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For the purpose of further improving RMB exchange rate mechanism, the People’s Bank of China recently released the Circular of the People’s Bank of China on Relevant Matters Concerning the Management of Exchange Rates for Transactions in Interbank Foreign Exchange Markets and the Listed Exchange Rate of Banks (Yinfa [2014] No. 188, hereinafter referred to as “the Circular”). The major contents of the Circular include: Firstly, the management of the banks over the spread of the listed USD trading of clients is cancelled, and the banks can make independent pricing based on market supply and demand so as to promote the independent pricing of foreign exchange market; Secondly, based on the new development of management of central parity formation approach of RMB against certain currencies and the floating band of transaction price since 2011, transparency of policies have been further improved. The Circular shall take effect as of the date of promulgation.(End.) 2014-07-03/en/2014/0703/1115.html
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Special Topic IV I. China has made active progress in terms of strengthening and improving supervision of cross-border capital flows In recent years, the foreign exchange authorities has been adhering to the risk limits and have continuously strengthened and improved supervision of cross-border capital flows. While adhering to balanced management, the foreign exchange authorities focused on guarding against hot money inflows, made it a priority to slow down the rapid increase in the surplus of foreign exchange settlement and sales by banks and foreign exchange reserves, combined thinning and blocking measures, focused on priorities, simultaneously took numerous measures, and carried out comprehensive policies in order to guard against the impact of cross-border capital flows. This mainly included the following: First, studying, formulating, and timely applying the pre-arranged policies to cope with large-scale cross-border capital inflows. In 2008, the Regulations on Foreign Exchange Administration were revised and implemented, providing legal basis for strengthening supervision of cross-border capital flows. In 2009 and 2010, the pre-arranged policies for coping with unusual outflows and inflows of cross-border capital respectively were formulated. In November 2010 and March 2011, the foreign exchange authorities applied the pre-arranged policies for coping with unusual inflows of cross-border capital, strengthened administration of the foreign exchange business of the banks’ foreign exchange settlement and sales positions, foreign exchange collections and settlement for export, and short-term external debt, and in 2011 further adjusted downward the total scale of the short-term external debt quotas of domestic financial institutions. Second, giving play to foreign exchange inspection methods to rigorously crack down on the arbitrage capital such as hot money. In recent years, the foreign exchange authorities have improved foreign exchange inspection methods and the accuracy and effectiveness of cracking down on hot money. In accordance with the idea of seizing the big and freeing the small, the special inspections on foreign exchange settlement of capital and short-term external debt carried out by the foreign exchange authorities focused on financial institutions and large enterprises. The foreign exchange authorities increased their efforts to circulate information on the irregular activities of market players and as well as information on punishments for irregular activities by some banks, enterprises, and individuals. From 2007 to 2011, the foreign exchange authorities investigated a total of 15,000 cases involved in activities in violation of the foreign exchange laws and regulations and imposed a total of RMB 1.27 billion in administrative fines. In particular, the foreign exchange authorities cooperated with the public security bodies to crack down on a total of 210 cases involving illegal banks, the illegal sale and purchase of foreign exchange, and on-line foreign exchange speculation. Involving an amount in excess of RMB 100 billion, more than 1,000 suspects were apprehended and a total of RMB 160 million in administrative fines was imposed. Third, adhering to the combining of thinning and blocking measures to guide the orderly flow of cross-border capital. While guarding against the inflow of hot money, the foreign exchange authorities continuously simplified and finally cancelled the compulsory foreign exchange settlement and sales system and encouraged foreign exchange purchases and payments with authentic demands for trade and investment. In 2010, the reform of the verification and writing-off system of foreign exchange payments for imports was carried out, making it unnecessary for most of the complying enterprises to handle on-site verification and writing-off procedures for their normal business of foreign exchange payments for imports, significantly reducing the operating costs for the banks and enterprises; a pilot program for overseas deposits of export revenue was launched to encourage enterprises to deposit export revenue overseas and to meet the normal demands of market players to hold and utilize foreign exchange. In 2011, the policy on overseas deposits of export revenue was generalized nationwide, and a pilot reform of the verification and writing-off system for imports and exports was launched. The foreign exchange authorities supported the “Going Out” strategy, lifted limits on the amount of foreign exchange purchased for overseas investments, and allowed outward remittances for early stage expenses for overseas investments. Fourth, improving the capability to analyze and supervise cross-border capital flows in domestic and foreign currency. The foreign exchange authorities strengthened statistics, monitoring, and early warning on the balance of payments, carried out statistics and monitoring of cross-border capital flows in domestic and foreign currency, established a comprehensive statistical system for the banks’ trade financing, and established and improved the monitoring and early warning system for the balance of payments. The foreign exchange authorities improved transparency by providing a comprehensive overview of the cross-border capital flow situation, circulated information on punishments for irregular activities in the handling of foreign exchange business by some banks, enterprises, and individuals, further deterred activities in violation of the laws and regulations, and correctly guided expectations. The foreign exchange authorities gave play to cross-departmental synergies, strengthened information sharing and policy coordination, and created a synergy to suppress the inflow of hot money. In general, the adjustment of the foreign exchange administration policy focusing on reducing the surplus played an active role in guarding against the impact of cross-border capital flows and safeguarding the economic and financial security of the country. From the second half of 2011, in particular the fourth quarter, the foreign exchange situation in China exhibited a noteworthy change, and the RMB exchange rate approached an equilibrium level. Due to early insight, the foreign exchange authorities required the banks to increase foreign exchange positions in advance, which not only relieved the pressures on the central bank to purchase foreign exchange for that period and reduced the currency mismatch risks for banks, but also made the process go smoothly such since the fourth quarter of 2011 the banks have proactively increased their positions and have avoided any significant market fluctuations that might have occurred. II. The new situation and the new stage raised the requirements for supervision of cross-border capital flows in domestic and foreign currency In accordance with increasing the level of opening to the outside and facilitating trade and investment, the pilot cross-border RMB trade settlement has continuously expanded and we have already reached a high level of economic opening. Comprehensively affected by such factors as changes in the economic situation both at home and abroad, the transformation of the pattern of economic development in China, and the fact that macro-control policies are gradually in place, China’s cross-border capital flows in domestic and foreign currency displayed new characteristics, raising the requirements for cross-border capital management during the next stage. (1) The balance of payments approaching a basic equilibrium means that balanced management of cross-border capital flows needs to be strengthened. The proportion of the current account surplus to GDP is an important indicator measuring external imbalances. Since the international financial crisis, the situation of China ’s current account surplus has been improving. According to preliminary estimates, in 2011 the proportion of the current account surplus to GDP will be further reduced to around 3 percent, a decrease of 7 percent since its historic high in 2007. The rapid momentum in the increase of China’s foreign exchange reserves has slowed down. At the end of 2011, China ’s foreign exchange reserves totaled about USD 3.2 trillion, an increase of USD 330 billion compared with the end of the previous year, with the increment decreasing by USD 110 billion compared with the same period of the last year. In general, the balance of payments approaching a basic equilibrium is a type of active change that is consistent with the macro-control direction. However, facing the present complicated and volatile economic and financial environments both at home and abroad, there are still uncertainties in the cross-border capital flow situation. This will require that the foreign exchange authorities accelerate the transformation of the concepts and methods of supervising cross-border capital flows in accordance with the requirements for balanced management, control the two gates for inflows and outflows of cross-border capital, comprehensively apply the economic, legal, and necessary administrative means to continuously improve supervision of cross-border capital flows, guard against massive cross-border capital flows, and safeguard the economic and financial security of China. (2) The increase in the level of financial opening-up in China means that the transformation of the supervisory mode for cross-border capital flows needs to be accelerated. Currently, China is a major economy with a high level of opening-up. In 2009, affected by the spread of the international financial crisis, the total scale of the balance of payments dropped to USD 4 trillion, and the scale of such major trade items as trade in goods and direct investments dropped. In 2010, China ’s foreign economic activities recovered to the same level as that before the financial crisis, the total scale of the balance of payments of the year reached USD 5.6 trillion, again a record high. As China ’s foreign economic exchange expands and foreign-related trade and investment become increasingly active, various economic entities will raise their requirements for relaxing the restrictions on cross-border capital flows, making full use of domestic and international markets and resources. In order to adapt to the development of the new situation, while facilitating trade and investment and steadily promoting convertibility under the capital account, the foreign exchange authorities need to accelerate the transformation of the foreign exchange administration mode by integrating the data and system resources and strengthening the monitoring of cross-border capital flows on the basis of the individual economic entities, to formulate pre-arranged policies for coping with the risks of bidirectional flows of cross-border capital; by utilizing the tools for pre-adjustments and fine adjustments, to reduce the pressures of massive cross-border capital flows; while not leaving any supervisory blind spots, to carry out classified management and to improve the effectiveness of the supervision of cross-border capital flows. (3) The expanding scale of RMB cross-border capital flows means that the capability to carry out fully covered monitoring and analysis of the cross-border capital flows in domestic and foreign currency needs to be further improved. In recent years, the confidence of the international market and the demands for RMB have been increasing, resulting in the scale of cross-border RMB capital flows promptly expanding. In 2011, the amount of RMB cross-border settlements exceeded RMB 2 trillion, a fourfold increase compared with the same period of the last year, and the proportion of RMB cross-border trade in cross-border capital flows increased notably. In light of this new situation, the foreign exchange authorities need to keep in mind the long-term interests, improve the system and mechanism for the supervision of cross-border capital flows in domestic and foreign currency, strengthen the monitoring, analysis, and early warning of cross-border RMB capital flows, strengthen information communication and supervisory cooperation between the regulatory departments, and create a new synergy. III. The main ideas of the supervisory framework for cross-border capital flows in domestic and foreign currency during the next stage The establishment and improvement of the supervisory framework for cross-border capital flows in domestic and foreign currency is a long-term process. For the next period, the foreign exchange authorities should focus on grasping well the following important aspects: First, strengthening analysis of the situation and improving the capability for scientific judgments. The foreign exchange authorities should keep a sharp eye on and closely follow changes in the situation in cross-border capital flows of domestic and foreign currency, place high priority on certain emerging and tendentious problems, deeply study the channels and transmission mechanisms that affect cross-border receipts and payments, search for the core indicators that are highly related to the trends in the cross-border capital flows and establish good predictability and make the judgments on cross-border capital flows more scientific and more accurate. Second, strengthening policy reserves and formulating well pre-arranged policies for coping with the risks of bidirectional flows of cross-border capital. The foreign exchange authorities should adhere to balanced management of cross-border capital flows, improve and enrich the pre-arranged policies that guard against massive net inflows of cross-border capital, do a good job in terms of implementing reserves that guard against central outflows of cross-border capital, and make supervisory policies relevant and forward-looking. Third, adhering to balanced management and focusing on guarding against unusual cross-border capital flows. The foreign exchange authorities should implement the concept of balanced management on the basis of promoting the facilitation of trade and investment, actively explore new ideas, new tools, and new mechanisms for supervising cross-border capital flows, comprehensively apply the economic means, legal means, and necessary administrative means, and limit the space for speculation and arbitrage. Furthermore, the foreign exchange authorities should begin by straightening out the relations between foreign exchange supply and demand, accelerate the cultivation and development of the foreign exchange market, improve the market-making mechanism of market-makers, enhance the capability of the foreign exchange market in terms of self-regulation and self-balancing, and give full play to the fundamental role of market mechanisms for the reasonable allocation of foreign exchange resources. Fourth, optimizing the system and mechanisms, and improving the capability to cope with the impact of cross-border capital flows. The foreign exchange authorities should place high priority on the development of the system and mechanisms for supervision of the cross-border capital flows in domestic and foreign currency, and should strengthen supervisory cooperation. The foreign exchange authorities should establish a transmission mechanism for enterprises, banks, and individuals to improve policy effectiveness. The foreign exchange authorities should strengthen guidance of financial institutions, pay attention to giving full play to the role of the designated foreign exchange banks in the conduct of policy, and improve the capability to control the foreign exchange receipts and payments of economic entities. The foreign exchange authorities should make good use of the inspection methods, maintain tough measures against illegal and irregular funds, such as hot money, rigorously crack down on illegal and criminal activities in regulatory areas, such as underground banks, increase efforts to disclose information on illegal and irregular activities, and improve the deterrent effect against illegal and irregular cross-border capital flows. 2012-03-26/en/2012/0326/1040.html
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Special Topic III In recent years, the overall scale of China ’s foreign trade and overseas investment has been expanding. While strictly examining the authenticity of the trade and investment and firmly cracking down on irregular cross-border capital flows, the foreign exchange authorities continuously improved the management methods and simplified the formalities and procedures for handling foreign exchange business, making them the starting point and the goal of the work to actively promote the facilitation of trade and investment and striving to create a comfortable and convenient environment for the utilization of foreign exchange by enterprises and individuals. I. Transforming the methods, improving efficiency, and effectively meeting the demands for foreign exchange under the current account Actively promoting the reform of the foreign exchange administration system for trade in goods. In May 2010, the foreign exchange authorities implemented the reform of the verification and writing-off system of foreign exchange payments for imports through such methods as the “Pilot before Promotion”; in December 2011, on the basis of a summary of the experience in the verification and writing-off reform, the foreign exchange authorities carried out a pilot reform on the integration of the verification and writing-off system for imports and exports in 7 provinces (cities), such as Jiangsu and Shandong, established a new management mode for trade in goods with such characteristics as aggregate screening, dynamic monitoring, and classified management, simplified the document examination requirements for foreign exchange payments for imports, cancelled the procedures for the verification and writing-off of foreign exchange collections from exports and the online inspections of foreign exchange collections and settlements from exports, and reduced the number of administrative licensing items under trade in goods from six to two. After the reform, the receipts and payments of foreign exchange for imports and exports of enterprises that operate according to the law are not required to handle the procedures for the online inspections and the verification and writing-off on a case-by-case basis, and these can be directly handled by the banks upon the strength of the commercial documents. The operating costs for the enterprises and banks were significantly reduced. Supervision by the foreign exchange authorities is focused on the few enterprises with suspicious and irregular activities, which significantly improves the level and efficiency of supervision. This is widely welcomed and supported by the local governments and the various circles in society. Permitting overseas deposits of export revenue, and actively supporting enterprises to “Go Out.” The policy of overseas deposits of export revenue was implemented for trial in four provinces (cities) such as Beijing and Guangdong from October 1, 2010. On January 1, 2011, the policy was expanded nationwide. At present, qualified enterprises may, after handling certain procedures, deposit export revenue overseas on the basis of their operating needs, for payment of import costs, for certain expenditures under trade in services, and for approved expenditures under the capital account. Implementation of this policy facilitated cross-border capital operations of Chinese enterprises, improved the efficiency of capital utilization, and played an active role in supporting the enterprises to “Go Out.” Facilitating receipts and payments under trade in services, and actively supporting economic structural adjustments. The foreign exchange authorities actively implemented the strategic policy of the State to transform the economic growth mode and to accelerate the development of the services industry, promoted the facilitation of foreign exchange receipts and payments under trade in services, and provided enterprises engaging in industries such as services outsourcing or tourism with policy benefits in such areas as the opening of foreign exchange accounts and fund exchanges. The foreign exchange authorities further improved management of external payments of foreign exchange, defined the scope of transactions for which tax certificates are not required to be submitted, unified the tax certificate form, and facilitated the handling of the procedures for external payments of foreign exchange by enterprises and banks. The foreign exchange authorities accelerated promotion of the reform of the management methods for trade in service. Cancelling the quota management and improving the independence and enhancing the autonomy and convenience in the use of foreign exchange. In 2007, the foreign exchange authorities cancelled the quota management on foreign exchange accounts under the current account of enterprises so that they may reserve foreign exchange revenue under the current account on the basis of their operating needs. This further improved the autonomy and convenience for enterprise in holding and utilizing foreign exchange and helped the enterprises strengthen fund management and improve capital utilization efficiency. II. Proceeding steadily and step by step, making orderly progress, and effectively supporting cross-border investments and financing activities. Simplifying foreign exchange administration procedures for foreign direct investment, and utilizing scientific and technological means to improve the level of service. The foreign exchange authorities simplified the foreign exchange settlement procedures for foreign exchange capital of foreign-invested micro-credit companies and effectively supported the development of small and micro enterprises and the rural economy. The foreign exchange authorities carried out pilots in some regions and permitted foreign-invested enterprises that conform to the industrial incentive policy to independently make arrangements for foreign exchange settlement of foreign exchange capital. The management mode of capital withdrawal for foreign direct investment was changed from an examination and approval system to a registration system. An information system for the administration of foreign exchange with respect to direct investments was developed to facilitate the handling of the relevant business by enterprises through the Internet. A mode of centralized management and operation of foreign exchange funds was established and improved to facilitate improvements in the efficiency of capital utilization by enterprises, to reduce financing costs, and to accelerate the process for China’s financial service industry to reach international standards. Energetically carrying out the reform of foreign exchange administration for overseas investments, and strengthening the support system for financing by overseas investment enterprises. While facilitating the practice of “Inviting In,” the foreign exchange authorities further deepened the “Going Out” development strategy. In 2009, a simple and clear system to manage registration of foreign exchange overseas investments was established. The foreign exchange authorities permitted qualified domestic enterprises to grant overseas loans within a certain quota, simplified the management procedures for external guarantees, relaxed the qualifications and conditions of debtors, cancelled the approval procedures for the performance of external guarantees by banks, supported domestic institutions to carry out overseas direct investments in RMB, and facilitated the subsequent financing of overseas enterprises. Improving external debt policy and supporting the development of the real economy. While implementing moderately tight control over short-term external debt, the foreign exchange authorities continued to support import trade financing of banks and allowed usance letters of credit with a term of 90 days and below and import advance bills by overseas institutions with a term of 90 days and below not to be included in the short-term external debt quotas. The foreign exchange authorities optimized the quota distribution structure for banking financial institutions, appropriately distributed more quotas to small and medium joint-stock banks and local banks whose trade financing business had developed rapidly in recent years, improved the efficiency of quota utilization, and helped solve the “financing difficulty” problems of enterprises. The foreign exchange authorities formulated measures to facilitate Chinese-funded enterprises to borrow short-term external debt, domestic loans with overseas guarantees, and RMB loans with foreign exchange as pledges, gradually narrowed the difference between the financing policy for Chinese-funded enterprises and that for foreign-funded enterprises, and actively supported the financing demands of Chinese-funded enterprises. III. Relying on technology, improving methods, and continuously optimizing foreign exchange information services The foreign exchange authorities comprehensively integrated the information system and data in terms of foreign exchange administration, for example, by cooperating with the reform of the foreign exchange administration system for trade in goods, developing and applying the Foreign Exchange Monitoring System for Trade in Goods, and integrating the original nine operating systems for foreign exchange management business for trade into one system. Furthermore, the foreign exchange authorities changed the situation whereby different foreign exchange business systems dealt with the enterprises and the banks separately, established three major application portals that deal with the foreign exchange authorities, the banks, and the enterprises, realized conditions whereby “accessing the network through one portal, only one login and authentication was required, and one-stop services,” and significantly facilitated the operations of enterprises and banks. The foreign exchange authorities fully developed and made use of the Internet to improve the transparency of management information, which not only improved the efficiency of foreign exchange business for banks and enterprises, but also was beneficial for foreign exchange-related subjects such enterprises and banks to strengthen internal management. The foreign exchange authorities energetically promoted comprehensive information sharing with the customs and tax authorities, and established a joint supervision and service mechanism, which provided an effective means for strengthening the monitoring and analysis of cross-border capital flows and for improving the capability to precisely crack down on unusual transactions. While continuously promoting the facilitation of trade and investment, the foreign exchange authorities actively created a comfortable and convenient environment for the utilization of foreign exchange by individuals. From 2007, a management method based on an annual quota has been implemented for foreign exchange settlement and purchases by domestic individual residents; foreign exchange settlement and purchases by domestic individual residents within USD 50,000 could be directly handled by the banks upon the strength of their identity certificates, significantly simplifying the procedures for foreign exchange settlement and purchases by individuals. Meanwhile, qualified banks are permitted to carry out individual foreign exchange settlement and sales business through E-banks, thereby enriching the channels for individuals to handle their foreign exchange settlement and sales business. In 2012, the foreign exchange authorities will deeply implement the spirit of the Central Economic Work Conference and the National Financial Work Conference, grasp well the general focus of the work for “Steady Development,” energetically promote the facilitation of trade and investment, and actively improve the level of foreign exchange administration to serve economic development premised on controllable risks. The foreign exchange authorities will choose opportunities to expand nationwide the reform of the foreign exchange administration system for trade in goods; promote the foreign exchange administration reform for trade in services and insurance institutions; rely on technological means, continue to streamline administration, institute decentralization, and optimize procedures under foreign direct investment; gradually integrate and optimize the procedures for handling of the foreign exchange management business for capital accounts, such as investments and external debt; and establish and improve the platform for the monitoring and analysis of cross-border capital flows, while also improving the efficiency of supervision of cross-border capital flows and facilitating trade and investment activities. 2012-03-26/en/2012/0326/1039.html
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Special Topic II In recent years the foreign exchange authorities have firmly implemented the requirement put forward at the 17th National Party Congress to “institutionally give better play to the fundamental role of the market in resource allocation” and have accelerated the construction and development of China’s foreign exchange market; consequently, there have been increasing varieties of trade in the foreign exchange market , the group of trade participants has expanded continuously, the trading mechanism has improved, and the foundation and capability of the foreign exchange market to serve the real economy and allocate financial resources have been further improved. Increasing the varieties of trade to meet the diversified demands of market players to hedge against exchange-rate risks. Currency swap transactions were introduced to the inter-bank foreign exchange market and the bank-to-client market in August 2007 and March 2011, respectively, and foreign exchange options trading was introduced to the inter-bank foreign exchange market and the bank-to-client market in April 2011. By that time, China ’s foreign exchange market system already covered the basic products in the international foreign exchange market. Furthermore, in order to reduce currency conversion costs for cross-border trade and investment and to enhance the banks’ risk management capabilities, since 2010 trading of the RMB against the Malaysian Ringgit, Russian Ruble, Australian Dollar, and Canadian Dollar has been gradually introduced and there are now nine tradable currencies from the developed economies and the new emerging market economies. Expanding market entities and building a multi-tiered market structure. While the group of bank market players continuously expanded, qualified non-bank financial institutions and non-financial enterprises were permitted to participate in trade in the inter-bank foreign exchange market to increase the diversity of foreign exchange supply and demand. At present, there are twenty-six finance companies of enterprise groups participating in inter-bank spot trade, and Shanghai Automotive Group Finance Co., Ltd. is the first company to carry out inter-bank forward trade. This plays an active role in supporting the enterprises to “Go Out” and reduces foreign exchange conversion costs. Perfecting market operational mechanisms and increasing the autonomy and flexibility of transactions. In order to give full play to the important role of the market in the selection of market makers and to adapt to the new situation whereby trade product categories on the inter-bank foreign exchange market are increasing and commercial banks’ market positioning is becoming more segmented, the market-maker system was further improved in August 2010; a trial market-maker business was introduced to the inter-bank foreign exchange market, and the access threshold for non-market-makers to engage in market-making competition was lowered. According to the Circular, a system for the grading of market-makers was established, and the liquidity and trading efficiency of derivative markets, including the forward-swap market, was improved. The appraisal mechanism for selecting superior market-makers and eliminating inferior market-makers has been perfected and the initiative of market-makers in participating in market-making has been enhanced. In accordance with voluntary and merit-based principles, as of the end of 2011, 26 spot market-makers and 20 forward swap market-makers had been approved, 8 commercial banks had been approved as spot market-makers, and 10 commercial banks had been approved as forward swap market-makers. As the foreign exchange market developed, in order to further improve its liquidity and trading efficiency, in October 2008 currency brokerage companies were regulated and encouraged to carry out foreign exchange brokerage business in the inter-bank foreign exchange market to save the market participants’ time spent on inquiries, to facilitate anonymous quotes and to introduce new trading means, and to form a favorable supplementary and interactive mechanism among market participants, the China Foreign Exchange Trading System, and the currency brokerage companies. As of the end of 2011, Shanghai CFETS-ICAP International Money Broking Co., Ltd., Tullett Prebon SITICO ( China ) Ltd., and Ping An Tradition International Money Broking Company Ltd provided brokerage services for RMB-against-foreign exchange derivatives trade. Improving market infrastructure and guaranteeing sound development of the foreign exchange market. First, improving the foreign exchange trading system. In accordance with the objective needs for the development of China’s foreign exchange market, and on the basis of the utilization of advanced international experience, in 2007 the foreign exchange authorities provided the China Foreign Exchange Trading System with guidance on research and development and on online operations of a new generation of the foreign exchange trading system which reached then advanced level of mainstream international trading platforms. Second, improving capability to guard against risks. The foreign exchange authorities conformed to the needs for the development of the RMB-against-foreign exchange derivatives market, and in August 2007 promulgated China’s Master Agreement on RMB-against-Foreign Exchange OTC Derivatives, the first in China to put forward innovations such as the single agreement principle, netting settlement, and bilateral agreements, effectively reduced the credit risk of derivatives trading, provided trade participants with an effective guarantee on their market activities to guard against exchange-rate risks, and laid a foundation for the development and promulgation of the China Inter-bank Market Financial Derivative Transactions Master Agreement. Third, improving the foreign exchange trading settlement system. In order to adapt to the demands of the foreign exchange market for a more efficient and safer settlement arrangement, in June 2009 net settlement business was introduced to spot inquiry trade in the inter-bank foreign exchange market, and the domestic foreign exchange market began to implement a central counter-party system that is based on multilateral net settlement, which is beneficial to reduce credit risks and settlement risks of foreign exchange trade, to improve the capability to guard against systematic risks, and to promote the long-term development of the foreign exchange market, in particular, the derivatives market. Fourth, cultivating an honest and energetic environment for the development of the foreign exchange market. Since 2008, the foreign exchange authorities have been providing the China Foreign Exchange Trading System with guidance on selecting excellent market-makers in the inter-bank foreign exchange market, focusing on guiding the market-makers to improve their market-making services and cultivating an honest and energetic market environment. As of the end of 2011, 319 designated foreign exchange banks provide enterprises and individuals with domestic and foreign currency exchange business and 318 financial institutions participate in trade in the inter-bank foreign exchange market. From 2007 to 2011, the volume of trade on China’s foreign exchange market increased annually 40.3 percent, reaching USD 14.2 trillion (with the volume of daily trading at USD 58.1 billion), a fourfold increase from 2006. In 2012, the foreign exchange authorities will deeply implement the spirit of the Central Economic Work Conference and the National Financial Work Conference, grasp well the general emphasis on the work of “Steady Development,” continue to steadily promote the construction and development of the domestic foreign exchange market, and promote the steady and rapid development of the economy. 2012-03-26/en/2012/0326/1038.html
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In order to support foreign trade and to boost growth, the SAFE, the General Administration of Customs, and the State Administration of Taxation since August 1, 2012 have implemented a reform of the foreign exchange administration system for trade in goods throughout the country. Preliminary results were achieved within one month of implementation. In the early 1990s, China implemented an administration system whereby the flows of imported and exported goods and the flows of capital matched each other on a case-by-case basis and an on-site verification and writing-off system was applied. For a long period, this system was consistent with China ’s macro-economic and foreign trade situations, and it played an active role in supervising and encouraging enterprises to collect the full amount of foreign exchange in a timely manner, to guard against cheating on tax rebates from exports, and to crack down on foreign exchange evasion. However, as the scale of China’s foreign trade rapidly increased, it was difficult to adapt this administrative method of verification and writing-off on a case-by-case basis for the receipts and payments of foreign exchange from imports and exports to the current trade mode requirements and to the participant diversification. Therefore, in order to introduce a reform of the verification and writing-off system of foreign exchange payments for imports, as of August 1, 2012 the SAFE implemented a reform of the foreign exchange administration system for trade in goods throughout the country. The main content of the reform includes: First, simplifying the business handling formalities and procedures for foreign exchange receipts and payments for trade in imports and exports. The foreign exchange authorities cancelled the verification and writing-off system for receipts and payments of foreign exchange from imports and exports, with enterprises no longer required to handle the verification and writing-off procedures on a case-by-case basis with the foreign exchange authorities; cancelled the Online Inspection of Foreign Exchange Collections and Settlements from Exports, with the foreign exchange collections and settlements from exports of the complying enterprises no longer subject to limits; cancelled the ex-ante management of the ratio of trade credits, such as the advance receipts by and the deferred payments of foreign exchange by enterprises, and instead implemented ex-post dynamic monitoring; simplified the documents required for foreign exchange purchases and payments for imports, with the complying enterprises able to purchase foreign exchange in advance from the banks on the basis of their true and lawful needs for foreign exchange payments for imports, and able to handle the foreign exchange payment procedures with the banks upon the strength of the import customs declaration, contract, invoice, or any other document that proves the authenticity of the transactions. Second, adjusting the export custom declaration procedures, and simplifying the export rebate vouchers. Enterprises are no longer required to provide a verification form for the handling of the export custom declarations and for declaring export rebates. Third, improving regulatory means through aggregate verifications, dynamic monitoring, and classified management. The foreign exchange authorities carry out off-site aggregate comparisons between the flows of imported and exported goods and the enterprises’ flows of capital, conduct classified management and dynamic monitoring of the enterprises, and effectively guard against the risks of foreign exchange receipts and payments. Fourth, strengthening joint supervision by the authorities. The foreign exchange, customs, and tax authorities further strengthened cooperation, improving the coordination mechanism, realizing data sharing, creating synergy, and rigorously cracking down on irregular cross-border capital flows and activities in violation of the relevant laws, such as smuggling and tax fraud. In promoting the reform, the foreign exchange authorities actively transformed government functions, significantly reduced the administrative examination and approval items, with the number of administrative licensing items related to foreign exchange administration for trade in goods reduced from 19 to 4, and repealed 116 normative documents related to foreign exchange administration for trade. Furthermore, the foreign exchange authorities established and improved the operational rules and other standards and regulations, improved the internal control system, and enhanced administrative efficiency. Since the reform of the foreign exchange administration system for trade in goods was implemented one month ago, the positive effects of the reform in terms of facilitating trade activities and serving the real economy have already become apparent. This is embodied specifically in the significant improvement in the banks’ efficiency with respect to foreign exchange receipts and payments for trade, with the bank counters’ average processing time for foreign exchange collection and settlements reduced from 26 minutes per transaction to 9 minutes per transaction, and that for foreign exchange sales and payments reduced from 23 to 6 minutes. This is also embodied in the significant shortening of the time required for the enterprises’ receipts and payments of foreign exchange for foreign trade, and in the notable decrease in the “travel time cost” for the round-trip between the foreign exchange authorities and the banks, with the amount of human resources invested in trade receipts and payments reduced by one-third, the average cost of wages saved by each enterprise reaching RMB70,000, and that saved by each large-scale enterprise in the eastern developed regions even reaching RMB200,000, thereby reducing the enterprises’ operating costs for imports and exports and improving foreign trade competitiveness. While the reform promotes trade facilitation, it also strengthens the prevention and control of the risks of unusual cross-border capital flows. Since the reform, the complying enterprises, accounting for more than 95 percent of all enterprises, fully enjoy the benefits brought about by the policy on foreign exchange receipts and payments for trade in goods; the foreign exchange authorities can take advantage of information technology to screen those enterprises with unusual circumstances, and through dynamic monitoring, on-site verifications, and classified management, can strictly supervise the few enterprises with suspicious or irregular activities and can implement precise crackdowns. According to the statistics, the average daily traffic on the Foreign Exchange Monitoring System for Trade in Goods exceeds 200,000 person-times. As of the end of August 2012, more than 1,500 “empty-shell enterprises” were de-registered from the list, with banks no longer handling foreign exchange receipts and payments in trade for these enterprises; and the foreign exchange receipts and payments in trade of nearly 700 enterprises with unusual circumstances or suspected of being involved in activities in violation of the laws and regulations, such as evasion or illegal purchases of foreign exchange, to a certain degree have been restricted. 2012-09-03/en/2012/0903/1066.html
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TA national foreign exchange administration work conference was recently held in Beijing. The conference conveyed the spirit of the Sixth Plenary Session of the Seventeenth CPC Central Committee, the Central Economic Work Conference, and the Fourth National Financial Work Conference, providing an overall summary of work related to foreign exchange administration in 2011 and, based on an in-depth analysis of the current situation with respect to the economy, finance, and the balance of payments, setting forth the tasks for foreign exchange administration in 2012. At the conference Yi Gang, Vice President of the People’s Bank of China and Administrator of the State Administration of Foreign Exchange, delivered a report on foreign exchange administration work. Deputy Administrators Deng Xianhong, Fang Shangpu, Wang Xiaoyi, and Li Chao, Discipline Inspection Group Leader Yang Guozhong, and relevant responsible comrades in the branches (offices), divisions, and overseas offices of the SAFE attended the conference. It was pointed out at the conference that in 2011 the foreign exchange authorities did a relatively good job in accomplishing the main work objectives and tasks set forth at the beginning of the year, in accordance with the overall arrangements of the CPC Central Committee and the State Council, deeply implementing the scientific outlook on development and accelerating transformation of the concepts and methods of foreign exchange administration, while promoting the facilitation of trade and investment, effectively attaching more priority to slowing down the excessively rapid increase in the surplus of foreign exchange settlement and sales by banks, actively guarding against and cracking down on irregular inflows of hot money, steadily promoting the reform of the verification and writing-off system, and improving the operation and management of foreign exchange reserves. It was stressed that 2012 would be an important year as a connecting link between the 11th and 12th Five-Year Plans. Facing newly emerging situations, features, opportunities, and challenges in the economy both at home and abroad, the foreign exchange authorities should comprehensively implement the spirit of the 17th National Party Congress, the 3rd, 4th, 5th, and 6th Plenary Sessions of the 17th CPC Central Committee, the Central Economic Work Conference, and the 4th National Financial Work Conference, follow the guidance of Deng Xiaoping Theory and the important thought of the Three Represents, and deeply implement the scientific outlook on development; in accordance with the uniform arrangements of the CPC Central Committee and the State Council, they should accelerate the “Five Kinds of Transformations” of the concepts and methods of foreign exchange administration, strengthen the monitoring and management of cross-border capital flows, deepen the reform in key areas, and promote the steady and rapid development of the domestic economy. The conference set forth the key tasks for foreign exchange administration in 2012: first, sticking to the risk limits and constructing a system and mechanism for protection against the impact of cross-border capital flows; second, accelerating promotion of the reform in key areas of foreign exchange administration, doing a solid job in the work related to the pilot reform of the verification and writing-off for imports and exports and in the promotion of the said reform, gradually promoting convertibility under capital account, and accelerating the development of the foreign exchange market; third, further transforming the management methods and promoting the facilitation of trade and investment; fourth, improving the management system and mechanisms, and realizing the security, flow, and maintenance and appreciation of value in foreign exchange reserve assets; fifth, improving the regulatory system and the balance of payments statistical system, strictly adhering to law-based administration, and promoting the basic work of foreign exchange administration to a new level; sixth, further strengthening work related to Party building, clean government, cadre teams, and internal management. 2012-03-26/en/2012/0326/1035.html
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Yi Gang, administrator of the State Administration of Foreign Exchange (SAFE), and his group recently visited Hubei for investigation and research on the pilot reform on the foreign exchange administration system for trade in goods. During the investigation and research, Administrator Yi Gang listened to the work report of the Hubei branch, visited and conveyed greetings to the first-line staff of the branch, conducted a field study on the integration of the foreign exchange business system portal at the bank end, held informal discussions with representatives of some banks and enterprises, and heard comments and suggestions on the pilot reform on the foreign exchange administration system for trade in goods. The comrades participating at the meeting unanimously confirmed that the reform of the foreign exchange administration system for trade in goods simplified business handling procedures, significantly reduced operation costs, enhanced the banks’ sense of responsibility to conduct examinations on the authenticity and awareness of enterprises to strengthen internal management, and established a new administrative mode combining trade facilitation and risk management. Administrator Yi Gang pointed out that the reform of the foreign exchange administration system for trade in goods is a major move on the part of the foreign exchange authorities to proactively adapt to developments and changes in the situation, to accelerate the transformation of foreign exchange administration concepts and methods, and to timely adjust management methods, and it is an important embodiment of the implementation of the concept of putting people first and running government for the people. The branches carrying out the pilot reform should earnestly study and solve the problems and suggestions put forward by the enterprises and banks in order to lay a foundation for comprehensively promoting the reform of the foreign exchange administration system for trade in goods. The foreign exchange administration should serve the market players, such as the financial institutions and the enterprises and safeguard the financial security of China . The foreign exchange authorities should further accelerate the transformation of administration methods, gradually transfer from focusing on ex-ante supervision to emphasizing ex-post management and from supervision based on trading activities and the nature of the business to management based on the individual economic entity, in order to effectively guard against the impact of cross-border capital flows and to realize the organic unity of serving the development of the foreign economy and improving supervisory efficiency, while also facilitating to the utmost foreign trade and overseas investments by the market players. 2012-02-15/en/2012/0215/1031.html
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The State Administration of Foreign Exchange recently convened a conference to summarize the comprehensive work of foreign exchange administration in 2011 and to set forth the tasks for the comprehensive work of foreign exchange administration in 2012. The conference pointed out that in 2011 cadres and staff in the comprehensive work system of foreign exchange administration deeply implemented the scientific outlook on development, and in accordance with the requirements of the “Five Kinds of Transformation” of the concepts and methods of foreign exchange administration, focusing on the central tasks and serving the overall situation, continuously improved the level of policy research, strictly promoted law-based administration, reinforced publicity work, did a good job in internal management, and achieved new progress in all work. The conference concluded that in 2012, in confronting the face of the complicated and volatile economic and financial situations both at home and abroad, in terms of the comprehensive work of foreign exchange administration, the foreign exchange authorities should conscientiously implement the spirit of the Central Economic Work Conference and the National Financial Work Conference, and in accordance with the overall arrangements decided upon at in the National Foreign Exchange Administration Work Conference of 2012, adhere to the essential requirements of finance to serve the real economy and continuously deepen the reform of foreign exchange administration. The foreign exchange authorities should maintain the risk limits, keep a close eye on unusual cross-border capital flows, establish a system and mechanism guarding against the impact of bilateral flows of cross-border capital, actively promote work to realize the “Five Kinds of Transformation” of the concepts and methods of foreign exchange administration, further change the work style, improve the capability of the foreign exchange authorities in terms of comprehensive coordination, provide services and advice regarding the comprehensive work, and continuously improve the effectiveness of foreign exchange administration. The conference set the tasks for the comprehensive work of foreign exchange administration in 2012: first, the foreign exchange authorities should further strengthen forward-looking and relevant research on foreign exchange administration policies; second, the foreign exchange authorities should unswervingly deepen work on law-based administration and on putting the regulations in order; third, the foreign exchange authorities should continuously improve the transparency of foreign exchange administration policies, and; fourth, the foreign exchange authorities should effectively do a good job in all aspects of the basic work. 2012-04-16/en/2012/0416/1043.html
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Since the State Administration of Foreign Exchange (SAFE) expanded the pilot of the domestic and foreign currency exchange franchise business for individuals in November 2009, the number of franchise operation institutions (hereinafter referred to as “Franchised Institutions”) has steadily increased, the exchange service level has improved continuously, and the pilot work has achieved good results. In order to further regulate the continuous and sound development of the domestic and foreign currency exchange franchise business for individuals, the SAFE recently printed and distributed the Measures for the Administration of the Pilot on the Domestic and Foreign Currency Exchange Franchise Business for Individuals (HuiFa No.27 [2012], hereinafter referred to as the “Pilot Measures”) which came into effect as of May 1, 2012. The main contents of the pilot measures include: first, simplifying market access management, expanding the scope of the franchise business, improving the flexibility of the excess reserve adjustment, further reducing the operating costs of the Franchised Institutions, and increasing the capital earnings; second, encouraging chain businesses of Franchised Institutions to achieve economies of scale, and meanwhile, increasing the minimum registered capital requirement for Franchised Institutions operating within a single region to RMB 5 million, and for those Franchised Institutions operating nationwide to RMB 30 million; third, emphasizing risk control. The pilot measures further regulate over-the-counter business and excess reserve management of the franchised institutions, and establish a system to retain relevant data and vouchers for future reference. The pilot measures strengthen the regular monitoring system for capital operations of Franchised Institutions and the regular inspection system for business activities of Franchised Institutions, to supervise and encourage the Franchised Institutions to comply with regulatory operations. Implementation of the pilot measures facilitates market access and the day-to-day business of the Franchised Institutions under controllable risks, and provides them with space for future development. Furthermore, implementation of the pilot measures emphasizes ex-post data monitoring, increases efforts for ex-post regular on-site and off-site supervision, and promotes the sustainable development of the Franchised Institutions. 2012-05-15/en/2012/0515/1048.html
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In order to further promote the development of the domestic and international options market and to satisfy the requirements of economic entities to hedge against exchange-rate risks, the State Administration of Foreign Exchange recently issued the Circular of the State Administration of Foreign Exchange on Relevant Issues Concerning the Banks’ Handling of Renminbi-Against-Forex Options Portfolio Business (Hui Fa No. 43 [2011], hereinafter referred to as the “Circular”). The Circular will come into effect as of December 1, 2011. The main contents of the Circular include: First, introducing the foreign exchange put and risk-reversal options portfolio business and the foreign exchange call and risk- reversal options portfolio business; Second, providing that banks will comply with the regulatory requirements such as trading on the basis of actual needs and integral management when handling the options portfolio business for their clients; Third, allowing banks that qualify for Renminbi-against-Forex options trading on the inter-bank foreign exchange market and that qualify to operate the Renminbi-against-Forex options business for clients to directly engage in the options portfolio business for their clients. The issuance of the Circular is beneficial to improve instruments for enterprises to avoid exchange-rate risks, to improve the banks’ means of risk management, to continuously promote the development of the domestic foreign exchange market, and to give full play to the market’s basic role in the allocation of resources. 2012-01-18/en/2012/0118/1022.html