appreciating by 0.09%, the CNY appreciating by 0.05% and the CNH appreciating by 0.16%. According to the fluctuation trends, the CNY against USD and the CNH against USD depreciated by 1.05% and 1.1% respectively in January and February, recovered by 1.13% and 1.29% in March and have stayed stable since April. The first half witnessed narrowing of the spread between CNY/USD and CNH/USD after expansion: the daily average spread between CNH/USD and CNY/USD was 98 basis points in the first quarter, suggesting it was cheaper to buy foreign exchange in the domestic market than in the overseas market; the spread was 37 basis points in the second quarter, much lower than the first quarter. But this was consistent with the changes in foreign exchange sales and settlement, foreign-related receipts and payments, foreign exchange reserves and the supply-demand in the foreign exchange market in the second quarter, indicating the pressure from cross-border capital outflows was eased significantly and balanced in the second quarter. July 23, 2015, 11:33:56 · China National Radio: The Mutual Fund Connect scheme was launched in July, indicating China's RMB capital account convertibility is accelerating. Will there be massive cross-border capital inflows and outflows as the bidirectional fluctuation of RMB exchange rate is becoming ever serious? How would the SAFE respond? July 23, 2015, 11:45:02 · Wang Chunying: First, as the capital account is liberalized, China will witness inflows and outflows of cross-border capital and normalized bidirectional fluctuations. The capital account convertibility itself is a neutral policy for bidirectional liberalization. Like the Shanghai-HK Stock Connect, the Mutual Fund Connect is another example of bidirectional liberalization. After the official launch of the Mutual Fund Connect, mainland investors can buy HK public funds in the mainland and mainland public funds can be traded in Hong Kong, which is sure to cement the financial and economic ties between China and overseas markets, spur cross-border financing and investment activities, and promote the normalization of bidirectional flows of cross-border capital. Furthermore, no historical experience could prove that the capital account liberalization will surely lead to only inflows or outflows of capital. July 23, 2015, 11:46:30 · Wang Chunying: Second, in the context of bidirectional fluctuation of the RMB exchange rate, China's cross-border capital flows have become more balanced recently. The deficit of spot and forward foreign exchange sales and settlement was below USD 10 billion in May and June respectively, which was much lower than the previous four months, and no deteriorated fluctuations and massive inflows or outflows of cross-border capital were seen. It is certain that the liberalization of the capital account is set to increase the factors contributing to cross-border capital flows, thus intensifying the fluctuation and complexity of capital flows. We should adapt to and tolerate capital fluctuations in a reasonable and controllable range while actively responding to and guarding against relevant risks. July 23, 2015, 11:51:02 · Wang Chunying: Last but not least, the best way to respond to the impact from cross-border capital flows is to sustain healthy and stable economic development, safeguard the stability of financial market and deepen reforms. The SAFE will adapt to the liberalization of the capital account and keep improving its capability of discharging its responsibilities. One the one hand, the SAFE will continue to boost administration streamlining and power delegation in foreign exchange administration, further promote the trade and investment facilitation and actively foster the foreign exchange market. On the other hand, the SAFE will make sure systematic and regional financial risks are averted, which is its bottom line, and enhance monitoring and warning analysis of cross-border capital flows, accelerate the building of an external debt and capital flow management system under the macro-prudential administration framework and flesh out policy scenarios, so as to make good preparations. July 23, 2015, 11:54:28 · Japanese NHK: China is now into the tenth year of its RMB exchange rate reform. RMB has been appreciating over the past decade, and the level of RMB internationalization will rise as China's economy becomes stronger. What would you say about RMB exchange rate in the future? Will the RMB become an international currency? When will the RMB exchange rate exceed that of Japanese Yen? July 23, 2015, 11:58:25 · Wang Chunying: This question is not very relevant to today's conference. But as you say, this year is the tenth year of the foreign exchange reform and many people are reviewing the past decade in various forms, so I would like to share with you the many changes in the past decade, a fruitful decade, but my summary is not exhaustive. With respect to the RMB exchange rate formation mechanism, the market supply-demand-based floating exchange rate system that conducts adjustment and management by referring to a basket of currencies has been established, the RMB exchange rate elasticity has improved and the foreign exchange market has also achieved tremendous development. For example, the trading products have been diversified from simply spot and forward products to foreign exchange swaps, currency swaps and options products; the management of the positions in foreign exchange sales and settlement by banks has been improved from the original positive range management to both positive and negative range management, so that financial institutions can better manage exchange rate risk and provide better services. Moreover, the infrastructure construction in the market has achieved tremendous progress. July 23, 2015, 11:59:43 · Wang Chunying: Enormous changes also have occurred in foreign exchange management. Transaction-by-transaction verification under trade in goods has been replaced by aggregate verification; document review for nearly 150 million transactions of foreign exchange receipts and payments that involve an equivalent of less than USD 50,000 per transaction under trade in services has been canceled. Since the implementation of the direct investment reform, both domestic and foreign investors can go through registration of foreign exchange under direct investment with banks and voluntary settlement of foreign exchange capital has been adopted for foreign-invested enterprises, allowing enterprises freely choose the time for foreign exchange settlement. Since the kickoff of the cross-border guarantee reform, a domestic parent company can help its overseas subsidiaries seek loans from local banks through providing guarantee, and a foreign-invested company can apply for loans from domestic banks through cross-border guarantee from its overseas parent company. In e-commerce, it has become easier for companies and individuals to conduct cross-border receipts and payments for overseas online shopping. It has been more convenient for individuals to use foreign exchange, with channels more diversified. As the electronic technology and internet platforms emerge, individuals can conduct foreign exchange sales and settlement through online banking, self-service terminals and telephone banking, which accounts for more than 50% of the total volume of foreign exchange sales and settlement to individuals. This is just an inexhaustive summary of the tremendous changes resulting from the foreign exchange reform in the past decade. I expect to make a more systematic streamlining in the future, which will be favorable for us to deliver a better performance. Thank you! July 23, 2015, 12:26:14 · The People's Daily: You said just now that the foreign exchange sales and settlement by banks registered a high deficit in the first quarter and dropped significantly in the second quarter. Could you explain why there were such changes? Does it mean the heavy capital outflow pressure on China in the first quarter was eased? What will be the future trends? July 23, 2015, 12:39:25 · Wang Chunying: The cross-border capital flows were balanced in the second quarter, indicating the adjustment of the RMB and foreign currency-denominated asset and liability structure by domestic market players. First, companies were more willing to settle foreign exchange in the second quarter, with the rate of settlement rising by 5 percentage points from 69% in the first quarter to 74%. Companies' willingness to hold foreign exchange was weakened, with the balance of foreign exchange deposit held by companies up by USD 73 billion in the first quarter and down by USD 34.5 billion in the second quarter. Second, companies were less willing to buy foreign exchange, with the rate of purchase dropping by 4 percentage points from 79% in the first quarter to 75% in the second quarter. The application for foreign exchange loans accelerated, with the balance of foreign exchange loans in China up by USD 500 million in the first quarter and by USD 6.6 billion in the second quarter. Last but not least, deleveraging of external debt by market players slowed down. The balance of cross-border financing such as import bill advance by overseas institution and usance L/C fell by USD 18.5 billion in the second quarter, compared with a drop of USD 22.7 billion in the first quarter. These data show that companies' adjustment of their financial behaviors helped relieve the pressure of cross-border capital outflows in the second quarter, versus the first quarter. July 23, 2015, 12:40:04 · Wang Chunying: These adjustments were the results of the changes in the environment both at home and abroad. Domestically, China's GDP grew by 7% in the first quarter, down by 0.3 percentage points from the fourth quarter last year, while PMI remained around 50. In the second quarter, some economic indicators showed a sign of stabilization, and China's GDP sustained a growth of 7%, better than the market expectations. PMI stayed at 50.2 in June, and remained for four consecutive months above the critical point of 50%, suggesting China's economic growth slowed down but became stabilized and changed for the better. Internationally, due to the expectations of interest rate rise in the US and introduction of QE policy in the euro zone, the US dollar index rose rapidly by 9% in the first quarter and exceeded 100 in the upper-middle of March, while the EUR, Japanese Yen and currencies in the emerging markets remained under pressure. In the second quarter, the US dollar index changed its momentum for rapid growth as it achieved in the first quarter and made a correction. Under such circumstances, the cross-border capital outflows slowed down toward equilibrium in the second quarter. These changes indicated that China has not seen massive inflows or outflows, but bidirectional fluctuations of cross-border capital, which will continue in the future. On the one hand, with the implementation of policies for stabilizing growth, China's economy will be stabilized to enhance market confidence, which will help attract cross-border capital to flow in, and Customs will post a big surplus in import and export. On the other hand, the uncertainties and instabilities both at home and abroad, the divergent monetary policies adopted by major economies and recent debt default by Greece and how to dispose of it are likely to stir the international financial market. Given these, we should continue to intensify monitoring, analysis and early warning of cross-border capital flows, and increase tools for countercyclical adjustments so as to make good plans and preparations. July 23, 2015, 12:50:14 · The Economic Daily: The SAFE has recently released the International Investment Position (IIP) for the first quarter of 2015, which was prepared by the latest international standards. According to the IIP, net assets dropped significantly, but the data were incomparable with those historical data. Could you tell us how to assess the real changes in China's external assets and liabilities? Do the changes include massive withdrawal of FDI? July 23, 2015, 13:12:40 · Wang Chunying: Since the beginning of 2015, the SAFE has prepared and published China's IIP as required by the IMF's Balance of Payments and International Investment Position Manual (Sixth Edition, BPM6). Based on the latest standards, China used the market capitalization method to collect statistics on and prepare the data in the IIP, rather than the historical flow accumulation method, which was previously used to prepare individual items. However, as the statistical system for some key data has been just implemented, more historical data are inaccessible and previous data could not be retroactively adjusted, leading to incomparableness of the data before 2014 with those after 2014. We have noted and explained this when disseminating data. For example, after using the market capitalization method instead of the historical data accumulation method, the total equity and debt under portfolio investment grew by about USD 300 billion from the previous data. To have a general idea of the changes in external asset and debt in the first quarter, we prepared major items under the IIP for 2014 using the new method. Overall, according to the comparable coverage, China's external asset dropped slightly, and its external debt remained almost unchanged in the first quarter, while net external asset was down by USD 117.7 billion from the end of 2014. The stock of external asset dropped by USD 113.6 billion in the first quarter, chiefly due to the changes in the transactions and non-transactions of reserve asset, which combined fell by USD 114.4 billion, while ODI and portfolio investment combined grew by USD 38.3 billion, whose percentage in total asset was up by one percentage point from the end of the previous year, suggesting China's external asset structure has been improved, benefiting from the loosening of China's policy on outbound investment, and the policy of encouraging people to hold more foreign exchange is playing its role. The stock of external debt grew by USD 4.1 billion in the first quarter, including USD 65.4 billion in FDI and USD 81.5 billion in portfolio investment, which indicate that foreign investors are still optimistic about the long-term outlook of China's economic development. But other investments dropped by USD 150.4 billion, revealing that domestic enterprises have actively adjusted their asset and liability structure based on the changes in exchange rate and interest rate both at home and abroad. July 23, 2015, 13:13:23 · Wang Chunying: We also have paid close attention to the withdrawal of foreign investments that has concerned you. In the first half of the year, China witnessed net growth in the inflows of FDI, rather than massive withdrawal. China's FDI is characterized by a long cycle and strong stability. As shown by the IIP for the first quarter with comparable coverage, FDI in China posted a net growth of USD 65.4 billion in the first quarter. With respect to foreign-related receipts and payments under FDI, the inflows of capital and funds raised of newly established foreign-invested companies in the non-banking sector totaled USD 67 billion in the first half, up by 6.1% year on year; the outflows of capital due to withdrawal strategies and capital reduction by foreign directly-invested enterprises in the non-banking sector totaled USD 10.3 billion, up by 22% year on year, or 0.4% of the stock of FDI equity investment as at the end of the first quarter. Since the stock of FDI was large and absolute inflows were higher than outflows, net inflows of FDI capital sustained a growth momentum. July 23, 2015, 13:30:06 · Hu Kaihong: This is the end of today's conference. Thank you, Ms. Wang! Thank you all! July 23, 2015, 13:42:21 (The original text is available at china.com.cn) 2015-09-08/en/2015/0908/1168.html
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· Hu Kaihong: Good morning, ladies and gentlemen. Welcome to the press conference of the Information Office of the State Council. 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 during the first half of 2014 and to answer your questions. Now, let us welcome Director Guan. July 23, 2014, 09:37:09 ·Guan Tao: Good morning, ladies and gentlemen. Welcome to today's press conference. I am delighted to meet you again. Today I am going to release the data on the foreign exchange receipts and payments during the first half of 2014 and to answer your questions on behalf of the SAFE. July 23, 2014, 09:52:17 ·Guan Tao: In the first half of 2014, the global economy grew slowly, the economic recovery in the developed and emerging economies remained obviously imbalanced, and the monetary policies of the major economies were polarized. In the meantime, growth of the Chinese economy was stable. The economic restructuring progressed but maintained stability and enhancement of the economic transformation and upgrading was stable. Based on the philosophy of seeking progress while maintaining stability and instituting reforms and innovations, the SAFE has persistently improved the capability of foreign exchange administration to serve the real economy. Overall, during this period China's cross-border capital flows were basically balanced amid oscillations. Banks settled foreign exchange in the amount of RMB 5.92 trillion (USD 964.5 billion) and sold foreign exchange in the amount of RMB 4.77 trillion (USD 776.3 billion) during the first half of the year, with a surplus of RMB 1.15 trillion (USD 188.3 billion). Meanwhile, according to the data on foreign-related receipts and payments through banks, banks registered cumulative foreign-related income in the amount of RMB 10.03 trillion (USD 1.63 trillion) and made external payments in the amount of RMB 9.50 trillion (USD 1.55 trillion) on behalf of clients, with a surplus of RMB 528.9 billion (USD 86.2 billion), July 23, 2014, 09:52:51 ·Guan Tao: Currently China's foreign exchange receipts and payments are characterized by the following: First, China has witnessed net inflows of cross-border capital. In the first half of the year, after adjustments for foreign exchange rate factors (the same below), the foreign exchange settled by banks was up 6 percent year on year and the foreign exchange sold by banks was up 0.4 percent year on year, representing an increase in the surplus of 36 percent; the foreign-related income received via the banks was up 15 percent year on year, and external payments made through the banks were up 20 percent year on year, representing a decrease in the surplus of 31 percent.. Second, the imbalance between supply and demand of foreign exchange has been significantly eased. According to the data on foreign-related receipts and payments through the banks, the surplus in foreign exchange settled and sold by banks stood at USD 159.2 billion in the first quarter, up 57 percent year on year, and stood at USD 29 billion in the second quarter, down 21 percent year on year or 82 percent quarter on quarter. The surplus in foreign-related receipts and payments amounted to USD 45.5 billion in the first quarter, down 57 percent year on year, and amounted to USD 40.7 billion in the second quarter, up 122 percent year on year or down 10 percent quarter on quarter. July 23, 2014, 09:53:48 ·Guan Tao: Third, the motivation among market players to settle foreign exchange has been weakened while their willingness to buy foreign exchange has been strengthened. Foreign exchange settled via banks, which measures the willingness of enterprises and individuals to settle foreign exchange as a percentage of the foreign-related foreign exchange income (or the foreign exchange settlement rate), was on the decline, down from 77 percent in the first quarter to 68 percent in the second quarter; foreign exchange sold via banks, which measures the motivation to buy foreign exchange as a percentage of the foreign-related foreign exchange payments (or the foreign exchange sales rate), was on the rise, up from 61 percent in the first quarter to 69 percent in the second quarter. Fourth, forward foreign exchange settlements and sales have changed from a surplus to a deficit, while the balance of undue net forward foreign exchange settled changed from an increase to a decrease. Forward contracts for foreign exchange settlements and sales achieved a monthly average surplus of USD 24 billion during the first two months, and dropped to USD 1.7 billion from March to May, experiencing an average monthly deficit of USD 2.7 billion in June. With the adjustment in the performance of forward contracts for foreign exchange settlements and sales, the undue settled net forward foreign exchange increased by a cumulative USD 15.2 billion in January and February, and underwent a correction during the four following months from March to June, dropping USD 36.1 billion on accumulative basis, thus spurring banks to increase their foreign exchange position. At the end of June, the balance of undue settled net forward foreign exchange reached USD 31.8 billion, the lowest since September 2013. In the second quarter, the combined surplus of foreign exchange settled and sold by banks and the balance of undue settled net forward foreign exchange combined to a surplus of USD 2.5 billion, much lower than the surplus of USD 164.9 billion during the previous quarter, indicating that the supply and demand for foreign exchange in the retail banking market for spot and forward foreign exchange were voluntarily tending to be balanced. July 23, 2014, 09:55:06 ·Guan Tao: These are the major statistical data I am going to disclose regarding foreign exchange receipts and payments during the first half of the year. You can find related data on the SAFE's official Website. Next, I would like to answer your questions on these issues. July 23, 2014, 09:57:47 ·Hu Kaihong: Thank you, Director Guan. Now please ask your questions. July 23, 2014, 09:58:09 ·Journalist from CCTV: The Customs data show that the trade surplus during the second quarter increased against the first quarter, while the surplus in foreign exchange settled and sold by banks dropped significantly. Does this mean that with respect to China’s cross-border capital flight is serious? What are your thoughts about cross-border capital flows in the future? Furthermore, China's foreign exchange reserves are nearing USD 4 trillion; I am wondering how these reserves are invested and managed. July 23, 2014, 10:00:20 ·Guan Tao: Thank you for your questions. I'd like to answer them according to the following: First, China's foreign exchange receipts and payments did fluctuate markedly in the first half of the year. Customs statistics show that China witnessed a trade surplus of USD 16.9 billion during the first quarter. The statistics from the Ministry of Commerce reveal that China achieved a net inflow of USD 11.7 billion in cross-border direct investments during the first quarter, excluding net inflows of cross-border direct investments by financial institutions, or the balance between foreign capital actually utilized and outbound direct investments. The combined surpluses of these trading and investment activities associated with the real economy amounted to USD 28.6 billion. In the meantime, banks witnessed a surplus of USD 159.2 billion in the foreign exchange that they settled and sold, which was way in excess of USD 28.6 billion, suggesting that China was under heavy pressure from the net inflows of cross-border capital at the beginning of the year. In the second quarter, China's trade surplus was USD 86 billion and net inflows of direct investments were USD 8.3 billion, which combined came to USD 94.3 billion, up 230 percent from the first quarter, indicating that the trade and investment surpluses associated with real economic activities had rebounded significantly during the period. But at the same time, the surplus in foreign exchange settled and sold by banks reached USD 29 billion, down 8 percent quarter on quarter. Moreover, this surplus was far lower than USD 94.3 billion, revealing that during the period China was under pressure due to the outflow of cross-border capital. July 23, 2014, 10:00:57 ·Guan Tao: Second, such changes are explainable. It indicates that as bidirectional fluctuations in the RMB exchange rate intensify amid many uncertainties and instabilities both at home and abroad, institutions like domestic companies have adjusted some of their behavior in terms of the receipts and payments of foreign exchange. First, their willingness to hold foreign exchange rather than to settle foreign exchange has been strengthened. Domestic foreign exchange deposits in the second quarter increased by USD 86.3 billion, or 104 percent, from the first quarter. Second, the banks’ willingness to buy foreign exchange has been enhanced while their motivation to borrow foreign exchange loans has been weakened. The balance of the domestic banks' foreign exchange loans decreased by USD 2.3 billion in the second quarter, compared with an increase of USD 62.6 billion in the first quarter. This comparison indicates that significant changes have occurred. Third, since the RMB exchange rate began bidirectional fluctuations in mid-February at a remarkably higher rate, the number of domestic enterprises contracting for forward foreign exchange settlements has decreased, while the number of domestic enterprises contracting for forward foreign exchange purchases has risen. The monthly average of forward foreign exchange settled from March to June was down 49 percent from January to February, while that of foreign exchange purchased was up 14 percent, thus leading to a significant decrease in the surplus in forward foreign exchange settled and sold by banks to customers and eventually leading to a deficit in June. As substantial preliminary forward foreign exchange contracts matured and were performed, the balance between the banks' undue forward foreign exchange settled and sold changed, leading to an increase in the banks’ foreign exchange position. As I have just now unveiled, the balance of undue net forward foreign exchange settled fell significantly from March to June, offsetting the increase in the balance of undue net forward foreign exchange settled during the first six months, which was due to the increase in the surplus in forward foreign exchange settled and sold. This also led to a remarkable change in the relationship between supply and demand in the foreign exchange market during the same period. July 23, 2014, 10:03:15 ·Guan Tao: In the second quarter, banks registered a surplus of USD 29 billion in the spot foreign exchange that they settled and sold. Allowing for the impact from the increase in the banks’ foreign exchange position due to the decrease in the balance of net forward foreign exchange settled in the forward market, the monthly supply and demand of foreign exchange were basically balanced during the second quarter. Based on the combined spot and forward foreign exchange, banks reported a surplus of only USD 3.8 billion in April, a deficit of USD 3.5 billion in May, and a surplus of USD 2.2 billion in June, indicating that both the surplus and the deficit were very small. With forward factors taken into consideration, banks recorded a surplus of only USD 2.5 billion in the second quarter. As I have just now disclosed, in the second quarter the supply and demand for foreign exchange were roughly balanced. Third, such a change is positive. Why? First, the RMB exchange rate is now going through bidirectional fluctuations, not trend adjustments. Such fluctuations have not led to consistent and strong expectations of a RMB depreciation. In fact, since China's economic conditions improved in May and June, the RMB exchange rate, trading price, and standard price have rebounded to a certain extent. In particular, we have noted that there are two prices since RMB transactions are carried out both at home and abroad and the difference between these two prices also can reflect the degree of market acceptance of the exchange rate. The daily average difference between the domestic trading price and the overseas trading price of the RMB against the USD was 169 basis points in the first quarter and it was reduced significantly to 37 basis points in the second quarter, which was far lower than the 61 basis points in 2012 when the supply and demand of foreign exchange struck a balance. This indicates that the price was widely recognized and accepted by the market and it also reflects a situation of market clearing. July 23, 2014, 10:14:30 ·Guan Tao: Second, compared with the first quarter, banks registered a low surplus in foreign exchange settled and sold in the second quarter, but the foreign exchange settled and sold on a monthly basis was still in surplus. In the first half of the year, the combined trade surplus and the net inflow of direct investments amounted to USD 122.8 billion, while the surplus in foreign exchange settled and sold by banks reached a cumulative USD 188.3 billion, which was higher than the former, indicating that during the period China was under inflow pressures. This can be described as a pendulum effect. The pendulum swung to the right at the beginning of the year, indicating high inflows. In the second quarter, despite the outflow pressures, the pendulum remained on the right side, suggesting that as a whole outflows remained lower than inflows during the period. Third, the change is an expected normal adjustment. We know that the heavy inflow pressures at the beginning of the year were primarily because the RMB exchange rate was high while the exchange rates of overseas foreign currencies were low, and the RMB exchange rate had been unilaterally appreciating for a long time, with a low fluctuation rate. Under such circumstances, carry trade was quite resilient, leading to substantial capital inflows. According to the BOP data for the first quarter, the current account surplus was only USD 7 billion whereas the capital account surplus was USD 94 billion, indicating that foreign exchange reserves increased by more than USD 100 billion during the period, 90 percent of which was from inflows under the capital account. However, after the RMB began bidirectional fluctuations in the second quarter, institutions such as domestic enterprises have adjusted their behavior in terms of receipts and payments of foreign exchange, decreasing settlements and increasing purchases of foreign exchange, either spot or forward, thus leading to a change in the relationship between the supply and demand of foreign exchange and ultimately balancing supply and demand. This balance means China's overall BOP has improved. As preliminarily projected, the current account surplus may increase further but net inflows under the capital account will decline significantly or may even become a deficit. This will not change the equilibrium in the BOP but it is a change that we expect. It is not an unexpected impact on the market, but an expected control target. July 23, 2014, 10:22:42 ·Guan Tao: Fourth, as for China's cross-border capital flows in the near future, we believe the flows will continue to oscillate during the second half of the year. China's economy has stabilized, which will be favorable for strengthening market confidence. Foreign trade has also begun to rebound. There will continue to be an interest rate spread between China and other countries. All of these factors will lead to capital inflow pressures. However, it should be noted that China faces some uncertainties since at present its economy is going through three phases at the same time, and many instabilities, such as in the monetary policies of the major economies, are being adjusted. Overall, the RMB exchange rate is balanced and rational. Therefore, the bidirectional fluctuations of cross-border capital flows will become a new normal. Domestic market players have been warned that they should adapt to this new normal, adjust their financial management strategies, and change their traditional one-dimensional thinking to bidirectional thinking, to effectively manage the risks associated with the bidirectional fluctuations of capital and the exchange rate. The recent online interview reported that China's foreign exchange reserves are operated and managed based on the principle of ensuring safety, liquidity, and profitability, thus effectively achieving the goal of retaining and increasing the value of the foreign exchange reserve assets. The operating income from the foreign exchange reserves in the areas of investment has exceeded the local inflation levels, ensuring an increase in the value realized of the foreign exchange reserves. July 23, 2014, 10:31:14 ·Journalist from the People's Daily: Premier Li Keqiang said on his recent overseas tour that China's mounting foreign exchange reserves were actually a heavy burden on the country. How do you understand this, and how should this burden be dealt with? Thank you. July 23, 2014, 10:34:17 ·Guan Tao: In my opinion, an accumulation of foreign exchange reserves is beneficial as it enhances China's strength, improves its capability to fend off external impacts, strengthens its international solvency, and increases its international clout. But it also has some adverse effects. As the foreign exchange reserves increase significantly, the central bank has to launch a large amount of base currencies, which may lead to inflationary pressures as well as to upward pressures on asset prices. Massive foreign exchange reserves will also be more difficult to operate and manage. With excessive foreign exchange, China may have to face great challenges in the unstable international financial market and in the operation and management of foreign exchange. Huge foreign exchange reserves also will likely draw much concern from the international community and trigger trade or investment frictions. The increase in foreign exchange reserves has both pros and cons, which should be weighed. At the beginning when foreign exchange is in shortage, an increase in foreign exchange reserves will be beneficial, but as the reserves reach a certain level, an increase in the foreign exchange reserves will have a more negative influence, so we should actively deal with this. As we are doing, we should address these challenges in two respects: first, controlling the flows. We should continue to be committed to promoting an equilibrium in the BOP to strike a more stable trade balance. While encouraging the use of foreign capital, we need to encourage outbound investments. We also should develop the foreign exchange market by improving the RMB exchange rate formation mechanism to further utilize the decisive role of the market in allocating foreign exchange resources. As the BOP reaches an equilibrium, efforts should be made to slow down the increase in foreign exchange reserves, thus effectively controlling the adverse effects. Furthermore, we should activate stock assets by innovating the channels and ways to use the existing foreign exchange reserve assets to improve efficiency in the utilization of the foreign exchange reserve resources. We have actively done this in recent years. July 23, 2014, 10:34:56 ·Journalist from the Economic Daily: The SAFE has recently proposed that foreign exchange options should be developed and exchange risk mitigation tools should be increased to support the growth of foreign trade. But in reality, there could be arbitrage using foreign exchange options. My question is how will regulators guard against speculation by banks and enterprises using foreign exchange derivatives, and what are their suggestions for enterprises to mitigate risks during the marketization of the RMB exchange rate. Thank you. July 23, 2014, 10:40:34 ·Guan Tao: The SAFE's stance on this question is based on two factors. On the one hand, it has been vigorously supporting and encouraging enterprises to engage in rational hedging activities for their real trading and investment activities, while the purpose of developing the foreign exchange market is also to support enterprises to effectively manage exchange risks. On the other hand, the SAFE does not support, and even prohibits, speculation and arbitrage by enterprises, especially through the structuring of trade or the counterfeiting of documents. To guide market players to accurately use exchange risk mitigation tools, the SAFE has been persistently following the following principles: first, developing the foreign exchange market step by step. To serve the real economy, efforts shall be made to gradually develop foreign exchange products that are really needed in the market, such as from simple to complex products and from basic to derivative products, based on the banks' abilities to manage risks and pricing, and the enterprises' capabilities to identify risks and their affordability. Second, guiding banks to carry out careful operations. To serve the real trade, constant efforts shall be made to improve regulation of foreign exchange derivatives and to guide banks to implement regulatory requirements in their internal operations based on the operating principles of "understanding your customers, understanding your business, and carrying out due diligence investigations," turning the "asked to do" attitude to the "I will do" attitude, thus further arousing the banks' enthusiasm and initiatives in verifying the truth of the relevant businesses and their compliance with the law, while the SAFE shall focus on intensifying interim and ex-post regulation on banks. Third, enhancing risk education for enterprises. The SAFE shall constantly educate enterprises and guide them to develop an accurate awareness of the exchange risks and an accurate understanding of the exchange risk mitigation tools, and how to conduct a proper hedging of exchange rate exposures, while making sure enterprises do not deviate from their primary business but carry out their business based on reality. July 23, 2014, 10:41:31 ·Guan Tao: How enterprises prudentially use foreign exchange derivatives to manage exchange risks is an experience-based process that requires learning from doing. There are some tips for enterprises for the use of foreign exchange derivatives based on the lessons from the development of the derivatives markets both at home and abroad: first, enterprises should adapt to the new normal of bidirectional fluctuations of the RMB exchange rate by changing their linear and unilateral thinking, shifting from merely managing risks associated with a unilateral RMB appreciation to comprehensively managing risks from the RMB bidirectional fluctuations, and focus on their main business by changing the uncertainties of bidirectional fluctuations into certainties through hedging activities. Second, enterprises should understand their deals and not make unfamiliar deals. They should assess the value of derivatives and determine the level of risk limitations before conducting deals. Third, the financial departments of enterprises should not function as profit centers but should regard derivative transactions as a tool to lock up risks, not a tool to make profits. Fourth, enterprises should properly conduct hedging activities as excessive hedging is a form of speculation and can be risky. July 23, 2014, 10:55:01 ·Journalist from China News Service: My question is about China's external debt. A recent research report by the Bank for International Settlements (BIS) states that China has recently seen rapid growth in her external debt, of which short-term external debt constitutes a large part. The BIS has indicated concern about the size of China's external debt. What do you think about this? Thank you. July 23, 2014, 11:05:32 ·Guan Tao: We too have noticed this report. This issue is highlighted in the BIS's latest annual report. We should pay attention to this and also analyze it rationally. Our judgment is based on two points: the macro debt is secure while individual debt risks require more attention. First, on the macro level, China's external debt risks are basically within control, suggesting its debt security is guaranteed. Recent statistics show that the balance of China's external debt was USD 883.9 billion at the end of this March, 1.3 times higher than that at the end of 2008. The balance of short-term external debt was USD 690.8 billion, 2.1 times higher than that at the end of 2008. Given this, short-term external debt grew faster than overall external debt, indicating that since the global financial crisis the growth of the short-term external debt was the primary source for the growth of China's overall external debt. As of the end of March, the short-term external debt accounted for 78 percent of overall external debt, which was 20 percentage points higher than that at the end of 2008 and exceeded the 25 percent international warning line. That is why the BIS warned of the risks associated with China's short-term external debt. However, in addition to the short-term external debt there are many other indicators to measure a country's debt security. Other indicators show that China's overall external debt is secure. China is also below the warning line with respect to traditional debt security indicators, such as the foreign debt ratio, liability ratio, and debt servicing ratio. Moreover, the SAFE has paid much attention to the growth of the short-term external debt in recent years, prudentially controlling the allocation of quotas on the short-term external debt, and has made special efforts to administer and clamp down upon fake trade financing without a real trade background. The SAFE will continue to enhance and improve itsmonitoring of external debt statistics and actively build management systems for the external debt and capital flows under a framework of macro-prudential management to guard against the relevant risks. This is our basic judgment regarding China's overall external debt, which on the whole is secure. July 23, 2014, 11:06:26 ·Guan Tao: Macro debt security cannot simply substitute for micro debt security and relevant market players should continue to watch out for individual debt risks. It has been noted in its annual report that the BIS underscores another risk, that is, "excessive risk-taking by financial institutions," amid low interest rates throughout the world and low fluctuation rates in the market, should be guarded against, which can serve as a reference for China. A key reason behind the rapid growth in China's external debt in recent years is the QE monetary policies adopted by the major economies, which led to low interest rates of the major currencies worldwide and relatively high interest rates of the RMB, while the RMB exchange rate has long been appreciating unilaterally, with a low fluctuation rate. Under this circumstance, most domestic enterprises introduced "debt dollarization." They borrowed foreign exchange rather than bought foreign exchange when they had to make outbound payments, thus incurring a huge debt in dollars. Such enterprises must pay close attention to debt risks. They should rationally conduct external debt financing based on their real production and operation situations and guard against bidirectional fluctuation risks associated with cross-border capital and the RMB exchange rate to avoid problems of foreign exchange liquidity or exchange losses in the future. The macro risks of China’s external debt are under control, which means that foreign reserves can be used to guard against systemic debt risks when the government becomes the lender of last resort. However, individuals should deal with the risks associated with debt liquidity and security on their own and not count on implicit guarantees like the rigid honoring of the external debt. To sum up, on the whole China's external debt is secure, while the relevant individuals should continue to pay close attention to debt security. Thank you. July 23, 2014, 11:17:48 ·Journalist from Dragon TV: It was reported recently that the Bank of China in 2011 introduced a project entitled "You Hui Tong" that allows RMB transferred overseas to be converted into foreign currency with no limitation on the amount of the RMB, thus dodging China's foreign exchange regulations. How will the SAFE position such a foreign-related financial project? Is it legitimate or a grey area? Does the SAFE have some new measures to meet current demands as more domestic funds will be provided overseas and more investments will be made overseas? July 23, 2014, 11:30:48 ·Guan Tao: Regarding your second question, I'd like to say that efforts will be made to accelerate the RMB capital account convertibility, gradually expand channels for capital outflows, and encourage people to hold more foreign exchange and individuals to make external investments, which are the pre-set directions of the reform. When and how to implement these measures shall be based on the overall plan and arrangements, which are currently being researched. Since the "You Hui Tong" issue is not the SAFE's responsibility and has nothing to do with today's press conference, I will not make any comment. Thank you. July 23, 2014, 11:32:31 ·Journalist from Xinhua News Agency: I have two questions about the foreign exchange data. First, are the data on the outstanding foreign exchange funds released yesterday in line with the pendulum-like movement of the BOP in the first half of the year, as you have just mentioned? Second, if the deficit of trade in services under the current account that is increasing on a yearly or even a quarterly basis continues, will the current account surplus turn into a deficit in the future? Will China have a current account deficit? Does the SAFE have any measures to sustain a BOP equilibrium in the future? Thank you. July 23, 2014, 11:37:15 ·Guan Tao: The changes in the data on the outstanding foreign exchange funds of financial institutions released by the People's Bank of China (PBC) are consistent with the analysis of the foreign exchange receipts and payments data I have just now released, indicating significant fluctuations. However, as the definition of outstanding foreign exchange funds disclosed by the PBC is different from the definition of foreign exchange settlement and sales, the two data cannot fully match each other, and you need to make inquiries with the department releasing the former data for further details. July 23, 2014, 11:39:15 ·Guan Tao: Regarding your second question, I would say that the deficit in trade in services has widened. In the mid-1990s when China began to conduct trade in services, it saw a deficit, and the deficit reached USD 124.5 billion in 2013, which is rather high. This issue should be viewed in two respects: on the one hand, the deficit in trade in services reflects the objective situation in the current stage of economic development in China. As China's service sector is less competitive in the global market, there is a deficit in trade in services. On the other hand, with the increase in their income in recent years, the consumption power of Chinese residents has strengthened and many residents have begun to travel and study abroad, all of which are calculated under the trade in services. But the deficit in trade in services is favorable for promoting the BOP equilibrium, which means that not every item under the current account, including trade in goods, trade in services, the earnings account, and current transfers, must be in surplus, and there are surely surpluses and deficits. As I have mentioned, China saw a surplus of USD 124.5 billion in trade in services in 2013, which accounted for -1.4 percent of GDP that year, while the surplus in trade in goods, as defined in the BOP, accounted for 3.9 percent of GDP, so taking into consideration both trade in goods and trade in services, the trade surplus accounted for 2.6 percent of GDP, which was very helpful to balance the current account in China. The current account surplus accounted for 2.0 percent of GDP in the year, which was within the rational range as recognized by the international community. To sum up, the deficit in trade in services has played a positive role in promoting the BOP equilibrium. July 23, 2014, 11:42:21 ·Guan Tao: When looking into China's future current account balance, we should not merely focus on trade in services, which is just one item under the current account. Rather, we should focus on the economic fundamentals. First, the situation of economic restructuring. Efforts should be made to look at the level of transformation of the economic development pattern and the degree of the shift from being investment- and export-driven to being consumption-, investment-, and export-driven. Second, changes in the age structure of the population. What is being heatedly discussed now is whether China has reached the Lewis turning point with a decreasing demographic bonus, which may have a negative impact on China's current account. Third, changes in productivity. If productivity increases with an appreciation of the RMB exchange rate, the current account may continue to sustain a surplus. But if productivity does not grow with an appreciation of the RMB exchange rate, the current account may be adversely affected. No matter whether the current account sustains a surplus or a deficit, it will reach a balance so long as the surplus or the deficit is within the rational range. We believe that the current account will be basically balanced in the future. But others have different findings, some arguing for a surplus and some arguing against a surplus, and we are open to suggestions. July 23, 2014, 11:50:10 ·Journalist from the International Business Daily: The data you have released just now show that China's FDI growth has slowed down. What do you think about that for the second half of the year? Are you going to take measures to keep it stable? Thank you. July 23, 2014, 11:58:17 ·Guan Tao: Good question. But I recommend you inquire of the other relevant authorities about how to use foreign capital. They are more authoritative. Thank you. 2014-07-23 11:59:28 July 23, 2014, 11:59:28 ·Hu Kaihong: Thank you for attending today's press conference. July 23, 2014, 12:01:56 (The original text was released at www.china.com.cn ) 2014-08-18/en/2014/0818/1125.html
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· Mr. Hu Kaihong, Press Spokesperson of the State Council Information Office: Good morning, ladies and gentlemen. Welcome to the press conference of the State Council Information Office. The economic and financial environment both at home and abroad was still complex and changing in the first three quarters of this year. Globally, the uneven economic recovery continued, the monetary policy continued to diverge among major economies and the international capital flows became more fluctuating. Domestically, the economy was stable and improved, and the RMB exchange rate formation mechanism became further market-oriented. Due to the combined impacts of the afore-said factors, domestic players adjusted the structures of assets and liabilities in both domestic and foreign currencies, and the volatility of China's cross-border capital flows became heightened, with more outflows recorded by phase. These issues have drawn wide concern from the media and society. To deepen your understanding, we have invited Mr. Wang Xiaoyi, deputy administrator of the State Administration of Foreign Exchange or the SAFE to unveil the data on foreign exchange receipts and payments for the first three quarters and take your questions. We also have here with us Ms. Wang Chunying, press spokesperson of the SAFE. First, let's invite Mr. Wang for some opening remarks. 2015-10-22 09:53:49 · Mr. Wang Xiaoyi, Deputy Administrator of the State Administration of Foreign Exchange: Good morning, ladies and gentlemen. Welcome to today's press conference. First of all, I would like to brief you on the data on foreign exchange receipts and payments for the first three quarters and then I will take the questions of your concern. Banks settled foreign exchange of RMB 8.26 trillion (USD 1.34 trillion) and sold foreign exchange of RMB 10.15 trillion (USD 1.64 trillion) in the first three quarters, with a deficit of RMB 1.88 trillion (USD 301.5 billion). Meanwhile, according to the data on foreign-related receipts and payments through banks, in the first three quarters of 2015, banks registered cumulative foreign-related income of RMB 15.28 trillion (USD 2.48 trillion) and made external payments of RMB 15.70 trillion (USD 2.54 trillion) on behalf of clients, with a deficit of RMB 413.9 billion (USD 63.6 billion). 2015-10-22 10:00:21 · Wang Xiaoyi: China’s foreign exchange receipts and payments for the first three quarters show the following characteristics: First, foreign exchange settlements and sales by banks, and foreign-related receipts and payments through banks were both in deficit.In the first three quarters of 2015, in US dollar terms, the foreign exchange settled by banks was down by 6% year on year, while the foreign exchange sold, up by 31% year on year, leading to a deficit of USD 301.5 billion or USD33.5 billion per month on average. In the first three quarters, foreign-related receipts through banks were up by 1% year on year, and foreign-related payments through banks were up by 6% year on year, resulting in a deficit of USD 63.6 billion, or USD 7.1 billion per month on average. The much lower deficit in foreign-related receipts and payments than the deficit in foreign exchange settlements and sales shows that Chinese market players adjusted the structures of assets and liabilities in both domestic and foreign currencies, including receiving and keeping foreign exchange as deposits rather than settling foreign exchange, and purchasing foreign exchange to increase foreign exchange deposits or repay domestic foreign exchange loans. 2015-10-22 10:03:31 · Wang Xiaoyi: Second, cross-border capital flows became more fluctuating. In the first quarter, foreign exchange settlements and sales posted a deficit of USD 91.4 billion, or USD 30.5 billion per month on average; in the second quarter, the deficit plummeted to USD 13.9 billion, or USD 4.6 billion per month on average. In particular, a small surplus was registered in May and June. But in the third quarter, the deficit surged to USD 196.1 billion, or USD 65.4 billion per month on average. Foreign-related receipts and payments through banks on behalf of clients went through similar ups and downs. Third, market players' willingness to settle foreign exchange was strong at first but weakened afterwards, indicating the reform to encourage people to hold foreign exchange was carried forward stably. Foreign exchange settled by companies and individuals as a percentage of foreign-related foreign exchange income, or the foreign exchange settlement rate, which measures the willingness of companies and individuals to settle foreign exchange, was 69% in the first quarter, climbed to 74% in the second quarter and then dropped to 67% in the third quarter. From 2007 through 2011, when the RMB was appreciated, the foreign exchange settlement rate remained above 70%, suggesting companies' willingness to settle foreign exchange is weak now. In the first three quarters, the balance of foreign exchange deposits held by non-financial companies in China accumulatively increased by USD 46.1 billion and the balance of those held by individuals went up by USD 11.9 billion. Fourth, market players' motive to purchase foreign exchange was weak at first but strengthened afterwards, revealing that the size of borrowings was reduced in a good order. Foreign exchange purchased by companies and individuals as a percentage of foreign-related foreign exchange payments, or the foreign exchange sales rate, which measures the motive to buy foreign exchange, was 79% in the first quarter, dropped to 75% in the second quarter and then climbed to 91% in the third quarter. From 2007 through 2011, when the RMB was appreciated, the foreign exchange sales rate was just between 50% and 60%, indicating companies' and individuals' willingness to buy foreign exchange is strong now. Accordingly, in the first three quarters, the outstanding domestic foreign exchange loans of companies were down by USD 41.8 billion on a cumulated basis, compared with an increase of USD 39.6 billion the same period last year; the balance of import financing such as refinancing and forward L/C dropped by USD 72.8 billion on an accumulative basis, compared with an increase of USD 6.3 billion the same period last year, which suggests that companies have accelerated deleveraging. 2015-10-22 10:06:04 · Wang Xiaoyi: Fifth, forward foreign exchange settlements and sales by banks were in deficit, which had fallen significantly though. In the first three quarters of 2015, the number of contracts signed between banks and clients for forward settlement of foreign exchange was down by 50% year on year, while the number of contracts signed for forward sales of foreign exchange was up by 52%, recording a deficit of USD 167.9 billion, compared with a surplus of USD 50.8 billion for the same period last year. In the first quarter, a deficit of USD 47 billion was registered, which dropped to USD 21.5 billion in the second quarter and then surged to USD 99.3 billion in the third quarter. More recently, the forward contracts for foreign exchange settlements and sales recorded a deficit of USD 15.4 billion in September, down by a staggering 77% month-on-month. These are the major statistics I want to disclose regarding the foreign exchange receipts and payments in the first three quarters of 2015. You can also find the relevant data released on the SAFE's official website. Now we would like to take your questions. 2015-10-22 10:21:46 · Hu Kaihong Now we will take your questions and please remember to tell us where you are from before raising your questions. 2015-10-22 10:22:51 · CCTV: Hello, Mr. Wang. According to the data disseminated just now, both foreign exchange settlements and sales by banks and foreign-related receipts and payments have been in deficit since the beginning of this year. What's your view of the recent capital outflows and the decline in foreign exchange reserves? Is there a risk of capital flight? What will be the future? Thank you. 2015-10-22 10:23:28 · Wang Xiaoyi: I'd like to answer this question from four aspects: Firstly, since the beginning of this year or the second half of last year, China does have witnessed outflows of foreign exchange funds. Secondly, there are reasons behind such capital outflows, which are not capital flight. Thirdly, foreign exchange reserves do have dropped but are within control for the moment. Fourthly, such volatility should be viewed sensibly and we are confident in achieving the equilibrium of balance of payments in the future. To help you better interpret the data of different coverage that are disseminated by the SAFE, I would like to make an explanation on the three sets of data we usually release, which all involve the monitoring of inflows and outflows of cross-border capital. 2015-10-22 10:25:09 · Wang Xiaoyi: The three sets of data include foreign-related receipts and payments through banks and foreign exchange settlements and sales, which were released just now, and balance of payments, where there is a longer timelag before the data are released. First, foreign-related receipts and payments through banks reflect the receipts and payments of funds, RMB or foreign currency funds that are involved in international trade, by banks on behalf of their clients including companies and individuals. Such international trade includes trade and investments, but excludes banks' cross-border transactions. Once occurring, these transactions will be included in the statistics of foreign-related receipts and payments. In the first three quarters, foreign-related receipts and payments recorded a deficit of more than USD 60 billion. Second, foreign exchange settlements and sales by banks involve banks, companies and individuals. When they receive or are required to pay foreign exchange, they will settle or purchase foreign exchange with banks. After the mandatory sales and settlements of foreign exchange were canceled, companies and individuals can choose to settle foreign exchange or keep it as deposits at their discretion after receiving foreign exchange from abroad, which are based on their judgment of the current exchange rate and economic conditions. In the first three quarters, foreign exchange settlements and sales posted a deficit of more than USD 300 billion, indicating net purchases of foreign exchange by companies and individuals. However, this does not mean immediate external payments, but suggests that the purchased foreign exchange is used to pay for imports or outbound investments, or to repay domestic foreign exchange loans, or to be deposited in banks. Therefore, the large gap between the deficit in foreign exchange settlements and sales and the deficit in foreign-related receipts and payments shows companies' and individuals' expectations of exchange rate and judgment of economic conditions. 2015-10-22 10:31:19 · Wang Xiaoyi: Third, the balance of payments (BOP) is released on a quarterly basis, with a timelag of more than one month. BOP data are recorded by resident and non-resident, and some can better measure China's cross-border capital flows. BOP data fall into two categories, namely, current account and capital and financial account. Assuming there is no net error or omission, the sum of current account and capital and financial account is zero. In other words, current account surplus is equal to capital and financial account deficit, with the latter including the changes in reserve assets. According to the official data for the first half, the current account surplus was USD 148.6 billion, or 3.1% of China's GDP, while the deficit in the capital and financial account excluding reserve assets was USD 125.6 billion. If direct investment, including ODI and FDI, was excluded from the deficit, then the non-direct investment deficit was USD 217.2 billion, more accurately reflecting cross-border capital flows under portfolio investment, external debt, trade finance and trade credit. The data for the third quarter are not yet disseminated, and the net outflows under non-direct investment for the first half amounted to USD 200 billion or so. 2015-10-22 10:49:56 · Wang Xiaoyi: This is a normal case when it comes to the balance of payments, and China is no exception. China recently posted a current account surplus and a capital and financial account deficit, compared with twin surpluses often seen in the period when the RMB is appreciated, which results in significant growth in foreign exchange reserves. Foreign exchange reserves are a kind of capital outflows that are in the hands of the central bank. Germany and Japan have seen surpluses in one account and deficits in the other account for years, indicating such adjustment in China's balance of payments is normal. Secondly, the recent capital outflows are essentially different from panic-driven capital flight. First, these outflows indicate the shift of foreign exchange assets from the hands of the central bank to the hands of companies and individuals, or the effect of encouraging companies and individuals to hold more foreign exchange, who are more willing to hold foreign exchange or make outbound investments. Meanwhile, to cope with the deficit in forward settlements and sales of foreign exchange posted since the beginning of this year, banks bought enormous amounts of foreign exchange position. In the first three quarters, banks' foreign exchange position increased by more than USD 100 billion, and foreign exchange deposits held by companies and individuals went up by more than USD 50 billion. Second, driven by the "Belt and Road" initiative, domestic enterprises are becoming much more willing to make outbound investments, quickening their pace to go global. In the first three quarters, non-financial ODI amounted to USD 87.3 billion, up by 16% year on year. Last but not least, some capital outflows were the result of companies cutting their external debt to reduce the high-leverage risk facing them. Overall, the recent changes are normal and not capital flight. 2015-10-22 11:05:02 · Wang Xiaoyi: Thirdly, volatility of the balance of payments should be viewed sensibly. In the case of capital outflows, market players may follow suit and make irrational adjustments, leading to higher expectations of RMB depreciation. But given China's macroeconomic fundamentals, there is no foundation for continued RMB depreciation, so the irrational factors in the market will vanish along with the stabilization of the economy. China's balance of payments is highly pro-cyclical and is therefore vulnerable to the changes in economic fundamentals. The National Bureau of Statistics recently released that GDP growth for the first three quarters was 6.9%, which was high among major economies, and the economic structural optimization is accelerating, suggesting China's development potential remains strong. Meanwhile, the current account remains in surplus, and its ratio to GDP is still within a rational range of around 3%. It is an international standard that it is normal that the ratio of current account to GDP is between plus and minus 4%. Last, foreign capital inflows for long-term investments remain unchanged. In the first three quarters, China used foreign capital of nearly USD 95 billion, up by 9% year on year; compared with the end of March, the outstanding middle and long-term external debt grew by 3% as at the end of June, indicating overseas investors are still optimistic about China's middle and long-term prospects. Therefore, we firmly believe that the short-term volatility in cross-border capital flows is the result of different market expectations, and given China's fundamentals, we are fully confident in the long-term stable operations of China's balance of payments. 2015-10-22 11:20:16 · Japanese TV Asahi: An official US report predicts that China intervened heavily in the foreign exchange market in the third quarter to prevent RMB depreciation. Is this true? Will the Chinese government continue to do so in the future? 2015-10-22 11:33:16 · Wang Xiaoyi: According to the media coverage on the Semi-Annual Report on International Economic and Exchange Rate Policies recently published by the US Department of the Treasury, the US Department of the Treasury no longer believes that the yuan is significantly undervalued, which is an important signal. The previous reports always believed that the RMB exchange rate was undervalued and the RMB should be appreciated. I would like to answer your questions in two aspects. Firstly, any country intervenes in its foreign exchange market, but in different ways. Generally speaking, the exchange rate volatility in the third quarter was the voluntary action of market players. In the first seven to eight months of this year, the RMB was under depreciation pressure. Irrational fluctuations were seen in the market after the improvement of the central parity rate formation mechanism on August 11, but the market has been stabilized after the one-time central parity rate modification was completed. The players that trade foreign exchange in the domestic market are banks and enterprises, and when foreign exchange is in short supply, the central bank needs to intervene to replenish liquidity, which is one of the reasons behind the decline in foreign exchange reserves in August. However, this is not a heavy intervention, but a normal transaction to stabilize market sentiment based on market demand. 2015-10-22 11:34:04 · Wang Xiaoyi: Secondly, the market was stabilized through September and October, which was also a process of self-modification of the market. When the RMB exchange rate expectations were stabilized, people came to agree that there was no foundation for long-term RMB depreciation and as a result, excessive speculative trading would be discouraged, which is normal. There are many factors that will impact foreign exchange reserves, and it is normal to fill in the short-term market gap with foreign exchange reserves, which is also the function a country's monetary authority must perform. But after the market is stabilized, market supply and demand tend to be adjusted automatically. 2015-10-22 11:52:10 · China News Service: The IMF pointed out at its recent annual meeting that the Fed's increase of interest rates may severely impact emerging economies. What's your view of the impact of the interest rate hike on China's cross-border capital flows? 2015-10-22 11:53:25 · Wang Xiaoyi: The impact of the Fed's monetary policy orientation on the global economy and the financial market is not negligible. Given that the US is the world's largest economy and an issuer of the most important international currency, we have been paying attention to the impact of the US' monetary policy orientation on China, especially on the balance of payments. First, the normalization of the Fed's monetary policy, including the QE exit and expectations of interest rate rise, is exerting increasing impact on China's cross-border capital flows. In the first three quarters, the market's expectations of the Fed's increase of interest rates and the trajectory of the US dollar had different impacts on China's cross-border capital flows at different stages. In the first quarter, China was under heavy cross-border capital outflow pressure; in the second quarter, as the US dollar's momentum for appreciation was weakened, China's cross-border receipts and payments were basically balanced; but in the third quarter, the outflow pressure became heavier. 2015-10-22 11:55:03 · Wang Xiaoyi: The Fed's monetary policy, especially before the interest rate hike, has a strong impact on the world economy and emerging markets, which, however, should not be over-interpreted as the interest rate hike does not mean collapse of the world economy or flows of all capital into the US. Historically, the Fed's policy had different impacts on the world. The interest rate hikes in mid and late 1990s respectively did trigger heavy capital outflows from some emerging economies. But between 2004 and 2006, Fed's increase of interest rates did not lead to capital outflows from emerging economies, most of which saw continued capital inflows instead. Therefore, the Fed's increase of interest rates has not direct causal relationship with global capital flows. Historical experience shows that there are three factors that impact a country's cross-border capital flows: first, good macroeconomic fundamentals are the basic guarantee to withstand external impact. Second, the coordination between the flexible exchange rate regime and orderly opening of the capital account is also important. Third, macro-prudential management of cross-border capital flows should be strengthened to prevent excessive inflows and outflows. 2015-10-22 12:05:16 · Wang Xiaoyi: Given China's reality, the normalization of the US' monetary policy will have an impact on China's cross-border capital flows, but we are able to cope with the external impact and are fully confident about that. A stronger dollar will increase the foreign exchange financing cost, thereby putting companies that are beset by heavy external debt, and serious maturity and currency mismatches at heavy operating risks and under heavy adjustment pressure. On the other hand, the US dollar interest rate hike or the normalization of the Fed's monetary policy will have positive impact on China. Firstly, if the Fed decides to raise interest rates, it means that the US economic recovery has been on the right track, while the Fed's recent hesitation indicates that the US economic recovery remains tepid. The sustained US economic recovery will be favorable for China to expand external demand. Secondly, the normalization of the Fed's monetary policy will further diverge the expectations of the international community including investors of the trajectory of the RMB exchange rate, which will be favorable for us to capture opportunities to press ahead with and accelerate relevant reforms. In addition, the Fed's increase of interest rates will be a gradual process, quoting the Fed chairman as saying that raising interest rates cannot be achieved overnight but is a long-term process, with relevant impact digested and absorbed gradually. Last but not least, as I stressed previously, with good economic fundamentals, China is fairly capable of withstanding external impact. 2015-10-22 12:15:18 · Wang Xiaoyi: We surely will pay close attention and actively respond to the spillover effect and impact of the Fed's increase of interest rates. First, we will focus on our own business to make sure the domestic economy is running within a reasonable range. Second, as the foreign exchange authority, we will continue to intensify monitoring and warning of cross-border capital flows, accelerate the promotion of relevant reforms, especially the development of the foreign exchange market, and enhance education and guidance of market players against risks, and further increase data transparency to help market players make rational judgment. 2015-10-22 12:26:23 · Ta Kung Pao: China has recently seen more outflows of cross-border capital and a higher deficit in foreign exchange settlements and sales. Is this related to China's central parity rate reform? What impact does this reform have on China's foreign exchange receipts and payments? 2015-10-22 12:31:18 · Wang Xiaoyi: The increase in cross-border capital outflows is not directly caused by the August 11exchange rate reform. The reform was conducted to improve the central parity rate formation mechanism, effectively helping release the pressure from cross-border capital outflows in the first 7 to 8 months. The cross-border capital did fluctuate sharply a few days after the reform was launched. But this does not mean the massive capital outflows were attributed to the reform. Instead, this shows that the RMB exchange rate was under depreciation pressure before modification. Since the second half of last year, the US dollar index has risen by more than 20%, and the absolute majority of other currencies have depreciated, except that the RMB have appreciated slightly against the US dollar, which suggests that the RMB exchange rate needs adjustment. In a word, the one-time modification of the exchange rate reform just released the pressure of the previous months but did not contribute to the excessive outflows of cross-border capital. 2015-10-22 12:31:53 · Wang Xiaoyi: It currently seems that some irrational factors of the cross-border capital outflows have been eliminated and the outflows are decelerating. In late September and October, corporate behaviors such as holding more foreign exchange, purchasing foreign exchange in advance, repaying debt in advance, and substantially increasing hedging became much less. The RMB exchange rate was being stabilized, with the gap between CNH and CNY shrinking in late September, even closing to zero in some time. All this shows that the central parity rate reform is a key adjustment to boost the RMB exchange rate toward equilibrium, but is not directly related to the short-term volatility in cross-border capital flows. This reform will play a more positive role in stabilizing the future cross-border capital flows. 2015-10-22 12:42:01 · Bloomberg: How far are we from QDII2? Can you brief us on the changes in the capital account convertibility process in China in the 13th Five-Year Plan? 2015-10-22 12:46:24 · Wang Xiaoyi: There is no definite schedule for QDII2 yet. This issue has been questioned many times over the past few years and has drawn wide concern from society. But as a supporting department rather than a dominant department, we have been cooperating with other relevant departments in carrying out related studies. The way forward for the opening of the capital account in China has not been changed in the 13th Five-Year Plan. President Xi Jinping recently told the Wall Street Journal prior to his visit to the United States that China has been striving for capital account convertibility over the past 20 years since the goal was proposed in the early 1990s. According to the 7 categories of 40 criteria set by the IMF, we don't have many items that are not opened, and China is marching confidently toward the convertibility of the RMB capital account. The capital account convertibility has been the item and task we have been promoting. 2015-10-22 12:47:56 · Wang Xiaoyi: Recently, the capital account convertibility tended to accelerate in China. Some media, including the international community, think that China's economy is now in difficulty or faced with volatility, which will impact the process of capital account convertibility. But we believe the way forward for the capital account convertibility in China will not be affected. We have been following the principles of overall planning, controllable risks and step-by-step implementation to boost the capital account convertibility. The SAFE, responsible for formulating convertibility policies, will cooperate closely with other departments to support the two-way opening of the capital market, and facilitate external debt and capital flows management under the macro-prudential framework, to enhance the level of convertibility of cross-border and financial transactions. At the same time, we will effectively manage risks during the opening up. 2015-10-22 12:55:08 · Economic Daily and ce.cn: We have noted that the central bank and the SAFE have recently introduced a series of policies against the volatility in cross-border capital flows. What would you say about the effect of these policies? If the volatility continues to be heightened, will the SAFE adopt capital controls to control such volatility? 2015-10-22 13:03:03 · Wang Xiaoyi: Guarding against the risks associated with the volatility in cross-border capital flows has always been a top priority of the SAFE. Recently the People's Bank of China and the SAFE did have taken some measures against the abnormal volatility in the foreign exchange market. But what is sure is that the policy orientation of foreign exchange administration to support the development of the real economy and promote trade and investment facilitation remains unchanged. Second, the SAFE remains committed to reducing administrative intervention in micro economic trading behaviors despite recent measures for reinforcing ongoing and ex-post regulation. Third, while controlling abnormal capital flows, the SAFE has been dedicated to prudential management by economic and market means, and will continue to do so in the future. Overall, we have been committed to promoting reforms to boost trade and investment facilitation and preventing risks to maintain the equilibrium in the balance of payments. 2015-10-22 13:03:48 · Wang Xiaoyi: The measures taken include: firstly, the frequency of monitoring has been enhanced. We require the SAFE branches to check key enterprises with abnormal spending, but do not intervene in their behaviors except requiring them to clarify the reasons behind. Secondly, in accordance with the existing laws and regulations, we urge banks to follow the three principles of "knowing your customer", "understanding your business" and "due diligence" to intensify verification of the authenticity and compliance of their clients' transactions, without imposing administrative restrictions or regulations on true and legitimate cross-border receipt and payment needs. 2015-10-22 13:14:04 · Wang Xiaoyi: The policies have taken effect, with the deficit in foreign exchange settlements and sales falling and cross-border capital outflows dropping in September. This way of administration will continue for ongoing and ex-post regulation, so as to build a macro-prudential management framework, rather than the traditional capital control model. Unlike capital control that is to impose mandatory restrictions on the financial transactions by residents and non-residents, macro-prudential management is to impact borrowing behaviors of market players by economic means or legal authorization, and increase the cost for speculation by those who make excessive speculation, so as to curb impulse for making excessive loans and crack down on asset price speculation. Along with the capital account liberalization and the RMB internationalization, China will improve management under the macro-prudential framework in the future. 2015-10-22 13:18:17 · Wang Xiaoyi: Administrator Yi Gang stressed recently that market regulation means such as Tobin tax, URR, and foreign exchange transaction fees should be studied to contain abnormal short-term fluctuations of arbitrage funds. 2015-10-22 13:28:00 · Beijing Youth Daily: Why does the SAFE choose to introduce at this moment the policy that a limit of RMB 100,000 per year will be imposed on overseas withdrawal using a bank card? What are your major considerations? 2015-10-22 13:30:36 · Wang Xiaoyi: The introduction of this policy is indeed related to the recent capital outflows. In addition to this short-term factor, the policy is also introduced to improve policy design. During our day-to-day monitoring, we have found from the information from banks and international organizations that some Chinese individuals withdraw large amounts of money overseas that have apparently exceeded the reasonable requirements for tours, shopping or studying abroad and are suspicious of assets transfer, money laundering or speculation. Improving cash management is an international practice. Many countries and regions including Europe and the US provide only a small amount of cash in ATM, also in order to restrict large-sum cash transactions. Overseas withdrawal with a foreign currency bank card issued by a domestic bank is subject to daily, monthly and semi-yearly limit management, while overseas withdrawal with an RMB bank card is only subject to daily limit management for technical reasons. However, as China UnionPay updates its technologies, it now has the above capabilities, and it is time to enhance management of overseas withdrawals with RMB bank cards. The annual limit that is the equivalent of RMB 100,000 is imposed mainly to inhibit overseas withdrawals of large amounts of cash by a small number of Chinese individuals, and more than 90% of cardholders' normal consumption and withdrawal requirements will not be impacted. 2015-10-22 13:34:44 · Hu Kaihong This is the end of today's conference. Thank you, Mr. Wang and Ms. Wang! Thank you, all reporters! 2015-10-22 13:36:13 (The original text is available at china.com.cn) 2015-11-26/en/2015/1126/1176.html