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The State Administration of Foreign Exchange (SAFE) has recently disseminated the preliminary data in the Balance of Payments for the fourth quarter and the whole year of 2018. The SAFE spokesperson and chief economist Wang Chunying answered media questions on relevant issues. Q: Could you brief us on China's balance of payments for 2018? A: In 2018, China's BOP found an adaptive equilibrium. Both current account and financial account (excluding reserve assets) were in surplus and reserve assets rose. The surplus under the current account remained within a reasonable range. In 2018, China's current account surplus was USD 49.1 billion. Although there was a deficit in the first quarter, it maintained surplus from the second quarter to the fourth quarter and the scale of surplus expanded quarter by quarter. In the fourth quarter, the current account surplus was USD 54.6 billion, up by 135% quarter on quarter, which was mainly attributed to a surplus of USD 139.1 billion, or a quarter-on-quarter increase of 38% under trade in goods in the Balance of Payments. The deficit of trade in services was USD 64.1 billion, down by 21% quarter on quarter. Financial account (excluding reserve assets) remained in surplus, and cross-border capital registered net inflow. In 2018, financial account (excluding reserve assets) posted a surplus of USD 60.2 billion (including net errors and omissions for the fourth quarter). Among which, direct investment registered a net inflow of USD 107.4 billion, up by 62% year on year. Specifically, the net outflow of ODI was USD 96.1 billion, down by 6%, and the net inflow of FDI into China registered USD 203.5 billion, up by 21%. Reserve assets rose. In 2018, China's reserve assets increased by USD 18.9 billion due to the BOP transactions (excluding the impact of non-transaction factors such as exchange rate and price), among which, foreign exchange reserves increased by USD 18.2 billion. Thanks to China's sustained and sound economic development and long-term good prospects, the cross-border capital flows in the future will maintain overall stability and China's balance of payments will also remain basically balanced. 2019-02-15/en/2019/0222/1491.html
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In order to implement the gist of the 19th CPC National Congress, put into practice the proactive opening-up policy, facilitate the creation of new pattern of overall opening-up covering all dimensions, multiple levels and extensive field, and deepen the reform of “ delegation, regulation and service” on an ongoing basis, the State Administration of Foreign Exchange (SAFE) has recently decided to carry out the pilot program on foreign exchange receipts and payments facilitation for trade in goods in Guangdong-Hong Kong-Macao Greater Bay Area, Shanghai city and Zhejiang province, so as to support prudential and compliant banks to implement more convenient measures when handling trade receipts and payments for enterprises with good credit standing. Major contents of the pilot program include four parts. The first is optimizing verification of foreign exchange receipt and payment documents for trade. The banks shall handle foreign exchange businesses for trade in goods in accordance with three principles of “knowing your customer”, “understanding your business” and "due diligence”. The second is that foreign exchange receipts from trade are not required to go through accounts pending verification. Foreign exchange receipts of pilot enterprises under authentic and legitimate trade in goods can be entered into foreign exchange settlement account under the current account or settled directly. The third is abolishing special re-exchange business registration formalities. Overdue re-exchange and re-exchange via routes other than the original one can be handled with a bank directly. The fourth is simplifying import declaration verification. If a bank can confirm that foreign exchange payment for trade is authentic and lawful, the electronic information verification formalities for import declaration can be waived. The SAFE will further promote trade and investment liberalization and facilitation based on pilot results, so as to create sound business environment and promote the stable and healthy development of the economy. 2019-01-02/en/2019/0108/1484.html
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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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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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The time-series data of Balance of Payments of China 2026-03-27/en/2019/0329/1496.html
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官方储备资产 Official reserve assets html xlsx pdf 2019-01-07/en/2018/0517/1487.html
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Liu Wei, director-general of the General Affairs Department of the State Administration of Foreign Exchange, in an interview with Century Weekly, recently responded to questions concerning hot money? The interview, published in Century Weekly (no. 2, 2011) and on www.caing.com, is presented as follows. The Cure for Hot Money? Hot money has become a hot topic in the emerging economies. At the upcoming meeting to be convened by central banks from Southeast Asia to talk about regulation of cross-border capital flows, the prevention of hot money is bound to come up as a key issue. This is the first time after the outbreak of the 1997 Asian financial crisis that East Asian nations have once again put priority on this topic. The background for this latest development involves loose monetary policies and a series of economic stimulus measures taken by the major developed economies, such as the U.S., Japan, and Europe, in an effort to combat the 2008 international financial crisis, resulting in tremendous liquidity in the market. As for the emerging markets, due to their steady economic growth, interest rate spreads between the home currency and foreign currencies, and expectations for an RMB appreciation, China has become a magnet for international capital. According to the State Administration of Foreign Exchange (hereafter referred to as the SAFE), the banks foreign exchange settlements and sales have recovered to their highest level, with USD2.12 trillion for the first eleven months of 2010, 4% higher than that at the 2008 peak level during the same period; the surplus of the banks foreign exchange settlements and sales for that same period stood at USD351.5 billion, registering year-on-year growth of 48%. This shows that people prefer to have their capital held in RMB instead of foreign currencies, and this directly results in a further surge in China's foreign exchange reserves. As of the end of September 2010, the balance of China's foreign exchange reserves amounted to USD2.65 trillion, an increase of USD249.1 billion from year-end 2009. This amount is more than twice that of the runner-up, Japan, which had USD1 trillion in its foreign exchange pool. However, to the unprofessional eye, the inflow of Hot money to China is as complicated in nature as it is difficult to understand. As Liu Wei, director-general of the SAFE General Affairs Department, answered questions concerning hot money in an interview with our journalist, she offered insights into the categorization, inflow channels, regulation targets, and policy measures for hot money, as well as provided an up-close introduction to its high-voltage crackdown. Results of Quantitative Easing Caing-Century Weekly: What can China expect this year in terms of cross-border capital flows? Why? Liu Wei: Since 2010, the combination of the slow recovery of the global economy and the strong momentum on the domestic front has exerted more pressure on the net inflows of foreign exchange into China. This is mainly because: first, a new round of quantitative easing policies adopted by the major developed countries added to the rise of global liquidity, resulting in the emerging economies facing the impacts of currency revaluations and capital flows. Second, China's good economic fundamentals continued to attract inflows of foreign capital. Third, affected by changes in the domestic and international macroeconomic environments, Chinese market entities, including businesses and individuals, were more willing to settle accounts in foreign currencies but less inclined to buy foreign exchange. Domestic market entities actively adjusted their asset-liability structures in domestic and foreign currencies, for example by taking large USD loans to replace foreign exchange purchases. Banks also avoided overseas capital maneuvers as much as possible, and instead be brought the capital back to the home market, which also indirectly led to more net inflows of foreign exchange. Moreover, there is the possibility that arbitrage capital infiltrated through legal channels or instruments. Caing-Century Weekly: How do you interpret the impacts of the quantitative easing policies adopted by the Federal Reserve? Liu Wei: In the short term, America's QE policies might weaken the dollar, keep its interest rate down, and to a certain extent stimulate the U.S. economy. But in the medium and long term, this policy might fuel inflation and asset bubbles around the world, and making a global economic recovery more uncertain. First, it might aggravate the deteriorating economies of some European economies. Second, emerging markets will have to deal with more inflows of speculative funds, leading to appreciation pressures and aggravation by the already high inflation level. Third, global expectations of a USD depreciation will grow, forcing some countries to adopt measures to slow their currency appreciation, or even to devalue their currency, which will likely result in another round of global protectionism. Fourth, the large supplies of US dollars will trigger asset bubbles in sectors such as commodities, stocks, and the real estate markets. Fifth, as an international reserve currency, an increased supply of dollars might contribute to the export of America's inflation to other parts of the world. In a word, the QE policies of the U.S. are accompanied by complicated and profound implications that we should closely follow, carefully evaluate, and cope with promptly. Caing-Century Weekly: You mentioned America's QE policies have aggravated inflation and capital inflow pressures in the emerging markets. Do you think the surge in Chinese banks? foreign exchange settlements and sales is a sign of the influx of Hot money? Liu Wei: I feel the need to clarify two matters: first, a massive foreign exchange net inflow does not mean there is a large inflow of foreign exchange. Generally, the differences of banks foreign exchange settlements and sales can be used to gauge the cross-border flows of foreign currencies. A foreign exchange net inflow means there is a surplus in the banks foreign exchange settlements and sales, created either by an increase in the sale of foreign exchange or by a decrease in the purchase of foreign exchange, or by a combination of both. China's increased surplus in foreign exchange this year can mainly be attributed to the weakened inclination of market entities to purchase foreign exchange. Market entities prefer to raise capital in foreign currencies or settle payments in RMB, thereby substantially lowering the amount of the banks foreign exchange settlements and sales. Second, not all incoming capital falls into the category of hot money. While continuously trying to facilitate trade and investment, China still keeps an eye on capital controls and has put in place a series of policy measures to curb the inflow of short-term speculative arbitrage funds. Therefore, there is no room for legal inflows of hot money in China. Addressing the Root Cause Caing-Century Weekly: What on earth is hot money Given the many current arguments, what do you think is a more reasonable way to assess the scale of hot money inflows? Liu Wei: Indeed, no consensus has yet been reached on a definition of hot money.? In reality, long-term capital and short-term capital are interchangeable, and it is difficult to draw a line between investment and speculation. In economies with free flows of capital, Hot money generally refers to capital moving rapidly in and out of the country for the purpose of short-term speculative profits. Due to China's capital account management, short-term capital is not allowed free entry or exit; therefore, the key to determining whether some capital is Hot money is to find out whether the capital flows are for real and legitimate trade or investment purposes. A popular way in China to assess the amount of Hot money is newly added funds outstanding for foreign exchange trade surplus actually utilized foreign capital = hot money. Personally, I do not think that this is a recommended method because it fails to reflect the reality of the cross-border capital flows. First, this formula omits important trading items. Aside from trade and actually utilized foreign capital, there are other trading items that generate cross-border capital flows, such as services, profits, current transfers, securities investments, and other investments. According to this method, all other international payments are labeled hot money, and this obviously is unreasonable. In addition, some hot money flows in the guise of trade and investment, so this method runs the risk of either overestimating or underestimating the amount of hot money. Second, this method of evaluation brings together the two different concepts of funds outstanding for foreign exchange and international trade without explaining the mechanism for the formation of funds outstanding for foreign exchange or identifying its components. This involves a gross overgeneralization and fails to consider the time lag between goods flows and capital flows. We need to fully reflect the reality when evaluating the true volume of hot money. Since hot money is usually disguised as legal capital inflows, a simple formulaic calculation can hardly reveal the full extent of hot money. In contrast, daily supervision and investigation of hot money can offer some evidence of the scale of the hot money inflows. For example, starting from February 2010, the SAFE has been carrying out a hot money crackdown campaign, and by the end of October 2010, it had exposed 197 cases of foreign-exchange violations involving a total of USD7.34 billion. Caing-Century Weekly: Has the SAFE observed more inflows of hot money? Liu Wei: In this year's hot money crackdown campaign, we have not seen a massive organized cross-border inflow of hot money into China. Violators of hot money regulations mainly include Chinese-foreign equity joint financial institutions, Chinese-funded enterprises, foreign-funded enterprises, and entities that receive foreign exchange from overseas ties and commercial transactions. As for large multinational financial agencies, given the legal risks they face under the capital controls, they are seldom found to be involved in illegal hot money operations. In addition, as the market awareness of businesses and individuals is strengthened, they become more sensitive to the changes in price signals, such as interest rates and foreign exchange rates. In order to avoid risks and maximize profits, some market entities have adjusted their domestic and overseas asset arrangements and financial management. In international trade settlements, if companies advance or delay their payments to take advantage of foreign exchange fluctuations, they will intensify the volatility of cross-border capital flows and will need to be regulated, though the capital involved cannot be categorized as hot money. Taken together, the cross-border capital inflows this year are mostly the result of real trade and investment. We cannot rule out the possibility of arbitrage purposes, but those are not the mainstream. We should not overestimate or exaggerate the scope of hot money. Caing-Century Weekly: Since China maintains an appropriate level of capital controls, in principle there should be no way for hot money to flow in. Then, from the perspective of the SAFE, what channels are responsible for the inflows of Hot money? Liu Wei: The hot money that manages to enter China for speculative purposes and without a real trade or investment background usually takes advantage of the highly open and channels with minimal procedures, such as cargo trade, service trade, and direct investment. The violators cover up their illegal purposes with seemingly legal transactions, breaking or sidestepping the regulations in their chameleon ways. Typical practices include: trade processing companies directing into China more funds than they need or earlier than is necessary in order to make profits from the sale of foreign exchange; some foreign exchange funds being disguised as foreign direct investment, but after falsifying the capital settlement, they flow into the property or stock markets or are used for other investment purposes; some speculative funds are split into smaller amounts and remitted into China by individuals who want to avoid the annual quota management for the settlement and sale of foreign exchange. It is especially important to note that when dealing with the settlement and sale of foreign exchange, some designated banks fail to strictly check whether some foreign exchange settlement applications are for real trade purposes, thus allowing the inflow of hot money. Some banks even dodge foreign exchange management regulations by promoting arbitrage-oriented trade financing products. On the surface, they might achieve a win-win? solution for both the bank and the business, but in fact they increase the pressures on foreign exchange net inflows and affect the balance of international payments by avoiding or delaying purchases of foreign exchange. Therefore, the hot money in China shares the following common features: First, it comes in under disguise. Because hot money is not allowed to flow freely, its entry and exit is usually achieved by violating or bypassing the laws and regulations under the pretense of legal trade or investment or other available means of disguise. Second, it is very complicated. Some aim to gain the differences between domestic and foreign interest rates or exchange rates in the short term, whereas others are more interested in the short-to-medium term profits from asset price increases. Third, it comes in diverse forms, making it difficult to determine the true nature of the underlying transactions. But the movements of hot money leave behind traces that can be used as clues to track down its whereabouts and to reveal its disguise. High-Voltage Crackdown Caing-Century Weekly: Since there are traces left by the hot money, has the Chinese government discovered any clues about the inflows of hot money? Have any countermeasures been adopted? Liu Wei: The massive inflows of cross-border capital have many detrimental effects in China, such as inflation pressures, asset bubbles, as well as increased pressures on monetary policy operations and foreign exchange reserve management. As a result, since 2010, the Chinese government has employed various policy instruments to control the inflows of hot money. First of all, we have strengthened the management of cross-border capital flows. Since February 2010, we have launched hot money crackdown campaigns in provinces and municipalities with large volumes of foreign exchange. In a series of five announcements, the names of the banks, businesses, and individuals violating the foreign exchange regulations have been released to the public. Our continuous high-voltage crackdown has effectively deterred further increases in the inflows of hot money. Recently, the SAFE developed and strengthened foreign exchange management measures and guided cross-border capital flows by introducing temporary policy adjustments with respect to the banks positions in foreign exchange settlements and sales, collection of payments and settlement of exchange for exports, short-term external debts, foreign direct investments, overseas listings, return investments, and penalties for violations of foreign exchange regulations. Since the launch of these policies, initial progress has been made, producing positive regulatory effects on the cross-border capital inflows during certain periods and in certain areas. Second, we have reinforced interdepartmental coordination and stepped up joint regulation. In 2010, for example, the SAFE joined the Ministry of Housing and Urban-Rural Development in issuing a document to reiterate that individuals overseas can only purchase one house in China for their own residence, and overseas agencies can only purchase non-residential housing in the city of registration to be used as offices. These principles help curb the influx of foreign capital into China's property market. Third, we have made full use of monetary policy measures and intensified macro prudential regulations. We do this mainly by allowing price mechanisms such as foreign exchange rates and interest rates to act as guidance, comprehensively using quantity-based hedging instruments such as the reserve requirement ratio and central bank bills, and stepping up prudential regulation over financial institutions. We have also provided banks with more guidance in terms of foreign exchange risks and have strengthened the banks awareness of legal operations. Caing-Century Weekly: The SAFE has repeatedly mentioned a high-voltage crackdown on hot money. How should we interpret the word high-voltage? Liu Wei: As China's foreign exchange resources shift from a shortage to a relative surplus, the major functions of foreign exchange management should go beyond merely ensuring the acquisition and administration of foreign exchange resources to also covering the balanced management of capital entry and exit, the prevention of abnormal risks in cross-border capital flows, and the security of the national economy and finance. Recent developments at home and abroad have resulted in potential increases in cross-border capital net inflows; therefore, combating hot money and preventing risks have become important measures to ensure steady and healthy economic development, thus they are part of our current priorities. As for the term high-voltage, I will offer the following interpretations: First, we should intensify the investigation and punishment of entities with illegal capital by identifying the key channels, links, targets for hot money inflows, dealing pinpointed blows, and increasing inspection efficiency, thereby effectively preventing and curbing the inflows of hot money. Second, we should further improve the relevant systems and standardize management by reinforcing system building, adopting effective control measures, and preventing market entities from taking advantage of legal loopholes. Third, we should strengthen cooperation with other regulatory authorities to achieve a synergy. Inbound movements of hot money involve many links and multiple entities, such as banks and enterprises, so the SAFE should cooperate with the relevant departments to carry out joint administration. Taking cross-border transactions as the starting point, the related authorities should assume responsibility for the corresponding businesses, identify suspicious conduct, and eliminate arbitrage behavior under the guise of legal facades. It is especially worth mentioning that the persistent high-voltage crackdown on hot money does not mean that we will control or restrain the legal foreign exchange transactions of banks, enterprises, and individuals. This campaign will be conducted without adding extra costs for market entities and we will take active measures to facilitate trade and investment. Caing-Century Weekly: From the end of October 2010 up until the present, the SAFE has issued a series of penalty announcements, making public the foreign exchange violations committed by commercial banks, enterprises, individuals, illegal private banks, and online entities. But given the RMB appreciation expectations and the increases in domestic asset prices, are these measures intended to deter future offenders really effective? Liu Wei: First, these public announcements are made in order to warn and educate the offenders, to urge the entities involved to strengthen internal management and carry out careful rectification. Second, in this way, we can reveal the typical channels and operational models o the hot money inflows, so that market entities can learn from these lessons and refrain from breaking the laws and regulations. Third, we can strengthen compliance awareness by market entities, urge them to assume their social responsibilities, and to strictly comply with the various policies for foreign exchange management. On the whole, these announcements have produced positive social effects, and have been conducive to pooling the strength of society in the fight against hot money, and to enhancing the effectiveness of the hot money crackdown campaign. The speculative nature of hot money determines that it is always in hot pursuit of profits, wherever they are, and to follow the extent of profits, the violation of the laws is only a small price to pay. The SAFE must strengthen investigation and regulation according to the law. For bank offenders, we should impose punishments such as fines, suspension of operations, public criticisms, and hold executives with direct responsibilities accountable. For enterprises and other market entities that have violated the relevant regulations, punishments will be followed by public announcements to deter future offenders. Caing-Century Weekly: You just mentioned the SAFE has adopted a series of measures to curb the inflows of hot money and these have has achieved initial results. Can you elaborate on that point? Liu Wei: On November 9, 2010, the Circular of the State Administration of Foreign Exchange on Issues Relevant to Strengthening the Administration of Foreign Exchange Businesses was issued to further standardize cross-border capital flows through channels such as trade, foreign direct investment, return investment, and overseas listings, and in particular to strengthen management of the banks positions in foreign exchange settlements and sales, and short-term external debts, and to reinforce the banks obligations to verify the authenticity when dealing with foreign exchange businesses. According to foreign exchange statistics since November 2010, due to the above-mentioned foreign exchange policies, net inflows of foreign exchange have dropped: the surplus of banks spot foreign exchange settlements and sales has been lowered, especially the surplus in the settlement of foreign exchange capital for foreign-funded companies and foreign exchange settlement and sales for individuals; banks are more cautious when providing forward foreign exchange settlement services, resulting in an obvious reduction in the volume of settlements; banks cash basis positions have increased after the launch of the relevant measures, demonstrating the initial effects of the measures to regulate the foreign exchange market. Meanwhile, expectations that the RMB will appreciate have weakened both at home and abroad. On December 29, 2010, the one-year forward exchange rates of RMB/USD in the home market and the overseas market were respectively 6.5807 and 6.4890, with the RMB appreciation expectation standing at 0.7% and 2.1%, down by 1.5 and 1.6 percentage points compared with the end of October. Of course, considering the complicated and uncertain prospects in the foreign exchange markets, we must remain vigilant, and closely watch and actively cope with the latest developments. Caing-Century Weekly: Going forward, what steps will the SAFE take to tackle hot money? Liu Wei: To prevent and combat hot money, we must adopt a two-pronged approach. While robustly promoting the facilitation of trade and investment, we must strengthen our monitoring and early-warning of capital flows, adopt measures to stop cross-border arbitrage activities, prevent the devastating impacts of fluctuations in domestic asset prices and the aggravated financial risks caused by the massive entry or exit of hot money. First, we will maintain our high-voltage stance toward the inflows of hot money and other illegal capital. We will focus on banks and other key channels, continue to carry out special inspections of hot money inflows, step up efforts for foreign exchange examination, and severely crack down on illegal private banks and other foreign exchange crimes. Second, we will improve the methods for foreign exchange regulation and will optimize management of cross-border capital inflows. We will strengthen trade-based foreign exchange administration, improve management of foreign exchange registration and capital settlement of foreign-invested enterprises, and explore follow-up examination and regulation of money after exchange settlement. We will also strengthen management of banks short-term external debts and reinforce the regulation of banks off-balance-sheet financing. Third, we will promote the process of opening up China's capital market and boost capital outflows. We will encourage the relevant companies to set up overseas operations, allow more types of institutions to engage in QDII businesses, and while ensuring risk controllability, accelerate the process of capital account convertibility selectively and in order of priority. Last and most importantly, we must bring into full play the basic functions of the market mechanisms, provide proper guidance by using price mechanisms such as foreign exchange rates and interest rates, eliminate arbitrage opportunities that are likely to be exploited by hot money, and take concrete measures to maintain an enabling foreign exchange policy environment for the sustainable development of foreign-related businesses. 2011-01-10/en/2011/0110/977.html
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11. We have noticed some recent media reports saying that China's foreign exchange reserves have exceeded a reasonable level.Has the USD3 trillion in foreign exchange reserves exceeded a rational scale or actual needs? Answer: By the end of June 2011, China's foreign exchange reserves reached USD3.197491 trillion. The increase in foreign exchange reserves is an objective result of the twin surplus in the balance of payments during this stage of economic development. We are not pursuing large-scale foreign exchange reserves, nor are we pursuing a long-term surplus in the balance of payments. There is no unified international or domestic standard for a reasonable scale of foreign exchange reserves to be held by a country. Various factors need to be taken into consideration, including the countrys macro-economic conditions, its degree of economic openness, the capability to utilize foreign capital and international financing, and the degree of maturity of its economic and financial systems. Since China is a large developing country, maintaining sufficient foreign exchange reserves is of great significance to ensure international liquidity, enhance capability to respond to risks, and safeguard the economic and financial security of the nation. During the 12th Five-Year Plan period, the main focus of Chinas scientific development in all economic and social fields is to accelerate the transformation of the mode of economic development. We shall take comprehensive measures, promote economic restructuring, and transform the mode of economic development, so as to fundamentally alleviate the pressures caused by the inflows of foreign exchange funds and to achieve a basic equilibrium in the balance of payments. 12. Some people believe that the current inflation in China is due primarily to the increase in foreign exchange reserves. What is the SAFE's view about this? Answer: The current rise in price levels in China is affected by a variety of factors, including the rise in prices of major international commodities, significant growth in expectations of global inflation, and greater pressures from imported inflation. In addition, the demands for domestic investment and the growing costs of energy resources, the labor force, and land have also pushed up the price levels. As a result of the increase in foreign exchange reserves, more RMB will be placed on the market, leading to growth in the monetary base. But we also have to note that on several occasions in recent years, the PBOC has conducted sterilization operations by raising the deposit reserve ratio and issuing central bank bills to soak up the liquidity caused by outstanding funds for foreign exchange reserves. The increase in foreign exchange reserves is not an immediate nor a major cause of inflation. 13. Some people believe that the system of mandatory exchange settlement and sales has led to a continuous increase in foreign exchange reserves. Is China still enforcing such a system? Answer: At present, the so-called system of mandatory exchange settlement and sales is already a historical concept. As for the foreign exchange proceeds from current account transactions through exports or other means, enterprises can keep them or sell them to banks depending on their own business needs. Established in 1994, the system of mandatory foreign exchange settlement and sales was a product of the period when there was a shortage of foreign exchange. At that time, except for those enterprises approved by the state that were allowed to keep foreign exchange in foreign exchange accounts, all enterprises were required to sell the remainder of their foreign exchange proceeds from current account transactions to designated foreign exchange banks. Thereafter, the SAFE continuously relaxed the constraints on opening foreign exchange accounts under the current account and raised the ceiling on such accounts. In 2002, these constraints on opening foreign exchange accounts were eliminated, and thereafter all enterprises were authorized to conduct foreign trade or to open foreign exchange accounts under the current account with foreign exchange proceeds upon the approval of the SAFE. In 2006, prior approval to open such accounts was no longer required. In 2007, enterprises could keep the foreign exchange proceeds from current account transactions according to their own business needs. In 2008, the revised version of the Regulations on Foreign Exchange Administration specifically provided that the foreign exchange proceeds from current account transactions could be either retained by the enterprises themselves or sold to the banks. Beginning on January 1, 2011, enterprise export proceeds can be deposited overseas and do not have to be repatriated. Therefore, our country has put an end to the system of mandatory foreign exchange settlement and sales. The increase in foreign exchange reserves has nothing to do with that system. 14. Why is specific information about the operations and management of foreign exchange reserves not allowed to be disclosed to the public? Will the SAFE further improve transparency in this regard? Answer: Information about Chinas foreign exchange reserves is disclosed in accordance with the General Data Dissemination System (GDDS) of the International Monetary Fund (IMF), which is consistent with practices in most countries. As a responsible professional investor, the SAFE has been disclosing information about the operation and management of its foreign exchange reserves in a timely manner to international financial organizations, market regulatory bodies, and so forth through the corresponding channels and in accord with domestic and overseas common practices. Because of the large-scale and strong market influence, investors and speculators in international financial markets have been keeping a close eye on Chinas foreign exchange reserves and trends in their investment and operations in the hopes of discovering and exploiting profit-making opportunities. Participants in international financial markets are all playing the same game of trying to obtain maximum information about their competitors and at the same time refraining from exposing as much as possible. To safeguard the security and interests of Chinas foreign exchange reserves, we shall adopt a serious and cautious attitude in terms of information disclosure and gradually improve transparency in an active and steady manner. Over the past few years, as society has been paying more attention to the operation and management of foreign exchange reserves, we have actively disclosed information to the public about basic conditions in the operation and management of our foreign exchange reserves and we have provided answers to hot issues of public concern in various ways, including press conferences, media briefings, forums of experts, and the SAFE portal. We will continue to do a good job in maintaining interaction and communications with the public and we welcome suggestions and opinions from all members of society.. 15. There are only several hundred members on the SAFE management team for foreign exchange reserves, so is there a problem that the scale of asset management per capita is too large? How do you control operational risks of the foreign exchange reserves? Answer: Talent is a basic guarantee for fulfilling various tasks. The SAFE has always attached great importance to building a team to be responsible for the operation and management of our foreign exchange reserves, and has recruited and cultivated talented investment personnel from China and abroad. Aimed at standardization, specialization and internationalization, the SAFE has established an operation and management team with a reasonable age structure and knowledge and a balanced mix of professional and management work. Meanwhile, the SAFE has constructed a complete global platform for reserve operations. During different stages of the economic cycle, the team has achieved the goal of ensuring security and liquidity, and maintaining and increasing the value of the foreign exchange reserve assets. Considering the different personnel requirements of various investment products, in the future the SAFE will make orderly adjustments to the structure and scale of foreign exchange reserve personnel to better adapt to the needs of large-scale operations. Under the current economic and financial situations both at home and abroad, in order to control risks in reserve operations, we shall, first, continue with diversified asset allocation and constantly optimize asset allocation based on market conditions in compliance with the principle of security, liquidity, and increasing value; second, we shall reasonably define the currency, assets, terms as well as the structure and proportion of product distribution, and strengthen risk management and internal control; third, we shall continue to improve the multilevel investment decision-making system, and ensure the objective, scientific, and professional level of the various investment decisions; and fourth, we shall constantly improve the platform for basic operations and expand and improve the channels for global operations. 16. Since developed countries are currently implementing quantitative easing monetary policies, there have been large net inflows of foreign exchange funds and a relatively rapid increase in foreign exchange reserves, and investments and operations have become increasingly difficult. What comprehensive countermeasures can be taken to deal with these problems? Answer: It is a systematic project to cope with the quantitative easing monetary policies of the developed countries and to promote Chinas basic equilibrium in the balance of payments, which requires the joint efforts of domestic macro-economic policies. In particular, in the current complex economic situations both at home and abroad, it is imperative to implement a policy package of expanding domestic demand, making structural adjustments, reducing the surplus, and promoting a balance. Expansion of domestic demand means that we shall especially expand consumption demand and fully exploit its huge potential. Making structural adjustments means that we shall promote the transition of the economic growth pattern to make it driven by consumption, investments, and exports. Reducing the surplus means that we shall attach equal importance to imports and exports, and give full play to the critical role of imports in the macro-economic equilibrium and structural adjustments. Promoting a balance means that we shall, within the framework of balanced management, fully utilize economic levers and market-based means to strengthen the management of capital inflows, open up channels for capital outflows, and promote the convertibility of the capital account in a steady and orderly manner. Only in this way will we be able to effectively cope with the quantitative easing monetary policies of the developed countries, comprehensively tackle the problems of a disequilibrium in the balance of payments and of a rapid increase in foreign exchange reserves, and implement the requirement of maintaining a basic equilibrium in the balance of paymentsas stipulated in implementation of the Scientific Outlook on Development of the 12th Five-Year Plan. 2011-07-28/en/2011/0728/1008.html
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Editor's Note: The FAQs on Foreign Exchange Administration Policies released by the State Administration of Foreign Exchange (SAFE) in July 2010 helped the general public learn about foreign exchange administration and received positive feedback. Recently, the media, experts, scholars, and the public have attached great importance to issues related to the foreign exchange reserves and offered many valuable opinions and suggestions, thereby giving us an important impetus to improve our work. In order to promote communication and interaction with people from all walks of life, we have compiled the FAQs on Foreign Exchange Reserves with respect to the recent hot topics. These FAQs will be published in three installments for your discussion and reference. 1. Recently, the SAFE issued a public statement that an appreciation of the RMB will not lead to any loss of foreign exchange reservesand explained this view from the perspective of book-value gains. Nevertheless, some people still believe that an RMB appreciation will gradually dissipate our wealthforeign exchange reservesjust like a cooked duck flying away.So, will an appreciation of the RMB really lead to actual losses of foreign exchange reserves and even social welfare? Answer: An appreciation of the RMB will not directly causes losses of Chinas foreign exchange reserves. Foreign exchange reserves are essentially assets in foreign exchange, which use the USD as the recording currency. Variations in the RMB/USD exchange rate will result in a change in the book value of the RMB that is converted from the foreign exchange reserves, which is not the actually realized gains or losses. The variations only mean some differences in the book value when using different reporting currencies, be it RMB or USD, and thus will not have a direct impact on the effective purchasing power of the foreign exchange reserves. Changes in foreign exchange will only occur when the foreign exchange reserves are repatriated from overseas countries (regions) and converted into RMB. At present, China has no need to repatriate its foreign exchange reserves on a large scale. We can give a counter example: if an RMB appreciation should lead to losses in Chinas foreign exchange reserves, then a depreciation of the RMB would bring about gains in our foreign exchange reserves. According to this logic, we could increase the returns on our foreign exchange reserves and even our social wealth by continually depreciating the RMB, which, in fact, is impossible. We should adopt a comprehensive and objective view of the impact of an increase in foreign exchange reserves from the overall situation in Chinas development and reform. By the end of June 2011, Chinas foreign exchange reserves reached USD3.197491 trillion. Such increase in foreign exchange reserves is of great significance to improve Chinas external payment ability, promote its reform and opening-up, and raise its international status. However, the excessively rapid increase and large scale of the foreign exchange reserves pose certain challenges to their operation and management. Therefore, it is imperative that we accelerate the transformation of the economic development mode, follow the concept of expanding domestic demand, adjusting the structure, reducing surpluses, and promoting a balance,expedite the reform of the RMB exchange-rate formation mechanism, give full play to the fundamental role of the market in the allocation of resources, and promote the balance of payments so as to achieve a basic equilibrium. 2. According to a report by the U.S. Department of the Treasury, China is the largest holder of U.S. Treasury bonds. Lately, credit rating agencies, including Standard & Poors, Moodys, and Fitch, have repeatedly issued warnings about the U.S. debt problem. In the case of a USD depreciation and a future rise in inflation in the U.S., is it a growing risk to hold such a large sum of U.S. Treasury bonds? Will this sum be reduced in the future? Answer: U.S. Treasury bonds are both a reflection of the credibility of the U.S. government and a critical variety of investment for U.S. and international institutional investors. To buy U.S. Treasury bonds with foreign exchange reserves is market investment behavior, and it will be dynamically adjusted according to market conditions. Any increase or decrease in the holding of U.S. Treasury bonds is a normal investment operation. We have noted the latest views expressed by Standard & Poors and other rating companies regarding the credit rating of the U.S. sovereign debt, and we expect that the U.S. government will take responsible policy measures to boost the confidence of the international financial market and respect and guarantee the interests of its investors. 3. Recently, the prices of gold, petroleum, and other major international commodities have risen dramatically. Why do we not invest our foreign exchange reserves more in these commodities and in energy resources? Answer: Gold, silver, and other precious metals, as well as major international commodities like petroleum and iron ore, often experience great fluctuations in price, their market capacity is relatively limited, and their transaction, collection, and storage costs are high. Investment in these commodities is already included in the investment portfolio of our foreign exchange reserves; furthermore, there are special domestic institutions engaged in the collection and storage of major commodities and other related work, which serve as a supplement to the investment of our foreign exchange reserves so as to jointly safeguard Chinas overall interests. In addition, gold, petroleum, and so forth are consumed in huge quantities by residents and enterprises in China, so any large-scale investment of our foreign exchange reserves in such items will possibly raise their market prices, and in turn will hinder Chinas household consumption and economic development. 4. Some people believe that the scale of Chinas foreign exchange reserves is so large that we should not only pay attention to their security but also make efforts to increase the gains from our foreign exchange. What measures have been taken in this regard? Answer: Financial investment is a major part of the investment of our foreign exchange reserves. Because modern financial markets are highly efficient, more returns are usually accompanied by greater risks. During the current global financial crisis, a great number of financial institutions went bankrupt or were acquired, some of which in the past had been leaders in the industry with splendid achievements. However, due to their failure to maintain a balance between risks and returns, they could hardly carry on under the deteriorating market conditions, thereby providing us with a good lesson. The management of our foreign exchange reserves must emphasize scientific operations and sustainable development. The nature of Chinas foreign exchange reserves requires that their operation and management adhere to the principles of security, liquidity, and increases in value, among which security is the primary principle. In addition, the foreign exchange reserves should maintain sufficient liquidity to satisfy the general demand for external payments, and also to play an effective role in safeguarding the stability and security of the national economy and finance. Under the precondition of guaranteeing overall security and liquidity, the operation of our foreign exchange reserves shall strive for higher investment returns in an effort to help attain the goal of maintaining and increasing their value. 5. In the face of holding such a large scale of foreign exchange reserves, what can we do to better promote a diversification of our foreign exchange assets? Answer: Diversification is one of the main operating principles of our foreign exchange reserves. In order to better promote our diversification strategy, we should avoid several misunderstandings. First, a superficial diversification of investment products -- different investment products may possess very similar risk factors, so it will not be spreading risks if we allocate funds to these sorts of investment products. Second, a superficial diversification of investment industries and regions -- without considering the interconnections among industries and the degree of integration among regions, investments will not necessarily achieve the expected goal of diversification. Third, deciding the timing to implement diversification according to the short-term performance of the market and public opinion -- effective diversification is a way to allocate assets strategically, which requires prospective planning and implementation. Diversification based on the short-term performance of the market and public opinion is often irrational and unprofessional, and can easily degenerate into opportunistic practices. 2011-07-20/en/2011/0720/1005.html
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To maintain the economic and financial security of the state and to crack down strongly on cross-border flows of illegal and irregular funds, such as "hot money", the State Administration of Foreign Exchange (hereinafter referred to as the "SAFE") revealed two groups of cases involving some enterprises and individuals that had illegally conducted foreign exchange transactions and were subjected to penalties on November 1, 2010 and December 10, 2010 respectively. Now, a third group of such cases, based on the progress of the relevant inspections, is announced as follows: I. From January to March 2010, a total of 21 customs declarations of Guangzhou Couger Metal Material Ltd. failed to go through the registration procedures for the withdrawal of deferred foreign exchange payments for imports as per the relevant provisions, with the illegal amount amounting to USD1.2927 million. The above behavior was deemed to be in violation of the relevant provisions for the registration of external debt, and the SAFE thereby rendered a decision to impose a fine as an administrative penalty upon the said company pursuant to the Regulations of the People's Republic of China on Foreign Exchange Administration (hereinafter referred to as the "Regulations"). II. From January 2009 to June 2010, Shenzhen Mission Hills Golf Club Co., Ltd. directly collected a total of HKD21.3265 million in cash paid by customers for consumption, and then settled HKD16.0375 million in RMB in the name of company's staff. RMB13.9479 million was deposited into the account of the company. The above behavior was deemed to be in violation of the relevant provisions on the administration of collections and payments of foreign currency by domestic institutions and in violation of the legal handling of foreign exchange settlements. Hence, the SAFE rendered a decision to impose a fine as an administrative penalty upon the said company pursuant to the Regulations. III. From May to July 2009, Power-One Co., Ltd. in Shenzhen city, claiming business travel expenses, collected payment for sale of goods with an actual amount higher than the figure on the customs declarations form through four transactions totaling USD2.98 million. The above behavior with respect to the inward remittances of foreign exchange was in violation of the relevant provisions, and the SAFE thereby rendered a decision to impose a fine as an administrative penalty upon the said company pursuant to the Regulations. IV. During the period from April to November 2009, a person surnamed Zhang, a local citizen in Zhejiang province, in the name of 14 company employees, collected and settled USD799,800 from Hong Kong, and the settled RMB was transferred to Zhang's personal account. The above behavior constituted a split settlement of foreign exchange and was deemed to be in violation of the relevant provisions on the administration of personal foreign exchange. The SAFE thereby rendered a decision to impose a fine on Zhang as an administrative penalty pursuant to the Regulations. V. From November to December 2009, Lingguo Ecological Agriculture Co., Ltd. in Rugao city, Jiangsu province, by virtue of the equipment purchase contract signed with Haoli Trading Co., Ltd. in Qidong city, Jiangsu province, settled USD4.1 million of foreign exchange. However, it failed to utilize the settled RMB in the way for which it was applied, but it instead transferred the settled RMB14.9894 million to Haoli Trading Co., Ltd. under the current account. The above behavior constituted a change of purpose for settled foreign exchange and was deemed to be in violation of the relevant provisions on the administration of foreign exchange settlement. The SAFE thereby rendered a decision to impose a fine upon the said company an administrative penalty pursuant to the Regulations. VI. From June to September 2008, Jiangbo Century (Laiyang) Biotechnology Co., Ltd. in Shandong province settled USD27.7 million of foreign exchange for foreign investments through 3 transactions to pay for land purchases. In fact, the company did not acquire the corresponding land-use rights, and the settled capital of RMB185 million was transferred to Jiangbo Medicine Group in Yantai city and to Shandong Hilead Biotechnology Co., Ltd. for use through various channels. The above behavior was deemed to be in violation of the relevant provisions on the administration of settlement of foreign exchange, and the SAFE thereby rendered a decision to impose a fine upon the said company as an administrative penalty pursuant to the Regulations. VII. On June 30, 2008, after settling AUD3 million of foreign exchange from foreign investors, Aocheng Investment Consultant Co., Ltd. in Yantai city, Shandong province, on the next day transferred the settled capital of RMB19.7916 million to Baocheng Real Estate Co., Ltd. in Yantai city for an investment fund, which exceeded the normal production and business scope of the company. The above behavior was deemed to be in violation of the relevant provisions on the administration of foreign exchange settlement, and the SAFE thereby rendered a decision to impose a fine upon the said company as an administrative penalty pursuant to the Regulations. VIII. On March 4, 2009, Xinjiang Yumei Energy Co., Ltd. applied to settle HKD79.527 to pay for the transfer of initial mining rights to New Century Mining Co., Ltd., and on the same day it made such payment to the latter. Yet on the same day both parties suspended acquisition of the mining rights and abolished the Contract for the Transfer of Mining Rights and the Contract to Mortgage Assets. On March 5, 2009, New Century Mining Co., Ltd. transferred RMB70 million of the settled foreign exchange to the corporate account of Xinjiang Yumei Energy Co., Ltd. The latter then used the capital as entrusted loans to Chongqing Xuchuan Trading Co., Ltd. The above behavior was deemed to be in violation of the relevant provisions on the administration of foreign exchange settlement, and the SAFE thereby rendered a decision to impose a fine upon the said company as an administrative penalty pursuant to the Regulations. IX. On December 27, 2007, Jianghe Water Affairs Co., Ltd. in Jiangxi province, based on an invalid contract for the transfer of state-owned land-use rights, settled USD5 million of foreign exchange from foreign investors. On the same day, the settled RMB36.5268 thereof was transferred back to the company through Fairy Lake New City Development Co., Ltd. in Xinyu city. From June 2008 to April 2009, the settled capital of RMB24 million was transferred by Jianghe Water Affairs Co., Ltd. to securities companies and then ended up on the stock market. The above behavior was deemed to be in violation of the relevant provisions on the administration of foreign exchange settlement, and the SAFE thereby rendered a decision to impose a fine upon the said company as an administrative penalty pursuant to the Regulations. X. During the period from January 2009 to February 2010, Feidike Beauty Equipment (Shanghai) Co., Ltd. in Shanghai, when exporting beauty equipment, neither applied for the verification and writing off forms for export proceeds in foreign exchange, nor underwent the customs declaration procedures, but rather exported the goods directly by an air express company. Upon collection of the foreign exchange, the company combined the export proceeds with nontrade revenue, such as R&D expenses and product freight, failed to distinguish the nature of the fund for each foreign exchange receipt, and falsely declared it as "freight", "consulting services fees", or "trade payments". The company collected a total USD7.9053 million through 22 transactions, which were declared as revenue from services trade, but as a matter of fact constituted revenue from the selling of goods. The above behavior was deemed to be in violation of the relevant provisions on the administration of the verification and writing-off of foreign exchange collections from exports as well as of the declaration of balance of payments statistics. The SAFE thereby rendered a decision to impose a fine upon the said company as an administrative penalty pursuant to the Regulations. All market entities shall conscientiously remain aware of their social responsibilities, and operate in a prudent and scientific manner and in strict compliance with the policies on foreign exchange administration. The penalized enterprises and individuals shall regard the penalties as warnings and henceforth always bear in mind the concept of legitimate operations. All other enterprises and individuals shall also draw lessons from the above-mentioned cases to strengthen their self-discipline and to operate their businesses in strict accordance with the law. The SAFE shall vigorously facilitate trade and investment and enhance a service-oriented awareness so as to meet the reasonable foreign exchange demands of enterprises and individuals. Furthermore, strengthened efforts shall be made to supervise and inspect the foreign exchange business of market entities with respect to compliance with the regulations and to crack down on the flow of "hot money", thus safeguarding the foreign-related economic and financial security of the state. 2011-07-11/en/2011/0711/1004.html