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China 's international investment position of 2005 issued for the first time. 2006-05-25/en/2006/0525/787.html
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Data of China 's external debts at the end of September, 2006 released 2006-12-28/en/2006/1228/818.html
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China 's external debts at the end of March, 2006 2006-06-27/en/2006/0627/791.html
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China 's balance of payments in 2005 released 2006-04-28/en/2006/0428/783.html
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[Wang Yungui]: Good afternoon, friends from the press. Welcome to the Policy Press Conference of the State Administration of Foreign Exchange (SAFE) for March 2016. I am Wang Yungui, director of the General Affairs Department. Today we have with us Wang Chunying, deputy director of the Department of Balance of Payments, Du Peng, director of the Current Account Management Department, Guo Song, director of the Capital Account Management Department, and Zhang Shenghui, director of the Management and Inspection Department. [15:18] [Wang Yungui]: On behalf of the SAFE, I would first like to unveil the latest foreign exchange situations and policies of the foreign exchange administration. [15:18] [Wang Yungui]: Since the beginning of 2016, the SAFE, following the work plans of the CPC Central Committee and the State Council, has focused foreign exchange administration on maintaining the equilibrium of the balance of payments, pushed the foreign exchange administration reform, enhanced monitoring, analysis and assessment of cross-border capital flows, highlighted the requirements on the authenticity and compliance of foreign exchange business, and cracked down on irregularities such as underground banks, in a bid to create a favorable foreign exchange environment for economic development. [15:21] [Wang Yungui] The pressure on China from cross-border capital outflows has been remarkably relieved. First, foreign exchange reserves drops have slowed down. The balance of foreign exchange reserves fell by USD 107.9 billion, USD 99.5 billion and USD 28.6 billion as of December 2015, January and February 2016 respectively. In particular, the foreign exchange reserves hit USD 3.2023 trillion in February, down by a margin that was 71% less on a month-on-month basis. Second, the deficit in foreign exchange settlements and sales has contracted. The non-banking sectors, companies or individuals, registered a deficit of USD 88.1 billion, USD 69.4 billion and USD 35 billion in December 2015, January and February 2016 respectively. In particular, the deficit for February was down by 50% month on month, and the daily average deficit in settlements and sales of foreign exchange has continued to drop since the beginning of March. Third, net cross-border capital outflows have been dropping. The non-banking sectors registered net cross-border capital outflows of USD 72.5 billion, USD 55.8 billion and USD 30.5 billion, and net foreign exchange outflows of USD 40.1 billion, USD 20.1 billion and USD 10.5 billion in December 2015, January and February 2016 respectively. The net cross-border capital outflows for February slumped by 45% month on month and the net foreign exchange outflows for the same month plunged by 48% month on month. The daily average net outflows of cross-border capital have continued to drop since the beginning of March. Fourth, the RMB exchange rate is being stabilized. Since the beginning of 2016, the CNY and the CNH exchange rates against the US dollar have been weakened and then strengthened, slightly dropping in January and stabilized since February, the spread between the CNY and the CNH has contracted, and the RMB nominal effective exchange rate has been stabilized. [15:30] [Wang Yungui] While being committed to monitoring, analyzing and assessing cross-border capital flows, the SAFE has pushed the foreign exchange administration reform with the following measures: [15:32] [Wang Yungui] I. Reforming the foreign exchange administration system for QFIIs [15:32] [Wang Yungui] In February 2016, the SAFE published the Regulations on Foreign Exchange Administration for Domestic Securities Investments by QFII to reform the foreign exchange administration system for QFIIs and further liberalize domestic capital markets. The highlights of the Regulations include: first, easing the upper limit on the investment quota of a single QFII. The SAFE will no longer define a unified upper limit on the investment quota of a single institution and assign an investment quota (basic quota) to the institution in proportion to the size of its assets or assets under management (AUM). Second, simplifying quota approval management. A QFII's application for an investment quota that is within the basic quota will be subject to filing management, while the application for an investment quota that goes beyond the basic quota will be subject to SAFE approval. Third, further facilitating inward and outward remittances of funds. No requirements will be imposed on the deadline for the inward remittance of investment principal by a QFII. QFIIs will be allowed to subscribe and redeem open-end funds on a daily basis. Fourth, the lock-up period will be shortened from one year to three months, but the requirement that funds should be remitted out in batches and installments will remain unchanged, with the monthly total of outward remittance by a QFII no more than 20% of its domestic assets. Overall, the foreign exchange administration reform for QFIIs is centered on further simplifying quota management and facilitating exchange. [15:34] [Wang Yungui] II. Rolling out the pilot program of macro-prudential management of full-scale cross-border financing [15:34] [Wang Yungui] To further push the pilot program of macro-prudential management of full-scale cross-border financing for integrated management of domestic and foreign currencies, the SAFE published in January 2016 with the People's Bank of China the Circular of the People's Bank of China on Rolling out the Pilot Program of Macro-prudential Management of Full-scale Cross-border Financing (Yinfa No. 18 [2016]). This policy introduces the restraint mechanism on cross-border financing based on capital and net assets at the micro level under the macro-prudential principle, which allows pilot companies and 27 pilot banks to independently conduct cross-border financing in domestic and foreign currencies in compliance with regulations. By summarizing the experiences gained from the preliminary piloting of macro-prudential management of external debt and relying on the existing capital account information system and extensive management experience, the SAFE has cooperated with the People's Bank of China in studying and exploring the macro-prudential management framework for full-scale external debt and improved the operation particulars to ensure the implementation of the external debt macro-prudential policy. [15:35] [Wang Yungui] III. Pushing the liberalization of inter-bank bond markets [15:35] [Wang Yungui] In February 2016, in a bid to further push the opening of inter-bank bond markets and facilitate investments in inter-bank bond markets by QFIIs in compliance with laws and regulations, the People's Bank of China published the No. 3 Announcement of 2016, intended to further liberalize China's inter-bank bond markets, encourage foreign investors to invest in the markets as mid and long-term investors, and conduct macro-prudential management of investing activities of foreign institutional investors. Next, the SAFE will introduce detailed rules on foreign exchange administration with respect to investments in China's inter-bank bond markets by foreign institutional investors. [15:35] [Wang Yungui] IV. Pushing Mutual Fund Connect in a good order [15:36] [Wang Yungui]: In November 2015, the People's Bank of China and the SAFE jointly issued the Operating Guidance on the Management of Cross-border Issuance and Sales of Funds by Mainland and Hong Kong Securities Investment Funds, clarifying the quota management rules and relevant operations of the Mutual Fund Connect scheme and marking the official launch of the Mutual Fund Connect scheme. The Mutual Fund Connect opens new channels for mainland and HK investors to invest in securities markets, marking a breakthrough in the capital account convertibility. The policy has been implemented in a smooth and orderly manner, with the funds applied for mutual recognition recognized by each other's securities regulatory commission and issued and sold in mainland and HK. As at the end of January 2016, the cumulated net inward remittance from the issuance and sales of Mainland funds in Hong Kong amounted to RMB 21.5433 million, and the cumulated net outward remittance for the issuance and sales of HK funds in the Mainland, RMB 40.1767 million. [15:49] [Wang Yungui]: V. Cracking down on activities in violation of foreign exchange laws and regulations [15:49] [Wang Yungui] In 2015, the SAFE, while optimizing foreign exchange administration services, required banks to enhance authenticity reviews in compliance with existing regulations, by focusing on the main channels of unusual cross-border capital flows and conducting special inspections of banks, financial leasing companies and rubber companies, and intensifying the crackdown on foreign exchange irregularities such as fabricated trading and underground banks. The SAFE cracked more than 2,000 cases arising from foreign exchange irregularities and collected an administrative penalty of more than RMB 400 million in the year. Since the beginning of 2016, the SAFE has continued intensifying off-site inspections and analysis and on-site inspections of the channels for irregular capital flows and unusual leads, conducted special inspections of foreign exchange business under outflows, and cracked down on foreign exchange irregularities to safeguard a normal order in foreign exchange markets. [15:50] [Wang Yungui] VI. Launching the individual foreign exchange monitoring system [15:50] [Wang Yungui] The SAFE officially launched the individual foreign exchange monitoring system on January 1, 2016. Unlike the previous system, the new system does not require manual input, effectively avoiding secondary input of bank information and saving time for banks and individuals with respect to foreign exchange business. The new system requires the data on individuals' foreign exchange receipts and payments, and their deposits and withdrawals of banknotes, in addition to the data on individuals' settlements and sales of foreign exchange as required in the previous system, realizing the full coverage of the data on individuals' foreign exchange. Moreover, the SAFE uses the system to refine watch list management for nationwide sharing. The new system has run smoothly over the past two months of piloting, ensuring the smooth and orderly processing of individual foreign exchange business. [15:50] [Wang Yungui] VII. Improving management of domestic institutions' receipts and payments of foreign currency banknotes [15:51] [Wang Yungui] To satisfy the development needs of the foreign-currency banknotes business in China, the Measures for Managing Domestic Institutions' Receipts and Payments of Foreign-Currency Banknotes introduced by the SAFE has been implemented starting from February 2016. The highlights of the Measures are as follows: first, adjusting the way of managing the receipts and payments of foreign-currency banknotes to base the management on risk level and utilization frequency. Second, specifying the requirements on banks' reviews for the foreign-currency banknote receipts and payments business. Banks should review the authenticity, legality and necessity of the receipts and payments of foreign-currency banknotes under the three business principles. Third, improving relevant foreign exchange regulations. The SAFE has enhanced data collection and analysis, and intensified ex-post regulation and investigation, further standardizing the management of domestic institutions' receipts and payments of foreign currency banknotes. [15:51] [Wang Yungui] Overall, the measures for the foreign exchange administration reform have been in effect and played significant roles in satisfying normal demand of individuals and companies for foreign exchange, facilitating cross-border investment and financing by market players, and guarding against risks arising from cross-border capital flows. [15:51] [Wang Yungui] Now I will take your questions, with one from each reporter since time is running short. Please tell us your organization before asking your question. Let's get started. [15:52] [CBN Daily] I am wondering whether China's policy tool kit is sufficient to cope with the changes since most policies on foreign exchange administration were for capital inflows before 2014. What are the tools we have now? What policies are being researched into, such as Tobin tax? Are there any guiding philosophies for market expectations management with reference to the lessons from last year? [16:04] [Wang Yungui] Let me answer you in brief. Before 2014, China had been under pressure from net inflows for about a decade, and China's foreign exchange reserves had been rising for many consecutive years. Under such circumstances, we developed many tools, which helped us effectively relieve the pressure on foreign exchange administration and macroeconomic policies from heavy cross-border capital inflows. Since 2014, most emerging market economies have been under the pressure from capital outflows along with interest rate hikes in the US and the changing global financial markets. China is no exception. But we believe the existing foreign exchange administration tool kit is sufficient to relieve the pressure from capital outflows, as having been proved since the second half of last year. This tool kit contains many types of tools. For example, we still highlight authenticity and compliance in the management of existing and opened items under the current account. We require banks to intensify authenticity and compliance reviews of transactions under the current account including trade in goods and trade in services, which has produced positive results. We have spotted foreign capital involved in structuring of trade or fabricated trading through verifications and inspections and solved some cases. This tool has been proved effective. For items that are not liberalized under the capital account, we may adopt trace management. For direct investment that is basically convertible, including FDI and ODI, we require players to register to leave traces when handling transactions with banks, and then track these traces through big data analytics, assessing, analyzing, verifying and investigating relevant institutions, or even inspecting them. These trace tools are effective too. For some liberalized QFII and QDII businesses, we are committed to joint approval and regulation with relevant departments, which have produced positive results. The qualified institutional investor system including QDII is favorable for the two-way opening of capital markets, with foreign capital investing in China's securities, foreign exchange and bonds markets and Chinese players investing in foreign capital markets, and has been proved fruitful. Therefore, we consider this tool kit is effective with aggregate risk within control and the micro-economy being buoyant. Next, we will research and develop more tools, including Tobin tax as mentioned by the reporter. We are also studying other international experiences, like financial transaction tax in Latin American countries. The policy on the URR for forward sales of foreign exchange introduced by the People's Bank of China last year, we believe, is a good instrument. We will continue to study relevant policy measures such as macro-prudential management of external debt, which is also part of the tool kit. In a word, we believe our policy tool kit works, with measures effectively implemented based on active cooperation from banks. [16:11] [Financial News] Could you brief us on the SAFE's monitoring of cross-border capital of late? Thank you. [16:47] [Wang Chunying] We have been closely monitoring relevant data and observe and analyze various data every day. Mr. Director has unveiled recent situation just now, and given the data for last December, this January and February, or even this month, the pressure from foreign exchange outflows has been significantly relieved. For example, foreign exchange reserves have dropped more slowly, and the deficits in settlements and sales of foreign exchange and cross-border receipts and payments have been falling. The daily average estimations by working or trading day show that the outflow pressure was gradually eased in January and February, after adjustment of the Chinese New Year holiday. As of March 18, the daily average deficit in settlements and sales of foreign exchange has dropped by 9% from February, the daily average net outflow of cross-border capital has been 30% lower than that of February, and the daily average net outflow of foreign exchange has gone down by 79% from February, with even net inflows in some days. The RMB exchange rate has stayed stable. The RMB nominal effective exchange rates against CFETS, BIS and SDR baskets of currencies, compiled by China Foreign Exchange Trading System & National Interbank Funding Center (CFETS) yesterday, were down slightly by 2.8%, 2.5% and 1.5% respectively from the end of 2015. Market players are adjusting their assets and liabilities in domestic and foreign currencies in a smoother way. On the one hand, people's pace to hold foreign exchange was slowing down, with the balance of foreign exchange deposits for February rising by USD 8.3 billion, which was USD 11.3 billion less than that of January. On the other hand, companies' pace to service debt was slowing down too. For example, the balance of cross-border financing for imports for February dropped by USD 2.5 billion, which was USD 7.2 billion lower than that of January. [16:47] [Wang Chunying] This is the result of the changing domestic and overseas environments. First, financial markets are being stabilized after fluctuations. Our observations show that the US Dollar Index has sustained narrow fluctuations since it slumped in January, and the VIX that reflects the fluctuations of market aversion has fallen since peaking in mid-February, leading to narrower fluctuations in international markets. Second, the RMB exchange rate remains stable. Despite recent large appreciation, the margins of appreciation and depreciation have been stable these days. Third, no supplementary adjustments have been made to the policies for foreign exchange administration, except highlighting the requirements on the authenticity and compliance of foreign exchange transactions and curbing speculations, which has stabilized market sentiment. [16:47] [Wang Chunying] Cross-border capital flows are expected to stay stable in the near future. The SAFE released the data on settlements and sales of foreign exchange and cross-border capital flows for February at its website on March 16, together with Q&As and a brief introduction. Specifically, trade surplus and actual utilization of foreign capital will remain large. The external debt of companies will be more stable after more than one year's deleveraging. Globally, market expectations of the Fed's interest rate hikes will drop significantly soon. The Fed's adjustment of its monetary policy, if meeting market expectations, will be favorable for stabilizing global financial markets and capital flows. Domestically, China's GDP growth target for this year is 6.5%-7%, which is high at the global level, indicating the fundamentals for attracting inflows of foreign capital remain unchanged. We also have discussed with domestic and overseas experts and scholars the pressure from capital outflows. A prestigious scholar once asked us where we thought we should invest to obtain a stable return of up to 7%. [16:47] [Economic Information Daily] As you have said just now and we pushed on our official microblog in March, the SAFE has raised higher requirements on authenticity reviews by banks starting from 2015. I am wondering whether such reviews will impact companies' imports and exports. Thank you. [17:03] [Du Peng] Promoting trade facilitation to serve the real economy has always been the SAFE's top priority. We carried out the reform of the foreign exchange administration system for trade in goods in 2012. During the reform, we streamlined administration and delegated powers, canceled transaction-by-transaction verifications of imports and exports and adopted classified management of companies by rewarding the excellent and restricting the poor. As at the end of 2015, there were 655,000 companies on the List of Enterprises with Receipts and Payments of Foreign Exchange under Trade, including 5,216 class-B and C enterprises, less than 1% of the total, which indicates that the majority of the enterprises are law-abiding and entitled to policy facilitation, except a minority or less than 1% of the enterprises are subject to restrictions and stringent management. This approach will not negatively impact but boost foreign trade. What I want to stress is that since serving the real economy will always be the top priority of foreign exchange administration, the direction of the foreign exchange administration reform will not change, and so will the policy orientation of boosting trade and investment facilitation. Meanwhile, we will further strengthen risk prevention and control, highlighting the requirements on authenticity and compliance reviews and intensifying monitoring, early warning, verification and crackdown on foreign exchange irregularities. To put it simply, authenticity reviews are necessary to ensure the authenticity and compliance of receipts and payments under trade and safeguard a normal order in foreign exchange markets. Without changing the existing policy framework, the SAFE further clarified and standardized the requirements on authenticity reviews of receipts and payments under trade in goods in 2015, but did not add new regulations. The purpose of specifying and refining relevant review requirements is to guard against risks arising from cross-border receipts and payments, given the usual irregularities involving a minority of enterprises. In recent years, we have spotted arbitrages and illegal allocation of cross-border capital by some lawbreakers through trade in goods, such as receipts and payments of foreign exchange not under trade, overseas fund transfers through trade channels, as well as fabricated trade and acquiring the CNY/CNH spread through offshore switch trade. As a result, intensifying authenticity reviews and special verifications is necessary for guarding against and cracking down on company irregularities, and creating a fair and competitive environment for law-abiding enterprises with integrity, and will not impact market players' reasonable and legitimate requirements for use of foreign exchange, or interrupt their normal trade in goods. [17:03] [Market News International of the US] The Wall Street Journal reported that some Chinese institution has carried out non-public derivatives trade to underpin the RMB. What would you say about this? [17:19] [Wang Yungui] There are various financial products in both domestic foreign exchange markets and offshore markets, such as forward and swap products in domestic markets. These products are developed to support flexible floating of foreign exchange rates and rational risk mitigation by companies and institutions through reasonable and valid processes. Transactions in offshore markets should be in compliance with the requirements of financial regulators there. They may have some impact on foreign exchange rates via various products, which is within control. We don't think derivatives trading has severely impacted the RMB exchange rate. On the whole, the rate is in line with China's tendency to maintain stability. [17:28] [CCTV] There are reports on mainland residents buying insurance in Hong Kong of late. Could you brief us on relevant policy? Thank you. [17:48] [Wang Yungui] We have noted these reports too and I would like to share some of our ideas with you here. First, Chinese residents must comply with the policies and regulations of the Chinese insurance regulator in buying insurance overseas. Second, they should also comply with relevant regulations under the foreign exchange administration policy. There are two cases on Chinese residents buying insurance overseas, which are subject to foreign exchange administration. In one case, Chinese residents buy personal accident insurance or health insurance for travelling, business activities and studying abroad, which are transactions under trade in services and allowed and supported under the policy framework for foreign exchange administration. Anyone who has gone abroad knows that buying such insurance abroad as travel insurance, personal accident insurance and health insurance is subject to no restriction and supported by the foreign exchange administration policy. In the other case, mainland residents buy life insurance and dividend-paying insurance overseas, which are transactions under the financial and capital account. The existing foreign exchange administration policy and regulations have no expressed provisions to support such insurance products, or are not fully opened with respect to these products. We consider such transactions risky. China UnionPay's investigations of January 2016 into overseas acquirers found that some of them were averting the foreign exchange administration policy. What is the foreign exchange administration policy about? In 2004 and 2010, the SAFE published two regulations on bank cards, clearly encouraging domestic residents to buy insurance products under trade in services within the limit equivalent to RMB 5,000 per transaction. China UnionPay, based on the above findings, has required the acquirers to make adjustments, and the acquirers have done so. In a word, we believe it is highly risky for institutions and individuals to operate such overseas insurance products that are not opened as capital account convertibility is pressed ahead with in a good order. [17:49] [Economic Daily] It is generally expected that the Fed will raise interest rates in June, but an Fed official recently hinted that the time might be April. My question is that if the Fed raises interest rates earlier than expected, would China's capital flows and RMB exchange rate come under pressure again? [17:53] [Wang Yungui] We are not in a position to speculate when the Fed will raise interest rates as the Fed sets its pace for interest rate hikes depending on various indicators. But past experiences show that the US dollar interest rate hikes did have strong impact on global capital flows, leaving both emerging economies including China and most developed and developing countries under the pressure from US dollars' flows back to the US, some of which, we believe, are a correction of the massive inflows of the past. For example, as some countries implemented the QE policy after the 2008 global financial crisis, massive cheap US dollars flew into emerging economies including China, who had been under heavy pressure from foreign exchange inflows for some time thereafter. It is a normal cyclical reaction for relevant funds to flow back as the US adopts the interest rate hike policy. Our observations show that the pressure from capital outflows arising from the US dollar interest rate hikes since the second half of 2014 is tolerable and bearable. Some institutions serviced relevant external debt in US dollars in advance and even made structural arrangements for some trade finance products, which were favorable for lowering corporate leverage ratio and guarding against risks. Since June 2014, foreign exchange reserves have dropped by USD 790 billion, which should be bearable, and are USD 3.2 trillion at present. Cross-border capital outflows have been contracting for three months consecutively since December 2015. All these data, either declines in foreign exchange reserves, cross-border capital outflows or declines in the deficit of foreign exchange settlements and sales, show that the impact from the Fed's interest rate hikes on cross-border capital flows is being digested and addressed. [17:54] [Xinhua News Agency] I want to ask Mr. Director more about purchases of insurance overseas. Is it associated with the current pressure from capital outflows in addition to being risky? Is there anyone who transfers funds overseas in this way? [17:55] [Wang Yungui] As I have said just now, two documents released in 2004 and 2010 set forth the policy on how to use bank cards overseas, with the later one covering but remaining coherent with the previous one. We provide foreign exchange for individuals' purchases of accident insurance and health insurance overseas under trade in services without any restrictions, provided that each transaction with payments made through bank cards is no higher than USD 5,000. This policy was effective in 2004, not a new one. Some individuals, however, purchased life insurance or dividend-paying insurance overseas on their overseas trips, some of which, we believe, are for cross-border asset arrangements. But these transactions are under the financial and capital account for foreign exchange administration and are not supported by the policy. We don't think such transactions are related to ongoing capital outflows but are more likely a way of diversified asset allocation. Therefore, I don't think such transactions are a cause of the pressure from capital outflows. [17:57] [Wang Chunying] The policy about overseas insurance that Mr. Director has briefed us on is actually not an adjustment and was introduced in 2004 with clear provisions. The reason that you ask why we say so is that it is in line with our emphasis on enhancing authenticity and compliance reviews. We are fully supportive to authentic transactions under the current account that are in compliance with regulations, and have not set any policy barriers to domestic purchases of foreign exchange to repay the overdrafts that are used to pay for overseas consumption through a bank card. We adopt the same policy for domestic cards such as UnionPay cards and foreign-currency cards issued by international card organizations such as VISA by screening merchants via domestic banks with ATMs and overseas acquirers. What we want to stress and clarify is that management of the amounts of transactions under bank cards, just one of the various payment tools, is aligned with the principle of current account convertibility we have long stuck to, provided that the transactions are authentic and in compliance with regulations. [17:59] [Wang Yungui] The SAFE will always and continue to support use of bank cards in normal consumptions during cross-border travels to facilitate international communications, provided that the transactions are in compliance with regulations. The SAFE's policies such as for domestic purchases of foreign exchange to pay for overseas consumptions will remain unchanged. [18:00] [Securities Times] It is widely expected that the Fed will raise interest rates again in June-September. My question is whether there will be sharp fluctuations at some points of time in cross-border capital flows, though Mr. Director says the flows stay stable at large. Governor Zhou Xiaochuan said last week that efforts may be stepped up to crack down on super short-term speculations in cross-border capital flows. I wonder when you consider would be proper to introduce Tobin tax? Thank you. [18:10] [Wang Yungui] The Fed's interest rate hikes' impact on global cross-border capital flows should be long term, which we have never averted. How heavy the impact would be on China's cross-border capital flows could be assessed with reference to past rounds of interest rate hikes. We think the Fed's interest rate hikes will put China's cross-border capital flows under pressure as US dollars will strengthen in the process. If that happens, domestic institutions that owe external debt or want to make outbound investments or have overseas consumption may have to make some financial arrangements, which we consider normal. We have a large toolkit with various tools to cope with the pressure and the size of capital outflows will be bearable. To put it simply, we have made relevant policy arrangements for possible interest rate hikes, and players have taken actions in response such as buying foreign exchange to repay trade finance funds, which we support and are favorable for micro-players to avert interest rate risks and reducing our dependence on external debt. Foreign exchange administration toolkits are necessary for reducing pressure on cross-border capital outflows, including financial transaction tax or Tobin tax mentioned by Mr. Governor. Tobin tax is not merely a type of tax. A Tobin tax, suggested by US economist Tobin, is intended to slow down global capital flows. All price means that can slow down cross-border capital flows and raise speculators' transaction costs can be called Tobin tax. Further research is needed as for whether Tobin tax will be imposed on short-term cross-border capital flows. We have noted that a financial transaction tax of 6% or so imposed by some countries such as Brazil and Argentina also has short-term effect, indicating the necessity of further assessment. Policy measures should be taken into consideration to increase the trading costs of short-term speculative funds without impacting trade and investment facilitation, based on China's practices and with reference to foreign experiences, theoretically or practically. The SAFE will work closely with the People's Bank of China to make further research and will adopt measures that are favorable for promoting the healthy development of the economy, especially the real economy. [18:12] [Reuters]: We know that the regulator has been stressing the stability of the RMB against a basket of currencies. But the past week's RMB exchange rate index shows that the RMB had been overstated, by a margin many analysts believed to be 10%. Would you believe the RMB will be adjusted to be its fair value at proper points of time this year? [18:22] [Wang Yungui] The policy arrangements made by the People's Bank of China and the SAFE for the RMB exchange rate, I believe, are rational. We now say that the RMB exchange rate is a managed floating exchange rate mechanism based on market supply and demand and adjusted with reference to a basket of currencies. This does not point out where the fair value of the RMB exchange rate should be, but stresses that domestic demand and supply as well as the changes in the value of international currencies should be reflected from the RMB exchange rate mechanism, with the RMB exchange rate floating in a managed way, not freely in the market. Making sure the RMB exchange rate stays stable against other currencies helps us find where the reasonable and balanced value, or the fair value should be. As for whether the RMB exchange rate is overstated, you will learn many institutions say it is understated if you carry out a survey. It is meaningless, I believe, to say the RMB exchange rate is overstated or understated merely based on the price levels, as some players make settlements in US dollars, while some use Euros, Japanese Yen or South Korean Won, but what we stress is the stability of the RMB exchange rate against a basket of currencies. In our opinion, the Sino-US bilateral exchange rate should reflect more of domestic demand. It is normal for exchange rate to rise or fall. So is for any currency to rise or fall or for making the RMB exchange rate against the USD stable. The RMB depreciated against the USD but appreciated against other currencies in the past few months, so the RMB remained stable against a basket of currencies after hedging. As Ms. Director has said just now, the RMB exchange rate against CFETS, BIS and SDR baskets of currencies has been in the same direction despite differences in specific value, suggesting that the RMB exchange rate has stayed stable. Any institution that speculates about or bets on the fair value of the RMB will be faced with policy risk. [18:23] [CBN Daily] Could you brief us on your thinking about policies for foreign exchange expectations management? [18:32] [Wang Yungui] Expectations management is very important as financial markets stress confidence, which has great implications for financial markets. The key to expectations management, we believe, is to tell people the truth. Herd effect is a commonplace in financial markets as many people do not know how the market performs and follow suit as large institutions take actions. We have been stressing that we should look at the fundamentals to assess the RMB exchange rate, such as GDP, productivity, CPI and trade surplus. Governor Zhou Xiaochuan and Deputy Governors Yi Gang and Pan Gongsheng once said, there is no basis for long-term RMB depreciation, which means that it is normal for the RMB exchange rate to rise and fall in the short term, but not in the long term. In my opinion, expectations management is critical and responsible governments and administration institutions should tell people the truth. For example, we often say that China's trade surplus has surpassed USD 590 billion, China is using an increasing number of FDI and Chinese enterprises are cutting down the leverage ratio while servicing their external debt, which are good news. In a word, I would like to reiterate that there is no market basis for long-term depreciation of the RMB. The reason is complex, but I recommend people paying more attention to the fundamentals. The purpose we compile and disseminate various data is to facilitate your understanding of market fundamentals. [18:33] [Shanghai Securities News] Premier Li Keqiang said at a press conference that Shenzhen-Hong Kong Stock Connect will be launched this year. Could you brief us on the SAFE's preparations in terms of the technicality of foreign exchange administration? [18:33] [Guo Song] Shenzhen-Hong Kong Stock Connect is not the SAFE's responsibility. The inflows and outflows of capital are in the RMB and in a closed cycle, so in theory, this does not involve foreign exchange administration. Nor are the daily data on Shenzhen-Hong Kong Stock Connect disseminated by the SAFE, but other market institutions. As a result, the SAFE does not need to make any preparation. [18:34] [Wang Yungui] Thank you for coming to today's press conference. You are welcome to another press conference for data dissemination, which is to be held in mid or late April at the State Council Information Office. Thank you. [18:34] (The original text is available at www.people.com.cn) 2016-12-19/en/2016/1219/1232.html
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· Xi Yanchun: Good morning, ladies and gentlemen, welcome to the press conference of the State Council Information Office. April is the month for releasing economic data, and the State Council Information Office will hold conferences on the economic data for the first quarter in the next few days. Today we are pleased to have with us Ms. Wang Chunying, press spokesperson for the State Administration of Foreign Exchange (SAFE). Now let me invite Ms. Wang to brief you on China's foreign exchange receipts and payments for the first quarter of this year and then she will answer your questions. 2016-04-21 09:34:07 · Wang Chunying: Good morning, friends from the press, welcome to today's press conference. I know you have paid close attention to recent foreign exchange receipts and payments and I wish to take this opportunity for more relevant and effective communication with you. Now I would first like to brief you on China's foreign exchange receipts and payments for the first quarter of this year. Since the beginning of this year, the world economic growth has remained slow, uncertainties and instabilities have increased, and the global financial markets have been in high volatility. Domestically, the economy has continued to grow stably, some major indicators have undergone positive changes and the RMB exchange rate has been basically stabilized. The SAFE has been committed to pressing ahead with the foreign exchange administration reforms, enhanced monitoring, analysis and assessment of cross-border capital flows, and highlighted the requirements on authenticity and compliance reviews of foreign exchange business. Overall, China posted continued cross-border capital outflows but was under eased outflow pressure in the first quarter. In the first quarter, banks settled foreign exchange of RMB 2.29 trillion (USD 350.0 billion) and sold foreign exchange of RMB 3.10 trillion (USD 474.7 billion) on a cumulative basis, with a deficit of RMB 815.2 billion (USD 124.8 billion). Meanwhile, according to the data on foreign-related receipts and payments via banks, in the first quarter, banks registered cumulative foreign-related income of RMB 4.33 trillion (USD 663.1 billion) and made external payments of RMB 5.06 trillion (USD 775.4 billion) on behalf of clients, with a deficit of RMB 734.3 billion (USD 112.3 billion). China’s foreign exchange receipts and payments for the first quarter show the following characteristics: 2016-04-21 09:54:14 · Wang Chunying: First, the balances of foreign exchange settlements and sales by banks, and foreign-related receipts and payments were both in deficit. In the first quarter, in dollar terms, foreign exchange settlements by banks were down by 9% quarter-on-quarter, and foreign exchange sales by banks, down by 14%, resulting in a deficit of USD 124.8 billion; foreign-related income received via banks was down by 19% quarter on quarter, and external payment made through banks was down by 18%, indicating a deficit of USD 112.3 billion, leading to a deficit of USD 36.6 billion in the balance of foreign-related foreign exchange receipts and payments. Second, the recent pressure from cross-border capital outflows has been much lower than the beginning of this year. China registered a deficit of USD 69.4 billion in the balance of foreign exchange settlements and sales via banks in January, which narrowed to USD 35 billion in February and further to USD 33.6 billion in March. Given the Chinese New Festival in February, the daily average deficit in the balance of foreign exchange settlements and sales via banks, estimated based on the trading days each month, was USD 3.5 billion, USD 2.2 billion and USD 1.5 billion in January, February and March, indicating a significant decline. China posted a deficit of USD 55.8 billion, USD 30.5 billion and USD 26.1 billion in the balance of foreign-related receipts and payments via banks, or a daily average deficit of USD 2.8 billion, USD 1.7 billion, and USD 1.1 billion in January, February and March respectively. The deficit in the balance of foreign exchange receipts and payments was USD 20.1 billion, USD 10.5 billion and USD 5.9 billion in January to March respectively, or USD 1 billion, USD 600 million and USD 300 million per day on average in each month. 2016-04-21 09:57:04 · Wang Chunying: Third, companies' desire to buy foreign exchange has been weakened and customers' debt servicing pace has slowed down. The foreign exchange sales rate, or foreign exchange purchased by customers from banks as a percentage of their foreign-related foreign exchange payments, which is the measurement of the motivation to buy foreign exchange, was 80% in the first quarter, or 90% in January, and 74% in February and March, which was down by 16 percentage points from the first month, suggesting customers' desire to buy foreign exchange was weakened. The outstanding domestic foreign exchange loans fell by USD 35 billion in the first quarter, and in January and February in particular, the balance dropped by USD 26.4 billion and USD 8.6 billion, but climbed slightly by USD 30 million in March. The balance of import financing such as refinancing and forward L/C contracted by USD 34.9 billion in the first quarter, and particularly in January and February, the decline was USD 17.7 billion and USD 14.2 billion, but narrowed to USD 3.1 billion in March. The changes in the outstanding domestic foreign exchange loans from declines to increases and the remarkable decreases in the balance of cross-border trade credit indicate that customers' debt servicing speed has significantly slowed down. Fourth, the reform to encourage companies and individuals to hold more foreign exchange has been carried forward smoothly. Foreign exchange sold by customers to banks as a percentage of their foreign-related foreign exchange income, or the foreign exchange settlement rate that measures the willingness of companies and individuals to settle foreign exchange, was 59% in the first quarter, down by 1 percentage point quarter on quarter. The rate was 59% for March, up by 3 percentage points from February, suggesting companies' and individuals' willingness to hold foreign exchange income has stayed stable since the beginning of the year, with the percentage of foreign exchange income sold to banks for March higher than February. The balance of domestic foreign exchange deposits held by companies and individuals went up by USD 33.9 billion in the first quarter, including an astonishing USD 16.7 billion in January, and USD 8.8 billion and USD 8.4 billion in February and March. The much slower growth in foreign exchange deposits held by companies and individuals suggests that companies ' and individuals' desire to hold foreign exchange has been stabilized. 2016-04-21 09:58:34 · Wang Chunying: Fifth, the deficit in the balance of forward foreign exchange settlements and sales by banks has shrunk month by month. In the first quarter, the number of customers contracting for forward foreign exchange settlements with banks was up by 16% quarter on quarter, and the number of customers contracting for forward foreign exchange sales with banks wad up by 31%, leading to a deficit of USD 36.3 billion. The monthly deficit was USD 24.7 billion, USD 6.1 billion and USD 5.4 billion respectively in the quarter, denoting the supply and demand of foreign exchange in the forward markets is being balanced. These are the major statistics I want to disclose regarding the foreign exchange receipts and payments for the first quarter of 2016. Now I will answer your questions. 2016-04-21 09:59:39 · Xi Yanchun: Thank you, Ms. Director. Please remember to tell us the news agency you are working with before asking your questions. 2016-04-21 10:00:18 · CCTV: We noticed that China was faced with lighter pressure from cross-border capital outflows in the first quarter. What would you say about recent changes and future trends? How to guard against relevant risks？Should the management approach be adjusted? Thank you! 2016-04-21 10:00:58 · Wang Chunying: Thank you for your questions. Just as I have just said, there were some volatilities in the first quarter, but overall the pressure from cross-border capital outflows has been much lower than the beginning of the year. As for recent changes and future trends and how to guard against risks and adjust policies, I would like to share my views with you in three aspects as follows: 2016-04-21 10:01:43 · Wang Chunying: First, recent changes show that China's cross-border capital outflows are returning to the fundamentals after short-term volatilities. At the beginning of the year, both domestic and overseas markets experienced short-term volatilities, resulting in drastic adjustments in global major stock markets, heightened risk aversion and a 1% increase in the US index in January, as well as higher expectations of RMB exchange rate depreciation in the domestic financial markets. But the market environment has been stabilized afterwards. Globally, major stock indexes have rebounded, the VIX index that measures the volatility of risk aversion has dropped from the mid-February high, and the US index went down by 1.4% and 3.7% in February and March respectively. Domestically, some major indicators have undergone positive changes. Industrial added value, fixed asset investment, and total retail sales of consumer goods accelerated in March, PMI was back above the boom and bust line in March, and domestic financial markets have become relatively stable. Under such circumstances, market sentiment is becoming sensible again and China's cross-border capital flows are becoming more stable. 2016-04-21 10:04:07 · Wang Chunying: Specifically, the balance of foreign exchange reserves declined more slowly and rebounded in March. China's balance of foreign exchange reserves dropped by USD 99.5 billion and USD 28.6 billion in January and February, and went up by USD 10.3 billion in March. Second, the deficit in the balance of foreign exchange settlements and sales has contracted compared with the beginning of the year, and net cross-border outflows of capital held by non-banking sectors such as companies and individuals has declined. Third, the RMB exchange rate stays stable. The RMB exchange rate against the USD fell slightly in January and has become stable since February. The CNH-CNY spread keeps shrinking, which was 419, 111 and 94 basis points in January to March. The RMB exchange rate against a basket of currencies remains stable too. 2016-04-21 10:09:34 · Wang Chunying: Second, China's cross-border capital flows will remain basically stable in the future. Of the many contributors to cross-border capital flows, mid and long-term contributors are decisive and stable, defining the overall movements of China's cross-border capital flows in a period of time. For example, China's economic prospects are optimistic, and the annual GDP growth of higher than 6.5% set in the 13th Five-Year Plan for the next five years, relatively high among the rest of the world, will be achieved while maintaining large GDP, which will be favorable for attracting persistent inflows of foreign capital, especially long-term capital. China's trade in goods and current account will sustain surpluses, and China is still the world's No. 1 by foreign exchange reserves, which are abundant and much higher than those of other countries. These factors will help stabilize China's cross-border capital flows. 2016-04-21 10:13:38 · Wang Chunying: Along with China's economic development and restructuring, domestic players will have stronger demand for resource allocation in both domestic and global markets, and two-way cross-border capital flows will become more active but after adaptations and improvements, so relevant capital flows will still be within a predictable and controllable range. But this does not mean short-term contributors will not take effect at a certain time, such as impact from emergencies and contributors that are beyond market expectations, but they will not change the mid and long-term trends. 2016-04-21 10:19:57 · Wang Chunying: Third, given that the risks associated with China's cross-border capital flows are within control, further efforts will be made to balance facilitation and risk prevention in foreign exchange administration. To prevent risks, risks should be first objectively assessed. China's capability of making international payments is strong now, with no difficulties in the payments of BOP. Efforts are also made to press companies to adjust and service external debt. After a period of debt deleveraging, the risk of future debt servicing facing China has been reduced, with the outstanding external debt in domestic and foreign currencies as at the end of last year dropping by USD 257 billion from that of the end of last March with comparable coverage. Given this, further efforts will be made to defend the bottom line against risks while continuing to implement the reform and opening up policy in foreign exchange administration. While continuing to serve the development of the real economy, foreign exchange administration reforms will be promoted, with external debt and cross-border capital flows management to be improved under the macro-prudential management framework, to further facilitate market players' use of domestic and overseas markets and to satisfy their demand for use of foreign exchange for trading and investments with authentic backgrounds. On the other hand, efforts will be made to actively prevent the risks associated with cross-border capital flows while enhancing monitoring, analysis and early warning of the balance of payments, to effectively communicate with market players, and to guide banks to conduct authenticity and compliance reviews to crack down on foreign exchange irregularities. In all, China's policies are consistent and coherent, and will enable us to effectively respond to the current state of cross-border capital flows. 2016-04-21 10:27:38 · China Daily: We know that the US Federal Reserve started interest rate hikes last December. Janet Yellen, chair of the Fed, has recently expressed some of her views. Some argue that Yellen is the biggest facilitator behind China's efforts to slow cross-border capital flows. What are your views on the impact of the Fed's interest rate hikes on China's cross-border capital flows? Thank you! 2016-04-21 10:39:56 · Wang Chunying: Thank you for your question. Over the past two years, from the Fed's QE exit to interest rate hikes, the Fed's monetary policy has attracted wide attention. I would here like to share with you some of the ideas. First, the Fed's interest rate hikes are important factors that impact international capital flows. But we are always stressing that this should be viewed objectively. The Fed's previous interest rate hikes had different impact on international capital flows, especially the cross-border capital flows in emerging markets. Since the 1990s, the dollar has gone through three rounds of interest rate hikes, usually along with the strengthened USD exchange rate. Although the two rounds of interests rate hikes in the middle of and at the end of the 1990s did trigger problems in some emerging economies, yet some economies like China withstood the impact. The third round of interest rate hikes between 2004 and 2006 did not result in withdrawal of international capital from emerging markets either, and instead, most emerging markets posted cross-border capital inflows benefitting from continued economic growth. Good macro-economic fundamentals are the basis to resist external impact. Second, the first interest rate hike in this round did have impacted China's cross-border capital flows, but will not change the mid and long-term stability. Soon after the first hike last December, the market began to pay close attention to the frequency and degree of the Fed's interest rate hikes this year. The US index remained strong, risk aversion was heightened, global stock markets and commodity prices were in high volatility, currencies in emerging markets and the RMB exchange rate were under pressure, and China was faced with heavier pressure from cross-border capital outflows. But since March, as insights into the path of the dollar interest rate hikes have become clearer, it is mostly believed that the Fed will raise interest rates gradually while watching out the impact of global financial markets on its economy. Under such circumstances, risk aversion has been weakened, the dollar index has depreciated, especially by more than 5% in February and March combined, currencies have quickly strengthened in emerging markets, with JP Morgan's currency indexes for emerging markets registering a rebound of more than 6%, the RMB exchange rate has been stabilized, China's cross-border capital flows are returning to the economic fundamentals and its receipts and payments of foreign exchange have been more balanced and stable. The good fundamentals can ensure mid and long-term stability of China's cross-border capital flows. Meanwhile, China's recent good economic performance has strengthened its capability to cope with the impact from the Fed's interest rate hikes. For example, China has sustained high-speed economic growth, and is further optimizing its economic structure and committed to deepening reform and economic transformation; it has posted continued surpluses under the current account, maintained high foreign exchange reserves and is faced with the declining external debt serving risk; the economic and financial risks it is faced with are within control, unemployment remains low and social and political situations stay stable. 2016-04-21 10:42:55 · Wang Chunying: Third, China's existing economic and financial policies can help it adapt to the normalization of the Fed's monetary policy. First, sustaining China's economic and financial stability. China will continue to deepen reforms to yield the dividends of policies, hold market expectations of China's economic prospects, enhance market acceptance and recognition of China's new economic normal and cope with risk events in a timely and effective manner. Second, further coordinating and pressing ahead with reforms. China will push forward with capital account liberalization in a proper and orderly manner and build a macro-prudential policy framework for cross-border financing and capital flows to guard against relevant risks. It will press ahead with the market formation mechanism reform to expand and extend the foreign exchange markets. Third, China will impose higher requirements on authenticity and compliance reviews of foreign exchange business, and crack down on financial irregularities such as foreign exchange frauds and underground banking, to enhance the effectiveness of foreign exchange administration and ensure good market order. Moreover, it will strengthen monitoring, analysis and early warning of cross-border capital flows and improve response plans as precautions. 2016-04-21 10:46:56 · Bloomberg: Could you explain why the RMB exchange rate appreciated against the USD but depreciated against a basket of currencies recently? Do you still believe that the RMB stays stable despite the 3.5% fall in the RMB exchange rate index? What's your definition of the stable level? Is there a bottom line for RMB depreciation? 2016-04-21 10:53:38 · Wang Chunying: Thank you for your questions. We are also observing the movements of the RMB exchange rate. We believe that the RMB exchange rate is stable, proper and balanced. As for the movements of the RMB exchange rate against baskets of currencies, the data from China Foreign Exchange Trade System (CFETS) show that the RMB nominal effective exchange rate against the CFETS (13 currencies), BIS (40 currencies) and SDR (4 currencies) baskets of currencies had slightly dropped as at the end of the first quarter, or was down by 2.8%, 2.6% and 1.2% from the end of last year. BIS data show that the RMB real effective exchange rate fell by 1.3% and the RMB nominal effective exchange rate, 2.3%, in the first quarter, which were within the stable range. The CNY-CNH spread also narrowed, being 419, 111 and 94 basis points per day on average in January to March, also indicating the stable RMB exchange rate. 2016-04-21 11:08:16 · Wang Chunying: Our observations show that some currencies were in high volatility and some depreciated by more than 10% in a certain period of time, which however, was rarely seen in the RMB exchange rate. During the NPC and the CPPCC in March, Mr. Zhou, governor of the People's Bank of China, explained the causes behind the volatilities in the RMB exchange rate and shared his view on the outlooks, saying that the recent high volatilities were caused by the fluctuations in domestic and international economic and financial markets as well as the changes in market sentiment, but the foreign exchange markets have returned to normal, to sensibility and to the fundamentals, which is very likely to continue. Last but not least, I would like to reiterate that the RMB exchange rate system is a managed floating exchange rate system based on market supply and demand and relative to a basket of currencies. 2016-04-21 11:14:27 · Economic Daily: While China posted a surplus of nearly USD 600 billion in trade in goods, its foreign exchange reserves contracted remarkably and the balance of foreign exchange settlements and sales via banks that is related to trade in goods was in deficit in 2015, which happened again in the first quarter. Why is this? 2016-04-21 11:28:38 · Wang Chunying: Good question. These data are thought-provoking. Chinese Customs statistics show that China registered a trade surplus of more than USD 590 billion, but a small deficit in the balance of foreign exchange settlements and sales under trade in goods via banks in 2015, resulting in a variance of USD 631.1 billion. There was also a variance of more than USD 100 billion in the first quarter. These were due to different statistical coverage and companies' financial operations. As for statistical coverage, the Customs imports and exports, which are about goods flow, and foreign exchange settlements and sales under trade in goods, which are about funds flow, are different in the scope of statistics and time of recording, and therefore cannot fully match. Companies' financial operation involves three aspects: first, the increase in companies' foreign assets. Some companies' extended collection cycle of export payments will cause their trade credit assets to rise. The export revenue a Chinese exporter fails to collect from its importer is the trade credit the Chinese exporter provides to its importer, and also its asset. Chinese companies' trade credit rose by USD 46 billion in 2015. Some Chinese exporters will also deposit not settle their foreign exchange revenue. The balance of Chinese companies' foreign exchange deposits increased by around USD 25 billion in 2015, and further by USD 22.4 billion in the first quarter, which were largely export revenue. The trade credit data for the first quarter are being compiled at a quicker pace so as to present you the recent changes in companies' trade credit assets as soon as possible. Second, the decrease in companies' external debt. Many of companies' import payments are made to repay previous overseas financing and do not match the imports for the current period. For example, companies' cross-border financing made through refinancing and forward L/C from overseas financial institutions went down by USD 115.1 billion in 2015, and further by USD 34.9 billion in the first quarter. Companies' trade credit debt to overseas counterparts decreased by USD 62.3 billion in 2015. In addition, some of companies' foreign exchange sales under trade in goods are not related to the import payments for the current period but to pay previous foreign exchange loans borrowed from domestic banks. The outstanding domestic foreign exchange loans fell by USD 100.6 billion in 2015 and by USD 35 billion in the first quarter, most of which were trade-related loans. Third, companies' cross-border RMB settlements. China posted more than USD 170 billion in net cross-border RMB income under trade in goods with comparable coverage with Customs in 2015, and less than USD 10 billion in the first quarter, which did not lead to foreign exchange settlements and sales by banks. 2016-04-21 11:30:14 · Wang Chunying: In the long term, along with loose external liquidity and large capital inflows, the variance between the two figures will be quite the contrary. The current variance is the result of the recent changes in market environment but will be reversed in the long run. This indicates that Chinese companies are flexible in conducting financial operations, a significant progress in adapting to the changes in the environment. In day-to-day regulation, we will also consider other factors, such as failure to collect payments, collection of excessive or insufficient payments, and conduct management after explaining the data variance. The changes in foreign exchange reserves are the result of many factors combined, not just trade in goods, but also trade in services, and the capital and financial account. Therefore, the best way to look at the changes in foreign exchange reserves is through the Balance of Payments Statement. In 2015, the balance of foreign exchange reserves fell by USD 512.7 billion, including more than USD 340 billion due to trade, and around USD 170 billion due to asset price changes and exchange rate conversion, as shown by the Balance of Payments Statement. The changes in income from foreign exchange reserves will also impact trade. After the initial data in the Balance of Payments Statement are released, you will see the structural changes in foreign exchange reserves, including the percentages of trade and non-trade factors, and find out more about the supply and demand of foreign exchange. Thank you! 2016-04-21 11:35:44 · TASS: You have just unveiled the foreign exchange data for the first quarter. Could you tell us about the foreign exchange transactions between China and Russia in the period and release relevant data? What are your predications on this year's market, especially the activities? 2016-04-21 12:00:18 · Wang Chunying: Thank you for your questions and your attention to the transactions in and development of the foreign exchange markets between China and Russia. We have country-specific data and you can contact us if you want them. 2016-04-21 12:01:39 · Phoenix Satellite TV: We noted large deficits in the capital and financial account and heavy overseas investments by domestic enterprises since last year. Does this mean less investment opportunities in China? One more question, given that media statistics show that China posted capital outflows of more than USD 100 billion in the first quarter, will the pressure from capital outflows be heightened? 2016-04-21 12:04:52 · Wang Chunying: This issue has drawn wide concern recently. I would here like to make an analysis based on relevant data. First, China's cross-border financing and investments continue to lead to inflows and outflows of capital. According to the Balance of Payments Statement, China's ODI increased by USD 187.8 billion in 2015, up by 53% from 2014; overseas securities investment rose by USD 73.2 billion, 5.8 times that of 2014; and other investment assets like overseas loans and deposits grew by USD 127.6 billion, 61% less than that of 2014. On the other hand, FDI in China remained heavy in 2015, with USD 249.9 billion in net overseas capital inflows under direct investment, and USD 6.7 billion in net foreign securities investment inflows, including USD 35.7 billion in stocks and bonds issued overseas by domestic institutions and bought by non-residents. All these show that overseas investors are still optimistic about the companies and investment projects in China. The preliminary statistics from the SAFE for the first quarter show that China's direct investments in the balance of payments rose by more than USD 50 billion but less than USD 100 billion. The direct investments of USD 100 billion, as unveiled by the media, may include those under negotiation and those that China has intent. 2016-04-21 12:07:19 · Wang Chunying: Second, the increase in China's outbound investments are reasonable and of great significance. The increase in ODI shows China's remarkably strengthened overall strength, a natural byproduct of China's economic development. In some developed countries, companies made heavy investments overseas after a period of rapid economic development. Currently, China is the world's No. 2 by economic aggregate, with per capita GDP nearing 8000 USD, and the world's highest foreign exchange reserves. It has entered into the capital output period from the capital inflow stage. Second, this also shows the demand of optimized global allocation of assets. As economic globalization deepens and competition intensifies, MNCs are expanding and extending their global capital layouts, and Chinese companies are more eager to go global and rebuilding value chains through incorporating overseas organizations and cross-border M&As. The implementation of national strategies such as the Belt and Road Initiative has helped accelerate companies' efforts to go global. The increase in outbound securities investments is an indicator of China's deeper liberalization and further facilitation of purchasing assets such as overseas stocks by domestic residents through channels like QDII and Shanghai-Hong Kong Stock Connect. The increases in other investments like overseas loans also indicate more diversified ways for domestic players to use overseas funds. The capital outflows associated with global capital allocation will support future exports of goods and services and bring capital inflows such as incomes and returns like profits, dividends and interest, marking the beginning of China's deep participation in the global financial markets. Overall, the increase in outbound investments has positive implications, except that some companies or individuals are over-optimistic about overseas markets or blindly follow suit in making outbound investments. 2016-04-21 12:17:06 · Wang Chunying: Third, two-way cross-border financing and investments will be a normal at present and in the foreseeable future. Firstly, the government will encourage and support two-way cross-border financing and investments in policy. The 13th Five-Year Plan proposes that efforts should be made to comprehensively build a new landscape of opening up, fully press ahead with two-way opening, promote orderly flows of domestic and overseas elements, efficient allocation of domestic and overseas resources and deep integration of domestic and overseas markets, enhance the levels of use of foreign capital and outbound investments, expand two-way liberalization of the financial sector and push ahead with the Belt and Road Initiative. Secondly, it is normal for Chinese enterprises to allocate and deploy their assets at home and abroad as they grow, but the future trends depend on the economic fundamentals. In the first quarter, China's many economic indicators stood out, indicating a good start. The IMF downgraded its expectations of the world's economic growth in the World Economic Outlook it issued on April 12, but upped its expectations of one country's economic growth, and it is China. Overseas long-term capital will remain optimistic about China and Chinese companies will make correct judgment. As for the recent rapid increase in ODI, the SAFE holds its usual attitude. We have been stressing that we will support competent companies with qualified conditions to make ODI with authentic backgrounds in compliance with laws and regulations. Meanwhile, we will enhance monitoring and site inspections and crack down on false ODI. We will also cooperate with relevant departments to give necessary risk reminders. 2016-04-21 12:29:25 · CRI: The two-way fluctuations of the RMB exchange rate are obvious at present. What is the SAFE's plan to strengthen the building of the foreign exchange markets? How will the SAFE guide companies and help them mitigate risks? 2016-04-21 12:41:18 · Wang Chunying: It is been the SAFE's priorities to support the real economy and manage foreign exchange rate risks. First, continuing to promote the in-depth development of foreign exchange markets and opening up to the inside and outside. Diversifying transaction categories, expanding market players and improving market infrastructure— all will improve the conditions for companies to manage foreign exchange rate risks. Last December, the People's Bank of China and the SAFE announced that the trading time in the inter-bank foreign exchange market would be extended to 23:30, and QFII would be introduced. So far, 16 overseas central banks have become members of the inter-bank foreign exchange markets in three batches. Overseas banks participating in the purchases and sales of RMB can also become members of the inter-bank foreign exchange markets after filing and interfacing systems with China Foreign Exchange Trade System (CFETS) to conduct RMB foreign exchange transactions to support China's efforts to unify RMB exchange rates both at home and abroad. We will also enhance the flexibility of banks to manage the comprehensive positions of foreign exchange settlements and sales to help them manage foreign exchange risks and provide better transactions services. Moreover, we are considering to liberalize derivatives transactions that meet market demands. We also support the CFETS to launch the swap offsetting business, plan to give banks more flexibility to transact in the inter-bank markets, and help clearing houses provide better liquidation services. These are the directions in expanding and extending the foreign exchange markets and conditions for transaction players to manage foreign exchange risks more effectively. Second, guiding companies to prudentially manage foreign exchange rate risks. The previous panics and insensible trading in the domestic and overseas foreign exchange markets were related to mismanagement of foreign exchange rate risks, simplistic thinking, and bet on RMB exchange rate appreciation or depreciation, as well as failure to build standardized financial discipline for hedging for foreign exchange rate management. The SAFE will continue to increase data transparency, help market players interpret market situations and make sensible judgment, and promote self-discipline management in the market. The market self-discipline management mechanism contains two aspects: one is the self-discipline organization of Code of Professional Ethics and Market Management Commission for Inter-Bank Foreign Exchange Market launched in 2014 through the push of the SAFE; the other is the self-discipline pact under the three business principles. The two organizations are to standardize compliance operations by banks, urge banks to enhance risk education on customers, guide companies to build correct sense of foreign exchange rate risk and properly use derivatives to manage risk exposures. Two points need to be added on correct awareness of foreign exchange rate risk. First, efforts should be made to carefully assess the foreign exchange rate risk facing a company in trading and investments, and understand where the risk arises, how heavy the risk is, how to deal with the risk, bear or hedge, and what tools to use. Second, the functions of derivatives should be accurately defined. Derivatives are neither evils nor tools to make money, but the means to manage risks, and will support the development of a company's principal business if properly used. 2016-04-21 12:42:04 · Xi Yanchun: Thank you, Ms. Director. Thank you for your professional and specific answers. Please contact the press office of the SAFE if you have more questions. This is the end of today's press conference. Thank you all. 2016-04-21 12:46:57 (The original text is available at china.com.cn) 2016-05-09/en/2016/0509/1198.html
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Hu Kaihong: Good morning, ladies and gentlemen. Welcome to the press conference of the State Council Information Office. Mr. Guan Tao, director of the BOP Department of the State Administration of Foreign Exchange (SAFE), will unveil the data on foreign exchange receipts and payments for 2014 and take your questions. Now let us welcome our old friend Mr. Guan. January 22, 2015 09:39:37 Guan Tao: Good morning, ladies and gentlemen. Welcome to today's press conference. I’m very glad to meetthe friends from the press again. If I remember correctly, it has been a year since the SAFE's first press conference on the data on foreign exchange receipts and payments on January 24 last year. Please allow me to extend my heartfelt thanks to you for your vigorous support to the SAFE’s press release effortsduring the past year. Now I am going to unveil the data on the foreign exchange receipts and payments for 2014 and take your questions on behalf of the SAFE. The year 2014 is the first year of China’s efforts to deepen its reforms in an all-round way. During the year, the international environmentremainedcomplex and volatile, the world economy was still under deep adjustments, the monetary policies of themajor economies were differentiated to some extent, and the international financial market experiencedsharper fluctuations; while the domestic economyran within a reasonable range, economic restructuring witnessed positive changes, and the reform and opening up made significant progress. The SAFE actively adaptedto the new normal of economic development, and energetically promoted administrationstreamlining and power delegation, reform and innovation. Overall, China's cross-border capital flows in 2014 were basically balanced amid oscillations. January 22, 2015 09:51:36 Guan Tao: Banks settled foreign exchange of RMB 11.64 trillion (USD 1.90 trillion) and sold foreign exchange of RMB 10.87 trillion (USD 1.77 trillion) in 2014, with a surplus of RMB 768.6 billion (USD 125.8billion). Meanwhile, according to the data on foreign-related receipts and payments through banks, banks registered cumulative foreign-related income of RMB 20.39 trillion (USD 3.32 trillion) and made external payments of RMB 20.14 trillion (USD 3.28 trillion) on behalf of clients, with a surplus of RMB 247.9 billion (USD 40.5 billion) China’s foreign exchange receipts and payments in 2014 show the following characteristics: First, the situation of massive cross-border capital inflows was significantly improved. In the first half of the year, after adjustments for foreign exchange rate factors (the same below), the foreign exchange settled by banks was up 1% year on year and the foreign exchange sold by banks was up 10% year on year, representing andecrease in the surplus of 53%. Meanwhile, the foreign-related income received via banks was up 12% year on year, and external payments made through banks were up 18% year on year, representing a decrease in the surplus of 79%. Second, market players were less willing to settle foreign exchange but more motivated to purchase it. As a measure of the willingness of companies and individuals to settle foreign exchange, foreign exchange settlement through banks as a percentage offoreign-related foreign exchange income (i.e., foreign exchange settlement rate) declinedfrom 77% in Q1 to 68% in Q2 and Q3 and then rebounded slightly to 71% in Q4, representing an annual average of 71%, which was 1 percentage point lower than that in the previous year; foreign exchange sales through banks as a percentage offoreign-related foreign exchange payments (i.e., foreign exchange sales rate) that measures the motivation to buy foreign exchange registered a quarter-on-quarter increase from 61% in Q1 to 73% in Q4 with a year-round average of 69%, and the foreign exchange sales rate gained 6 percentage points over last year. January 22, 2015 09:54:49 Guan Tao: Third, the bidirectional fluctuations of cross-border capital became more evident. The surplus in foreign exchange settled and sold by banks stood at USD 159.2 billion in Q1, dropped to USD 29 billion in Q2, and became a deficit of USD 16 billion in Q3, which further decreased to USD 46.5 billion in Q4. According to the data of foreign-related receipts and payments through banks, there was a surplus of USD45.5 billion and USD40.7 billionin Q1 and Q2 but a deficit of USD20 billion and USD25.7 billion in Q3 and Q4. Fourth, the forward settlement and sales of foreign exchange of banks were more balanced. In 2014, the surplus of contracts for forward settlement and sales of foreign exchange reached USD56.1 billion, 58%lower than the year earlier. Specifically, in the first two months, the monthly surplus of contracts for forward settlement and sales of foreign exchange averaged USD24 billion, a continuation of the high level since the end of 2013. But after March, market expectations for the RMB exchange rate were differentiated and contracts for forward settlement and sales of foreign exchange recorded surpluses and deficits alternatively, and the monthly average surplus from March to December amounted to USD800 million. Fifth, the foreign exchange market realized autonomous balance. In 2014, the balance of spot and forward foreign exchange settled and sold by banks (or the balance of foreign exchange settled and sold by banks and the balance of the combined undue net forward foreign exchangesettled), an indicator of the supply and demand for foreign exchange in the retail market, amounted to a surplus of USD 85.6 billion, down by 74% from 2013. Specifically, thebalance registered a surplus of USD 164.9 billion in the Q1 and of USD 2.5 billion in Q2, and then a deficit of USD 30.5 and USD 51.3 billion in Q3 and Q4 respectively. These are the major statistics I want to disclose regarding the foreign exchange receipts and payments in2014. You can also find the relevant data released on the SAFE's official website. Now I would like to take questions you might have. January 22, 2015 09:59:05 Hu Kaihong: Thank you, Mr. Guan. Now please raise your questions and remember to tell us where you are from before asking your questions. January 22, 2015 10:02:49 Journalist from CCTV: My question is: Since the second half of 2014, China’s import and export trade has maintained a large surplus but the foreign exchangesettled and sold by banks has posted a persistent deficit starting from August, what are the primary reasons? Does it imply the outflow of “hot money” and what is the future trend? Another question is about European debts as the European Central Bank (ECB) will decide today if a massive stimulus package will be introduced to purchase European debts. Some European countries cut their interest rates recently, which was called the “European QE” by the market. What impact will thishave on the cross-border capital flows in China and on the RMB exchange rate? Thank you. January 22, 2015 10:03:10 Guan Tao: Thank you for your questions. Your questions cover two aspects: first, the foreign exchange situation of last year and its future development; second, the influences of the European QE on China. We have noticed that the trade surplus has been widening since the second quarter of last year, while the balance of foreign exchange settled and sold via banks has been on a decline and even swung from surplus to deficit. Thisquestion was raised repeatedly at the last two press conferences. We call this the deviation of trade surplus from the supply-demand relationship of foreign exchange. In the second half of last year, the surplus of import-export trade added up to USD277.8 billion, an increase of 66% over the first half. But meanwhile, spot and forward settlement and sales of foreign exchange witnessed a persistent deficit, with the accumulated balance transferring from a surplus of USD167.4 billion in H1 to a deficit of USD81.8 billion. From the perspective of balance of payments, the surplusunder the currentaccount reached USD72.2 billion in Q3, a significant rise from the quarterly average of USD40.2 billion in H1. However, cross-border capital flows turned from the quarterly average net inflow of USD38.9 billion in H1 to net outflow of USD9 billion in Q3.In the meantime, cross-border capital inflows changed from a quarterly average increase of USD74.3 billion in H1 to a decrease of USD400 million. It is preliminarily estimated the balance of payments in Q4 may resume the trend of “currentaccount is in surplus and capitalaccount is in deficit”. January 22, 2015 10:06:36 Guan Tao: China’s cross-border capital flows became more volatile for three main reasons: first, the floating band of the RMB against the USD was further widened in March 2014, the bidirectional fluctuations in foreign exchange gradually enjoyed popular support, and the expectations for the RMB exchange rate were differentiated, and as a result, enterprises were less willing to settle but more motivated to purchase foreign exchange, and conducted financial operations such as increasing foreign exchange deposits and reducing foreign exchange loans. At the end of 2014, the ratio between domestic foreign exchange loans and domestic foreign exchange deposits dropped 26 percentage points from the start of the year, and the operation of covering short dollar positions appeared in the financial operation strategy of the market. Second, in 2014, the world economy showed signs of an imbalanced slow recovery.The Federal Reserve gradually exited its quantitative easing monetary policy and the USD exchange rate was strengthened across the board with a rise of 12% in the dollar index for the whole year. Under this circumstance, substantial international capital flowed back to the US, putting many emerging markets under the pressure of capital flight and domestic currency devaluation. China was one of the affected. Third, since China’s economic development entered a “new normal” stage, market players have paid more and more attention to Chineseeconomic operations as well as the underlying risks and problems, indicating the market mood is being fluctuating. Besides, the RMB exchange rate has been close to a balanced and reasonable level and widelyaccepted and recognized by the market, thus inspiringdomestic market players to adjust the currency structure of their assets and liabilities. January 22, 2015 10:17:25 Guan Tao: As for how to view this bidirectionalvibration in cross-border capital, there are two key points: On the one hand, it is in line with the directions of macro control and reform. First, with the advancement of the market-oriented reform in the RMB exchange rate formation mechanism, the People’s Bank of China (PBC) has gradually relaxed its normal intervention in the foreign exchange market, and the pattern of “trade surplus and capital outflow” will inevitably be more normalized. Second, banks’ foreign exchange deposits have increased but domestic foreign exchange loans have decreased, which indicates that most foreign exchange deposits have been used by banks for overseas investments. Therefore, foreign exchange is dispersedly held by the market instead of being collectively held by the PBC in the past, which is a process of “making foreign exchange held by the people”. Third, domesticenterprises are accelerating their repayment of large amounts of dollar-denominated debts taken on in the early stage, which will help lowerthe leverage rate of the whole society and reduce currency mismatch. It is an expected and orderly adjustment. On the other hand, the current adjustment is moderate and tolerable. Although China faced certain pressure of capital outflows in H2 of 2014, the basic pattern of foreign exchange supply exceeding demand and increasing foreign exchange reservesremained unchanged for the whole year. Moreover, the market was running smoothly, corporate demand for foreign exchange was basically guaranteed, the liquidity of the foreign exchange market was abundant, and there was no panic stockpiling of foreign exchange by enterprises or individuals. In November and December, the gap between foreign exchange demand and supply was narrowed from USD20-30 billion two months ago to around USD 10 billion. January 22, 2015 10:29:20 Guan Tao: Furthermore, the bilateral RMB/USD exchange rate had a slight fall, but the the RMB exchange rates against currencies of major trade partners remained strong. Last year, the RMB nominal and real effective exchange rate indexes compiled by theBank for International Settlements hit new record highs with an annual appreciation of 6.4%and 6.2% respectively, and both of them have appreciated by 40.5% and 51%, respectively since the exchange rate reform in 2005. In the future, China’s cross-border capital flows will still face many uncertainties and instabilities. But it is certain that China will maintain a surplus under the current account, especially a surplus in trade in goods; China’s economic growth will remain at a high level in the world despite the shift from high speed to medium-to-high speed, and the RMB exchange rate will remain higher than those of major currencies, which can help maintain its attractiveness to international capital, particularly medium- and long-term capital. From the uncertain aspects, market players will continue to keep an eye on domestic economic operations and the financial risks involved, and the diminishinginterest rate spreads between domestic and foreign currencies will speed up the restructuring of asset and liability currencies of market players. There are many global uncertainties as well. For example, the monetary policies of major economies will be further differentiated, the US monetary policy will be normalized, and the quantitative easing monetary policies in Europe and Japan will continue to be intensified, in addition to the price adjustment of bulk commodities, currency turmoil in emerging markets, and geopolitical disputes. Overall, China’s balance of payments will maintain the structure of “a basic currentaccount balance and bidirectional fluctuations in cross-bordercapital flows” in the near future. January 22, 2015 10:50:41 Guan Tao: Now I would like to answer your second question, the influences of the European QE on China. Since the euro zone is a major economy and the euro is a main currency in the world, its macroeconomic policies have enormous spill-over effect which we have been paying close attentionto. It now appears that the QE which might be introduced in the eurozone will exert both positive and negative influences on China. For one thing, as the US monetary policy is being normalized, the European QE can somehowease the restrictive influence of the US QE tapering. For another, the differentiation of the monetary policy trends inleading economies will affect theexchange rates between major currencies, which will aggravate the volatility of the international financial market, especially the foreign exchange market, and increase the difficultyin managing cross-border capital flows and exchange rate expectations by emerging markets. What’s more, the European QE is only one of the important external factors influencing cross-border capital flows and the RMB exchange rate of China and otherfactors shall be considered to make an integrated analysis, a holistic judgment and relevant plans. Thank you. January 22, 201511:04:25 Journalist from the Xinhua News Agency: Good morning, Mr. Guan, you mentioned just now that the monetary policies of the world’s major economies were differentiated, and would be further aggravated. We know that the US Federal Reserve exitedits quantitative easing policy last year and it is widely expected that the interest-rate rise cycle will be initiated earlier or later than the middle of this year. If the Fed initiates theinterest-rate rise cycle, what impact will it have on China’s future cross-border capital flows? How do you make the judgment? What measures shall we take? Thank you. January 22, 2015 11:12:29 Guan Tao: Thank you for your question. Relevant questions were raised three times in the four press conferences last year. Each move in macroeconomic policy of the United States, the world’s largest economy and major reserve currency issuer, will create huge spillover effect,and the Fed's introduction or tapering of the QE monetary policy has drawn wide concerns from us. Currently our judgments are as follows: first, the Fed’s exit from QE had limited impact on China’s cross-border capital flows last year. TheFed’s gradual tapering of QE in 2014 exposed many emerging economies to pressure from capital outflows and currency devaluation. In China, amid the much sharper bidirectional fluctuationsof the RMB exchange ratesince the second half of 2014, the Fed’s tapering of QE, intertwined with the appreciation of the US dollar and other factors, boostedChinese enterprises to quicken their financial adjustment and posed a certain outflow pressure on cross-border capital. However, this did not fundamentally change the general landscape of a basic equilibrium in the balance of payments and foreign exchange supply and demand and a slight increase in foreign exchange reserves in the year, and China's foreign exchange market was basicallystable, with strong exchange rates of the RMB against other currencies, despite slight adjustment in the exchange rate of the RMB against the USD. Second, the continued normalization of the Fed’s monetary policy this year will pose both challenges and opportunities to China’s cross-border capital flows. I remember answering a similar question at the press conference of last January. At that time, we pointed out that we had the confidence and ability to cope with the influence of the Fed’s QE tapering. On the one hand, China’s economy has generally maintainedsteady and rapid growth with robust external accounts, abundant foreign exchange reserves and a high tolerance for the impact on cross-border capital flows. On the other hand, the Fed’s QE exit and monetary policy normalization are based on the prospects of the US economic recovery. If the US economy is well recovered, it means China’s external demand is improved, which is conducive to export expansion. These favorable conditions still exist at present. Meanwhile, we shall also convert the pressure from normalized US monetary policy to our motivation for further reform and openingup and acceleration of the building of a new open economic system. For instance, the normalization of US monetary policy may differentiate expectationsof the RMB exchange rate, which is favorable forthereformof the market-oriented formation mechanism of the RMB exchange rate and may accelerate the restructuring of asset and liability currencies of domestic enterprises. But as a correction of the early large-scale inflows, this can promote China’s balance of payments to a basic equilibrium and help improve macrocontrol. January 22, 2015 11:14:22 Guan Tao: It was specially emphasized at theCentral Economic Work Conference in late 2014 that, in face of the new characteristics of openingup, we should more actively foster a balance between domestic and external demand, between imports and exports and between introducing foreign capital and “going global”, to gradually realize a basic equilibrium in the balance of payments, which therefore remains a current target of macro control. The normalization of US monetary policy may propel domestic enterprises to accelerate debt adjustment, which helps reduce currency mismatch and the external vulnerability of China’s economy. The key point is that China should first put its own house in order,so as to respond to the impacts from external uncertainties and instabilities. Hence, attaching equal importance toreform promotion and risk prevention remains as the priority of foreign exchangeadministration this year: first, proceed with administration streamlining and power delegation in foreign exchange administration; second, keep improving trade and investment facilitation with focus on promotingthe convertibility of the capital accounts; third, enhance the two-way monitoring and early warning of cross-border capital flows, activelybuild a macro-prudential management system for external debts and capital flows, and step up efforts to investigate and punishillegalities and violations regarding cross-border capital flows; fourth, positively cultivate the foreign exchange market to better serve the needs of the real economicdevelopment; and fifth, innovate the application of foreign exchange reserves and keep improving the operation and management of foreign exchange reserves. Thank you. January 22, 2015 11:37:36 Journalist from the Economic Daily: Market institutions recently said that the net errors in China's balance of payments have hit USD300 billion in recent years, which possibly reflects secret capital outflows. Especially in the third quarter of last year,net errors and omissions set a record of USD-63 billion. What would you say about it, Mr. Guan? Thank you. January 22, 2015 11:47:12 Guan Tao: Thank you for your question. We have noticed this too. Ever since 2009, the “net errors and omissions” in the balance of payments of China has been negative with an aggregate value of USD346.3 billion in Q3 of 2014, when the currentaccount surplus was USD72.2 billion, capitalaccount deficit USD9 billion, reserve assets USD100 million less, and net errors &omission USD-63.2 billion. I would like to answer this question in four aspects: First, statistically speaking, the size of China’s net errors and omissions is moderate and the balance of payments statistics are reliable. Givenstatistical techniques, all countries have set the netting item of “net errors and omissions” when preparing the balance of payments statement to equalize debit and credit amounts. And as the balance of payments expands, the net errors and omissions may increase, and the errors in high-frequency data are probably larger than those of low-frequency data. For example, quarterly data may be more volatile than half-year data, which is then more fluctuating than annual data. According to international practice, the balance statement is reliable provided that the size of “net errors and omissions” accounts for less than 5%, positively or negatively, of the total export-import volume of trade in goods under the balance of payments in the same period. Since the international financial crisis in 2008, China’s net errors and omissions have accounted for about 2% of the total export-import volume of trade in goods, with 5.6% in Q3 of 2014 and only 2.4% in the first three quarters. According to the balance of payments statement of Q2 of 2014 just released by the US, the currentaccount deficit reached USD103.5 billion, the capitalaccount surplus was USD10.3 billion, the reserve assets was up by USD800 million, and net errors &omissions stood at USD94 billion, taking up 9% of the total export-import volume of trade in goods in the same period, compared with 15% in Q1 of 2012. January 22, 2015 11:48:04 Guan Tao: Second, whether they were recessive or dominant capital outflows, China’s current account surplus and capital accountdeficit in Q3 of last year were “to be expected”. At present, the PBC has gradually relaxed the normal intervention in the foreign exchange market, so “trade surplus and capital outflow” are an inevitable market result, which is reflected as “currentaccount surplus and capital accountdeficit” in the balance of payments statement. However, it is in line with the direction of control and reform and is a desirable balance of payments structure. In theory, there is an analytical framework which incorporates “net errors and omissions” into the capital account. Third, we need to pay close attention to cross-border capital flows that violate the laws or regulations, but should not overanalyze the economic implications of “net errors and omissions”. For example, the net errors and omissions in Q3 of last year amounted to USD-63.2 billion. There might be two statistical reasons for it – underestimated capital export or overestimated current account surplus, so it could not be simply concluded as the reason of capital flows. Indeed, the direction of net errors and omissions is not necessarily connected with that of capital flows. Since 2009, China’s net errors and omissions have been negative, but by 2013 our country had been under the pressure of capital inflow and appreciation of the RMB except 2012 when it was under an outflow pressure. From the angle of statistical techniques, if a reasonable and stable method is adopted, the specific scale of the two possibilities can be estimated and shall also be included in the corresponding trading items under the balance of payments statement. For instance, one of thediscrepancies between the imports & exports of trade in goods in BOP statement and theCustoms’ imports & exports statistics is because the BOPstatement will record the imports & exports of smuggled goods confiscated by the Customs under the item of trade in goods. If this method is accepted, the illegal capital flows shall be registered under the related trading items. Statistics are only an objective reflection of economic activities, not a tool to manage capital flows. We should monitor and analyze the illegal cross-border capital flows, without focusing on net errors and omissions. January 22, 2015 11:58:57 Guan Tao: Fourth, as data quality is the lifeline of statistics, the quality of balance of payments statistics shall be further improved. In face ofnew conditions and problems, the SAFE will continue to improve the statistical system and methodology to reduce net errors and emissions. For example, the recently implemented external financial assets and liabilities and trade statistical systemdistinguishes the trade changes in externalinvestments and non-trade changes such as currency conversion, namely, the changes in external investments caused by trade and the changes in external assets caused by currency conversion. After they are distinguished, the data quality of foreign investment statistics can be enhanced. This system also collects the overseas consumption statistics via bank cards, which can be used to estimate the statistics of Chinese residents' overseas travelspending more accurately. Besides, in addition to continuing to collect transaction-by-transaction data through enterprise declaration, more sampling surveys and estimations will be conducted to ensure the comprehensiveness and accuracy of statistics at a lower cost and in a more reliable way. Thank you. January 22, 2015 12:14:59 Journalist from China Economic Times: Hello, Mr. Guan, you mentionedjust now that China’s cross-border capital inflows slowed down and bidirectional fluctuationsbecame more frequent in 2014. In the capital market, was there any new change to cross-border capital inflows and outflows after the Shanghai-Hong Kong Stock Connect was launched? What influences do you think will the Stock Connect have on the future cross-border capital inflows and outflows? Thank you. January 22, 2015 12:23:02 Guan Tao: Thank you for your questions. The Shanghai-Hong Kong Stock Connect was officiallylaunchedon November 17, 2014 as a major reform initiative to expand the two-way opening up of capital markets and facilitate the orderly flows of the RMB between Mainland China and Hong Kong.Since its official launch, the system has run smoothly, with theevaluation from relevant authorities meeting expectations. The balance of payments statistics show that in November and December, the northbound trading saw net inflows of capitalthat totaled USD11.4 billion, while the southbound trading saw net outflows of USD1.5 billion. After netting between northbound and southbound funds, the net inflows into the mainland stock market under the Stock Connect stood at USD9.8 billion, but only took a limited share of the overall cross-border capital flows in the same period, and also took a low proportion as compared with thefunds flowing in the same period into the stock market through a variety of legitimate channels, in terms of net capital inflows into the stock market. Therefore, even though the northbound funds were considerable and played a certain role, they were small-scale and at the initial stage. Second,China hasmade clear its intention to make the RMB convertible under the capital account at an earlier date and to expand the two-way opening up of capital markets, which represents thegeneral trend. After the markets are opened, cross-border capital fluctuations are likely to be more frequent. Given this, we shall first be more tolerant and well-prepared for capital outflows and inflows withmeasures, and second, we shall put our own house in order, which is the key for coping with the impact of cross-border capital flows after the openingup. China's steady economic growth will be beneficial to the inflows of long-term capital; if the reform is advanced successfully, some price distortions can be removed; and if a macro-prudential system and mechanism is established for the management of cross-border capital flows, we can deal with the impact from cross-border capital flows. In other words, we would better respond to the new situation of growing convertibility and further opening up of the market in the future if we are more tolerant and handle our internal affairs well. Thank you. January 22, 2015 12:24:55 Journalist from China Review News Agency in Hong Kong: Hello, Mr. Guan, I’d like to know the developments of London and Paris as emerging offshore RMB settlement centers, and their cooperative and competitive relationships with Hong Kong. Thank you. January 22, 2015 12:38:57 Guan Tao: This is a good question, but it has nothing to do with the theme of today's press conference. Thank you. January 22, 2015 12:39:37 Journalist from the Xinhua News Agency: I'm wonderingabout the monitoring of hot money in 2014. At the Davos Forum, Zhou Xiaochuan, governor of PBC, notedyesterday that hot moneywas still affecting the prices of bulkcommodities and the stock market of our country, so I want to learn about the SAFE’s monitoring and supervision in this regard in 2014. 2015-01-22 12:40:06 Guan Tao: Last year the foreign exchange administrationdepartments were closely monitored the inflows and outflows of cross-border capital based on the concept of balanced management. An overalljudgment was made on the situation of cross-border capital flows in thebeginning of the year, the monitoring focuswas adjusted in line with the changing situation in the middle of the year, and the situation of 2015 was forecasted and analyzed at the end of the year.Weproducedperiodic reports on the influences of cross-border capital flows on the stock and bulk commodity markets. Take the influences on the bulk commodity market for example. In early 2014, some domesticenterprises conducted carry trade with bulk commodities, but this arbitrage motivation faded away starting from the second quarter along with the significant intensification of bidirectional fluctuations of the RMB exchange rate and the drastic adjustments to the prices of international bulk commodities. In June in particular, risky events of trade finance took place in some places, which was a significant lesson for the market on risks. We noted that some regulators had tightened their regulatorypolicies, domestic banks had stepped up the authenticity verification of trade finance of bulkcommodities, and some overseas banks had reducedtheirChinese business for fear of possible risks, resulting in tremendous changes to the relevant financing activities in H2 of the year. Based on the trade finance data we monitored, the balance of cross-border trade finance for imports rose by USD42.8 billion in H1 but fell by USD87.7 billion in H2. This was not necessarily the financing under bulk commodities, but it mirrored a certain trend. Thank you. January 22, 2015 12:41:05 Hu Kaihong: This is the end of today's press conference. Thank you, Mr. Guan, and thank you all. January 22, 2015 12:51:37 (The original text is available at www.china.com.cn) 2015-03-06/en/2015/0306/1148.html
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· [Wang Yungui]: Good morning, friends from the press. Welcome to the press conference of the State Administration of Foreign Exchange (SAFE) on policies during the fourth quarter of 2014. I am Wang Yungui, director of the Comprehensive Department at the SAFE. We are very pleased to have with us today Guo Song, director of the Capital Account Department, Zhang Shenghui, director of the Management and Inspection Department, and Xiao Lihong, inspector of the Current Account Management Department. First, I would like to brief you on behalf of the SAFE on foreign exchange administration policies. [10:12] · [Wang Yungui]: Following the spirit of the Eighteenth National People's Congress, the Third and Fourth Plenary Sessions of the Eighteenth CPC Central Committee and the principles of seeking progress while maintaining stability and carrying out reforms and innovations based on the plans of the CPC Central Committee and the State Council, since the beginning of 2014 the SAFE has accelerated administrative streamlining, power delegation, and functional transformation, has further promoted foreign exchange administration reforms, and has enhanced monitoring and management of cross-border capital flows, with the aim of improving the capability of the foreign exchange administration to serve the real economy and to promote restructuring, transformation, and upgrading. The main measures are as follows: [10:13] · [Wang Yungui]: First, improving foreign exchange administration for trade in goods and trade in services to offer conveniences while also preventing risks [10:14] · [Wang Yungui]: Based on the requirements and plans of the State Council to support stable foreign trade growth and to promote the development of trade in services, in 2012 the SAFE promoted foreign exchange administration reform for trade in goods throughout China, canceling the requirements that the foreign exchange receipts and payments of import and export companies be verified; in 2013 it conducted foreign exchange administration reform for trade in services, canceling approvals for cross-border receipts and payments of foreign exchange under trade in services, especially for each transaction of less than USD 50,000. With these two reforms, more than 80 percent of China's foreign exchange receipt and payment transactions are subject to market-based resource allocations, and foreign-related companies have seen significant improvements in the efficiency of foreign exchange turnovers and conversions and in their capability to manipulate capital against international competition. While canceling ex ante approvals, the SAFE has stressed interim and ex post regulation and has established a series of innovative and effective risk prevention measures. Classified regulation measures, for example, require that suspected companies during ex post examinations be classified as class-B or class-C companies for intensive monitoring or inspections of transactions. Another measure is risk warning letters. Mega data analytical technology is used to identify companies with abnormal transactions and then a risk warning letter is sent to warn the companies against incompliance in their use of foreign exchange and requiring them to provide explanations or verifications. With these fundamental reforms, trade facilitation in terms of foreign exchange is maximally ensured and the systems and mechanisms to prevent the risks of systematic cross-border capital flows have been strengthened. [10:15] · [Wang Yungui]: Second, steadily promoting the reform of foreign exchange administration under the capital account, with a focus on addressing the difficulties of foreign-related companies in financing and reducing the costs of financing [10:15] · [Wang Yungui]: There are nearly 800,000 foreign-funded enterprises in China and more than 25,000 Chinese companies overseas. Both have a strong demand for financing but they encounter many difficulties. To address these difficulties and to reduce the costs of financing, since the beginning of this year the SAFE has introduced many measures. [10:16] · [Wang Yungui]: First, simplifying administration procedures for foreign exchange under cross-border credit. Ex ante approvals for external debts, sub-loans of external debts, and external debt registration by financing and leasing companies have been canceled, allowing companies to open accounts, charge to an account, and settle foreign exchange with banks directly after first-time registration, thus significantly reducing their financial costs. Three weekdays can be saved for external debt transactions from the time of account opening to the settlement of foreign exchange. Since this policy was introduced in May 2013, more than 30,000 external debt accounts have been opened, nearly 200,000 transactions of withdrawals, principal payments, and foreign exchange settlements have occurred, recording a daily average business volume of approximately 600 transactions. [10:16] · [Wang Yungui]: Second, significantly simplifying cross-border guarantee procedures for financing. Financing guarantee indicators for banks and for Chinese companies have been canceled for both overseas loans under domestic guarantees and domestic loans under overseas guarantees, for all approvals for signing contracts, for all ex ante verifications of the performance of contracts, and for the majority of the qualification restrictions. For example, previously an overseas Chinese-invested company could not receive loans from a local bank due to the lack of qualified credentials or collateral, but since the reform, its domestic parent company is allowed to provide guarantees so that overseas banks can extend loans. This policy has enabled numerous overseas Chinese-invested companies to receive credit support from its domestic parent company for overseas financing. Likewise, a foreign-invested company in China can receive relatively cheap loans from a Chinese bank through a cross-border guarantee from its parent bank that is based outside of China. Since the launch of the reform, banks and companies have seen stable growth in their cross-border guarantee business, with a low performance ratio, which indicates that banks and companies have strict control over cross-border guarantee risks and are able to identify risks. Estimates show that this policy can help companies save financial expenses by about 2 percent and it can shorten the time for the handling of business. Therefore, it has been applauded by banks and companies. [10:17] · [Wang Yungui]: Third, launching a pilot program of voluntary settlement of foreign exchange capital for foreign-invested enterprises. The payment-based foreign exchange settlement system is currently applicable to foreign-invested enterprises, that is, foreign-invested enterprises can settle foreign exchange to make payments so that their demand to use foreign exchange is satisfied and speculative capital conversions are prevented. However, this policy restricts companies from independently using their settled foreign exchange capital, and, in particular, it presents less risks of loss of exchange to companies as the RMB exchange rate continues to rise. Given the enhanced bidirectional fluctuations of the RMB exchange rate since the beginning of this year, the SAFE has introduced the voluntary settlement policy for foreign exchange capital and has launched a pilot program in seventeen national economic and financial reform and development pilot zones, including the China (Shanghai) Pilot Free Trade Zone, the Shenyang Economic Zone, and the Suzhou Industrial Park. This policy gives companies more freedom to settle foreign exchange, allowing them to choose the method and time of foreign exchange settlement after the inflow of foreign exchange capital. According to the policy, an unpaid foreign exchange settlement account can be opened to deposit the RMB obtained after the settlement so as to prevent the risk of abnormal capital inflows. Companies in the pilot regions have more conveniences in terms of settlement of foreign exchange capital and can freely exchange currencies. From a rational perspective based on the operations and production of the majority of companies, since the launch of the pilot program capital inflows have remained stable, without significant growth in the settlement of foreign exchange capital. [10:17] · [Wang Yungui]: Third, deepening the pilot program for centralized operations and management of the foreign exchange of MNCs to promote innovative development of foreign exchange administration [10:18] · [Wang Yungui]: Numerous MNCs have invested in companies in China and many Chinese companies have invested overseas to become MNCs; hence there has been a huge demand for capital transfers between parent companies and subsidiaries and among subsidiaries. Companies were traditionally restricted from transferring capital among themselves by the foreign exchange administration authorities in accordance with the regulatory requirements, making it impossible for MNCs in China to revitalize their members' internal capital using management resources and making it impossible for overseas Chinese MNCs to support their overseas operations using the capital of their domestic parent company and associated companies. The Regulations on the Centralized Operation and Management of MNCs' Foreign Exchange Capital, launched by the SAFE in April 2014, allows MNCs to build a capital pool for domestic primary accounts and a capital pool for international primary accounts, allows qualified MNCs in China to centralize the collection, payment, and netting of foreign exchange capital under trade in goods and trade in services, allows members of MNCs in China to centralize the transfer of external debt quotas and to conduct voluntary settlements of foreign exchange capital, and allows conglomerates to gather the capital of their domestic members to extend loans to their overseas investment companies. These measures have been applauded by both banks and companies. Some MNCs have saved hundreds of millions of US dollars in financial costs within one year alone and some MNCs have reduced nearly 90 percent of the volume of their annual settlements through netting, thus seeing an obvious acceleration of capital turnovers, and some MNCs have elevated their financial management centers in China to Asia-Pacific capital centers. As a result, China has consolidated and enhanced its regional advantages in terms of using foreign capital and is upgrading from a manufacturing and R&D center to a capital and wealth center. [10:19] · [Wang Yungui]: Fourth, facilitating financial institutions to move into the interbank foreign exchange market to promote the diversity of foreign exchange market players [10:20] · [Wang Yungui]: In 1994 China established an interbank foreign exchange market in the Shanghai Foreign Exchange Trading Center for China's foreign exchange wholesale market. Since the launch of the RMB exchange rate formation mechanism reform in July 2005, the interbank foreign exchange market has developed rapidly, with positive progress made in terms of diversifying market players, improving market rules, solidifying the infrastructure, and promoting self-discipline in the market. On December 5, 2014, the Circular on Adjusting the Management Policy for Offering Financial Institutions More Conveniences to Access the Interbank Foreign Exchange Market was released by the SAFE to encourage further administrative streamlining and power delegation, to facilitate financial institutions’ access to the interbank foreign exchange market, and to continue to promote the building of a management framework of market self-discipline and government regulation. The highlights of this circular are as follows: canceling ex ante access permissions for financial institutions to enter the interbank foreign exchange market and allowing financial institutions, such as banks, security companies, insurance companies, and fund and financial companies, to access the market and conduct transactions of spot exchanges, forward exchanges, swap transactions, and options of RMB against foreign currencies, provided they have obtained spot foreign exchange settlement and sales qualifications from the SAFE and derivatives trading qualifications from the financial regulators, including the China Banking Regulatory Commission (CBRC), the China Securities Regulatory Commission (CSRC), and the China Insurance Regulatory Commission (CIRC); canceling ex ante permission for currency brokers to access the interbank foreign exchange market and allowing them RMB derivative trading against foreign currencies and foreign exchange trading, lending, borrowing, and other services, provided that they abide by the rules and regulations of the interbank foreign exchange market. This policy will come into force on January 1, 2015. [10:20] · [Wang Yungui]: Fifth, clamping down on illegal foreign exchange and keeping a close eye on abnormal foreign exchange capital flows [10:20] · [Wang Yungui]: Since the beginning of this year, the SAFE has further stepped up foreign exchange inspections and cracked down on illegal foreign exchange to safeguard the economic and financial security in China. First, conducting special inspections to prevent false entrept trade and forward foreign exchange settlements, given the abnormalities of false entrept trade arbitrage and forward foreign exchange settlements. From the beginning of the year to November, 1,710 cases of foreign exchange violations were investigated and dealt with, imposing and collecting administrative fines in the amount of RMB 400 million. Second, strengthening cross-departmental financial regulatory cooperation. The SAFE has worked with the Ministry of Public Security to crack down on foreign exchange illegalities, such as underground banks and foreign exchange margin trading. As of the end of October, twenty-seven illegal foreign exchange trading cases such as underground banks had been dealt with, involving RMB 65 billion. Third, intensifying the search for clues about foreign exchange violations using the mega data resources acquired by the SAFE to further enhance the accuracy of the crackdowns and the efficiency of the inspections. From the beginning of the year to November, 538 cases were identified through mega data analysis, imposing fines in the amount of RMB 260 million, accounting for 32 percent of all cases and 65 percent of the total penalties. Fourth, promoting the building of a foreign exchange credit system and expanding the application of information on foreign exchange illegalities. The SAFE has signed an MOU with the Credit Center of the People's Bank of China (PBC), integrating information on foreign exchange illegalities of companies and public institutions into the PBC's credit system to step up efforts to increase the penalties. [10:21] · [Wang Yungui]: To sum up, the SAFE has vigorously promoted administrative streamlining and power delegation and has steadily implemented foreign exchange administration reform measures, thus playing a significant role in revitalizing the market, promoting the stable and balanced development of imports and exports, easing companies' difficulties in financing and reducing their financing costs, and preventing the risks of cross-border capital flows. [10:21] · [Wang Yungui]:Now we will take your questions. Before asking your questions, please remember to tell us where you are from. [10:30] · [Wang Yungui]:We are very glad to have Mr. Xiao, Mr. Guo, and Mr. Zhang with us today, which is a good opportunity for you. Please focus your questions on policies and issues related to the current account, the capital account, and foreign exchange administration and inspections. [10:31] · [Wang Yungui]: Now please raise your questions. [10:31] · [South China Morning Post]: The ruble has recently slumped in the international market. Does the SAFE have any preventative measures and what are its responses? How do you regard the reasons behind this slump? [10:31] · [Wang Yungui]: China and Russia are close trade partners. We are watching for any sharp fluctuations in the exchange rate of the ruble. We hope that companies and institutions can rationally use forward and swap financial tools and avoid and lock up risks in Sino-Russian trade activities to promote the healthy development of Sino-Russian economic and trade relations. [10:35] · [Economic Daily]: You mentioned just now that companies encountered difficulties in financing and were looking for ways to reduce their financing costs. A report released on www.gov.cn yesterday said that we have provided entrusted loans for companies using foreign exchange reserves, and we have provided policy banks, large commercial banks, and small and medium banks with USD 384.8 billion in foreign exchange. I am wondering whether the money is being used as cross-border loans and whether there are special arrangements in terms of the direction of the investments, the interest rate, and the maturity. [10:48] · [Wang Yungui]: We have noted this report, but since your question is about foreign exchange reserves as entrusted loans, we have no more information to disclose here. Thank you. [10:49] · [people.com.cn]:China has witnessed historical records regarding import and export surpluses since the third quarter of this year. It is worth mentioning that Mainland exports to Hong Kong rose very rapidly and exports of precious metals climbed significantly between September and October, while during this period the surplus of foreign exchange under trade in goods settled and sold rose only slightly. What would you say about this? [11:16] · [Xiao Lihong]: We too have noted this. Let's first look at the figures. China's import and export aggregates rose by up to 11.4 percent and 8.4 percent respectively in September and October. Mainland imports from and exports to Hong Kong, especially for the processing trade of gold and jewelry, increased significantly. China's exports of precious metals were up by more than 600 percent and 180 percent respectively in September and October, much faster than the 15 percent average growth during the first eight months of the year. Mainland exports of gold and jewelry to Hong Kong were up by more than 500 percent in September and 120 percent in October, both of which were very high. [11:16] · [Xiao Lihong]: What is the relationship between the significant growth in the export of gold and precious metals and China's capital flows and financing? We too are looking into this. But based on the following analysis we believe they are not highly relevant: [11:17] · [Xiao Lihong]: In aggregate, no capital flows have flooded in with the dramatic increase in the export of gold and jewelry in terms of China's trade balance structure and trade financing this year. First, China has witnessed more inflows than outflows of cross-border capital since the second quarter of this year, which is a major trend. Second, we have observed that foreign exchange settled and received under trade in goods was low, while foreign exchange purchased and paid was high, and, in particular, the balance of foreign exchange settled and sold under trade in goods in October was, for the first time since 2012, in deficit, which was USD 2.4 billion. Third, the balances of trade credit, trade financing, and domestic and international foreign exchange remittances and loans were all on a downward trend. Trade financing was down by USD 36.5 billion and domestic foreign exchange loans were down by USD 21.2 billion during the first three quarters and the figures for October were on the decline as well. Therefore, in aggregate the surge in the export of precious metals did not result in significant inflows of trade capital. [11:17] · [Xiao Lihong]: At the micro level, Shenzhen represented the fastest growing region for the export and import of gold and jewelry to and from Hong Kong in terms of companies' receipts and payments of foreign exchange. The SAFE's Shenzhen Branch conducted a survey of one dozen gold companies with the fastest growth of imports and exports in September and October. This survey shows that their total receipts and payments of foreign exchange were on the decline during these two months, with their trade financing ratio lower than the local average. Therefore, the volume of companies' imports and exports of gold are not closely related to their capital flows. [11:17] · [Xiao Lihong]: Last but not least, policies and regulations. At the end of December 2013 the SAFE released Circular No. 44 to intensify verifications of trade financing. The SAFE and its branches have been committed to clamping down on trade structuring without a real transaction background and has never slackened in these efforts. In implementing Circular No. 44, commercial banks have enhanced their control over trade financing risks, and overseas banks, especially those based in Hong Kong, have not loosened their restrictions on trade financing by Mainland companies. There is limited room for financing arbitrage of trade structuring. [11:18] · [Xiao Lihong]:Trade structuring has not yet returned, and the SAFE will continue to watch out for industries with abnormal imports and exports and companies' cross-border receipts and payments, foreign exchange settlements and sales, and trade financing to guard against the risks of cross-border capital flows [11:18] · [CCTV]: You have briefed us on the policy of the pilot reform of centralized operations of MNCs’ foreign exchange. How will this policy support the state's plans for economic and financial reforms? Will more measures be introduced in the future to facilitate companies' cross-border investments and financing? [11:51] · [Wang Yungui]: The MNC policy is a key reform measure promoted by the SAFE this year. The reform measure for MNCs includes a package of policies covering many comprehensive businesses of the SAFE. These policies aim to facilitate Chinese and foreign-invested MNCs to use their internal funds rationally. · [Wang Yungui]:This policy has proved to be helpful to address the difficulties faced by companies in terms of financing and to reduce their high financing costs, which have been rather difficult this year. The SAFE has actively implemented the plans of the CPC Central Committee and the State and has been dedicated to addressing this issue. The MNC policy has an important institutional design that allows each company to open a domestic primary account and an international primary account. The capital pool of the domestic primary account allows domestic member companies of an MNC to put their capital into the same pool, which means that company A can lend its money to company B when it has money and companies A and B can lend their money to company C. This is very helpful for MNCs to revitalize their internal capital. In particular, this policy allows Chinese companies that have gone global to put together the capital of the parent company and that of the domestic subsidiaries and to lend it to their overseas subsidiaries and branches. [11:51] · [Wang Yungui]: We all know that many going-global companies cannot get loans from local banks or they have to pay a high price for loans. Meanwhile, many domestic large groups have a huge amount of internal capital. This policy allows domestic groups to integrate and transfer domestic funds to support the development of overseas companies. It has proved to be very effective in serving the going-global companies, especially those making overseas investments in areas not reached by Chinese financial institutions. [11:52] · [Wang Yungui]: Next, we will continue to step up efforts to reform policies for MNCs to facilitate better coordination of their capital and to build a more convenient financing environment. [11:52] · [Xinhua News Agency]: Next year will be the last year of the Twelfth Five-year Plan period. Does the SAFE have any plans for capital account reform and what measures will it introduce next year? [12:13] · [Guo Song]: The SAFE has adopted a series of measures to streamline administration and delegate power during the Twelfth Five-year Plan period, based on the uniform arrangements of the CPC Central Committee and the State Council as well as the principles of the "five shifts." In addition to the many reform measures we have taken since the beginning of this year, as briefed by Mr. Wang, over the past few years we have been committed to deepening the reform of the foreign exchange administration system and substantially improving capital account convertibility. During the past five years, we have been stressing the "five shifts.” Now I would like to tell you about the "five shifts." [12:14] · [Guo Song]: To put it simply, the "five shifts" include a shift from focusing on approvals to stressing monitoring, and a shift from ex ante approvals to ex post regulation. Many items that were subject to ex ante approvals have been removed, and our monitoring and analysis capabilities are improving, which is the shift from approvals to monitoring. For example, external guarantees for the capital account used to require ex ante approvals, but, with the exception of one registration procedure, this approval has now been removed. This is the shift from ex ante approvals to ex post regulation. [12:14] · [Guo Song]: The shift from behavioral regulation to regulation of market players is also included. What is behavioral regulation? For example, external debts were subject to approvals of the external debt, and investment was subject to investment approvals. Now they are combined and subject to regulation by market players. The MNC management policy introduced by Mr. Wang is designed according to this logic. [12:14] · [Guo Song]: Of the remaining two shifts, one is the shift from presumption of guilt to presumption of innocence. The reforms of trade in goods and trade in services are cases in point. We used to presume everyone was guilty and therefore required case-by-case inspections, but now we presume everyone is innocent and we identify who is guilty through analysis and monitoring and we classify them as class-B or class-C companies that require strengthened regulation. This is the shift from presumption of guilt to presumption of innocence. [12:15] · [Guo Song]: Another shift is the shift from a positive list to a negative list. The concept of a negative list may be very familiar to you since the establishment of the China (Shanghai) Pilot Free Trade Zone. In fact, this concept was first put forward five years ago. [12:15] · [Guo Song]: There is still a long way to go, to be sure. It is assessed that the capital account now has forty sub-items. Our self-assessment shows that about 85 percent, or thirty-four sub-items, are convertible, or 85 percent of the capital account business can be handled now. This means that significant progress has been achieved in capital account convertibility over the past few years. [12:15] · [Guo Song]: Based on the spirit of the Third Plenary Session of the Eighteenth CPC Central Committee and the Central Economic Work Conference, the SAFE will build and improve the external debt and capital flow management system under a macro-prudential framework, and will deepen reforms in key areas, such as direct investments and securities investments, to further promote the opening up of the capital market. The SAFE will also systematically comb through the experience from the pilot program of centralized operations and management of the MNCs' foreign exchange and the foreign exchange administration policies of the China (Shanghai) Pilot Free Trade Zone and roll out the experience nationwide to gradually achieve convertibility of the RMB capital account. A series of reform measures for administration of foreign exchange under the capital account will be launched in the foreseeable future. Thank you. [12:16] · [China News Service]: You said just now that RMB 65 billion was involved in the underground banks that were destroyed from the beginning of the year to October. But I remember that RMB 2.8 billion was involved in the underground banks destroyed as of this August. Is the large gap because of special inspections or because of the crackdown on major cases? · [Zhang Shenghui]:Clamping down on underground banks has been one of our work priorities. This effort has focused on three aspects this year: first, exploring clues; second, close cooperation; third, extending inspections. [12:43] · [Zhang Shenghui]: First, just as Mr. Wang said just now, the SAFE has massive data and an offsite inspection system, through which we can analyze the foreign exchange receipts and payments and related behavior, identify abnormalities of capital flows, and find clues about cases. The offsite inspections have helped us find numerous clues, following which we have stepped up our efforts to crack down on the underground banks. [12:44] · [Zhang Shenghui]: Second, in terms of cross-departmental cooperation, we have been working closely with the Customs, the SAT, and the discipline inspection commission and the supervision department and we have shared information and resources about the cases. We also cooperate with the public security departments and take joint actions. [12:44] · [Zhang Shenghui]: Third, regarding extending the inspections, we investigate the counterparties and downstream and upstream clues every time we destroy an underground bank, identify upstream and downstream problems, and cooperate with the Customs, the SAT, and the discipline inspection commission to crack down on foreign exchange fraud and arbitrage, smuggling, and anti-corruption. [12:44] · [Zhang Shenghui]: Our efforts in these three aspects have proven to be effective this year. As of this October, the SAFE and the public security authorities cracked twenty-seven cases of underground banks and other illegalities, which involved a total of RMB 65 billion, with RMB 150 million frozen and more than RMB 30 million collected on site, and we caught more than ninety suspects. [12:44] · [Zhang Shenghui]: The rise from more than RMB 2 billion to RMB 65 billion as you have just mentioned was the result of several cases that involved a large amount of money. The time of the investigations varies with the complexity of the cases. It usually takes us several months, or half a year or even longer, to investigate each case. That's why the figures fluctuate. [12:45] · [Zhang Shenghui]: We will continue to step up our efforts to crack down on the underground banks and try to improve the effectiveness of our efforts to safeguard our foreign-related economic and financial security. [12:45] · [Reuters]: Will the recent pressures of capital outflows put downward pressures on the RMB exchange rate? [12:56] · [Wang Yungui]: There has been a new normal in the RMB exchange rate since the beginning of this year, namely, bidirectional fluctuations. This trend has been particularly obvious since the second quarter, with ups and downs in the RMB exchange rate. In this new normal, companies, institutions, and individuals have been more sensible. Rather than settling foreign exchange immediately after capital inflows, some companies deposit their export income overseas instead of transferring it to China and choose not to settle all the export income but rather to deposit it in their foreign exchange accounts. It is therefore normal that there are capital outflows during some months. This is a normal state under the new landscape of economic and financial liberalization and there is no need to worry about it too much. The SAFE will continue to enhance its regulation of foreign exchange capital flows. [12:56] · [Phoenix Satellite TV]: I am concerned about the collapse of the ruble. Some believe that the plunge of the ruble may lead to a depreciation of currencies and capital outflows of other emerging countries. Is the SAFE similarly concerned about the RMB? Will the RMB come under more pressure as the Fed increases the interest rate next year? [13:06] · [Wang Yungui]: There are very complex reasons behind the collapse of the ruble, which has attracted wide concern in the international community. As a large and open economy, China is also paying attention to this and the SAFE is continually monitoring and managing the flow of foreign currencies. Overall, the impact of the collapse of the ruble has not yet become fully apparent and still requires further assessment. [13:07] · [Global Times]: I am also concerned about the RMB depreciation. It has been recently expected that the volatility range of the RMB mid-rate will be further extended next year. What do you have to say about this? [13:17] · [Wang Yungui]: A RMB depreciation or appreciation is normal under the prerequisite of the market determining the RMB exchange rate. In this context, it is normal that the RMB depreciates at certain times or in a month, and it is therefore unnecessary to overanalyze it. [13:18] · [Wang Yungui]: Regarding the mid-rate, the People's Bank of China and the SAFE will continue to promote the marketization reform of the RMB exchange rate formation mechanism. Based on the spirit of the Third Plenary Session of the Eighteenth CPC Central Committee, the SAFE will allow the market to play a more decisive role in the RMB exchange rate formation mechanism, enhance monitoring of cross-border capital flows, and vigorously develop the foreign exchange market to gradually achieve a basic equilibrium in the balance of payments and will create a favorable environment for the development of China's foreign-related economy and finance. Thank you. [13:21] · [Wang Yungui]: Thank you for coming. You have raised very good questions, which will further enlighten us to accelerate trade and investment facilitation and to promote reform of foreign exchange administration to better serve the real economy. Thank you for your attention and support for our work. We are looking forward to meeting you again at our next press conference. [13:22] (The original text is available at www.people.com.cn) 2015-01-06/en/2015/0106/1142.html
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[Wang Yungui]: Good morning, friends from the press. Welcome to the press conference of the State Administration of Foreign Exchange or the SAFE on policies for the second quarter of 2015. I am Wang Yungui, director-general of the General Affairs Department of the SAFE. Today we have with us Du Peng, director-general of the Current Account Management Department, Guo Song, director-general of Capital Account Management Department, and Zhang Shenghui, director-general of the Supervision and Inspection Department. On behalf of the SAFE, I would first like to unveil the latest policies for foreign exchange administration. [10:12] [Wang Yungui]: Since the beginning of this year, the SAFE has actively implemented the work plans of the CPC Central Committee and the State Council. To be specific, it has accelerated promoting the "five shifts" in foreign exchange administration, further deepened the reform of foreign exchange administration in trade in goods, trade in services and direct investments, promoted trade and investment facilitation, and stably pressed ahead with the capital account convertibility, thus effectively improving foreign exchange administration to serve the real economy. Below are the reformative measures that have been taken: [10:13] [Wang Yungui]: First, the reform on foreign exchange administration for insurance business is yielding dividends. [10:13] [Wang Yungui]: The Guidelines for Foreign Exchange Administration for Insurance Business came into force on March 1, 2015, cancelling or handing down administrative approvals for foreign exchange business of insurance companies. This reform is now gradually yielding dividends. First, the policy offers significant convenience to insurance institutions to handle relevant business. According to an insurance company, the reform simplifies the business application materials required and approval process, and cancels the requirements on the validity of the qualification for carrying out foreign exchange-related insurance business, offering great convenience to insurance institutions to handle foreign exchange business, helping reduce HR cost and improving business efficiency. Second, the integrated regulations are easier to implement. Compared with the original policies for foreign exchange-related insurance business, the Guidelines is clear, centralized and transparent, featuring coherent and consistent contents, making it easy for relevant insurance institutions and banks to implement. Third, the reform boosts the development of foreign exchange-related insurance business. Relaxing the requirements on the currency for pricing and settlement solves the problems encountered by most insurance institutions and provides room for introducing policies to promote the development of foreign exchange-related insurance business.[10:14] [Wang Yungui]: Second, reform of foreign exchange administration for direct investments has produced preliminary results. [10:15] [Wang Yungui]: To further simplify and improve foreign exchange administration for direct investments, the SAFE announced in February 2015 that administrative approvals for foreign direct investment (FDI) and overseas direct investment (ODI) will be canceled starting from June 1. From then on, the absolute majority of businesses under direct investment will be processed directly at banks, with no need for companies to register or verify with foreign exchange authorities. [10:15] [Wang Yungui]: Well received by banks and companies, the reform allows banks to provide whole-process services including foreign exchange registration, accounts opening and remittance, which is favorable for banks to improve the level of service and attract and retain quality customers. The cancellation of the verification for the registration of foreign exchange for direct investments has significantly cut the business processing process and links, reducing the costs of companies for moving to and fro between a foreign exchange authority and a bank. In the first week since the implementation of the policy, namely, between June 1 and 7, 43 banks across China conducted foreign exchange registration for 398 direct investments, with the contracts involving USD 12.4 billion in total. These direct investments, FDI or ODI, were registered as new items or for alteration, featuring bidirectional flows of cross-border capital. [10:16] [Wang Yungui]: Third, the reform of voluntary settlement of foreign exchange capital of foreign-invested enterprises (FIEs) has been rolled out nationwide. [10:17] [Wang Yungui]: Based on the experience in voluntary settlement of foreign exchange capital gained in the pilot program in force in China (Shanghai) Pilot Free Trade Zone and 16 other national pilot economic and financial reform and development zones, the SAFE began reforming the administrative approach to settlementof foreign exchange capital at the end of March, announcing the reform of voluntary settlement of foreign exchange capital will be rolled out nationwide starting from June 1, granting companies the full right of decision making and choice in settling foreign exchange capital. Companies will be allowed to choose the time and amount of foreign exchange capital to be settled based on their operating needs, and conduct receipts and payments of the RMB through the account for FX settlement and pending payment. While offering more convenience, the SAFE will continue to supervise the use of funds after the foreign exchange is settled and introduce more measures to guard against and control risks. [10:18] [Wang Yungui]:As the RMB exchange rate falls in the bidirectional fluctuation range, the reform of voluntary settlement of foreign exchange capital provides enterprises with policy space for evading risks associated with the exchange rate fluctuation, and facilitates equity investment in China by FIEs using funds after settlement of foreign exchange, whereby better satisfying FIE's demand for business operations and funds operations, and will thus play a positive role in promoting the foreign-related economic development. [10:18] [Wang Yungui]: Fourth, the Guidance on Foreign Exchange Administration for Mainland-Hong Kong Mutual Fund Connect is forthcoming. [10:18] [Wang Yungui]: Approved by the State Council, the Mainland-Hong Kong Mutual Fund Connect scheme will be launched on July 1. Under this framework, mainland investors can buy HK public offering of funds on the mainland and HK investors can trade mainland public offering of funds in Hong Kong. The initial quota for investment under the Mutual Fund Connect would be RMB 300 billion in each direction. The Guidance on Foreign Exchange Administration for Mainland-Hong Kong Mutual Fund Connect has been developed and is forthcoming. [10:18] [Wang Yungui]: This policy creates a new channel for both mainland and HK investors to invest in the stock market and is the first step to liberalize portfolio investment under the collective investment scheme. With the launch of the Mutual Fund Connect, the "overseas sales or issuance by residents" and "domestic sales or issuance by non-residents" under "capital and monetary market instruments — securities for collective investment" in the transactions under the capital and financial account will no longer be strictly restricted, indicating that two inconvertible capital accounts will be slashed and China's capital account convertibility will be further enhanced. [10:20] [Wang Yungui]: Fifth, cracking down on activities in violation of foreign exchange laws and regulations. [10:20] [Wang Yungui]: Since the beginning of this year, the SAFE has stepped up foreign exchange inspections, cracked down on acts in violation of foreign exchange laws and regulations, and effectively guarded against risks arising from abnormal flows of cross-border capital. First, the SAFE organizes special inspections of banks' compliance with laws and regulations on foreign exchange business and strengthens internal control by and external supervision over banks, so as to promote banks to improve their level of compliance in the foreign exchange business. On-site inspections have been completed while subsequent handling and rectification and follow-up are underway. Second, under the unified arrangement of the Office of International Hunt for Corrupt Officials Who Have Fled Abroad and Recovering Ill-Gotten Gains under the Central Anti-Corruption Coordination Team, the SAFE works with the People’s Bank of China Ministry of Public Security, the Supreme People's Court, and the SupremePeople'sProcuratorate to clamp down on underground banks and illegal acts such as transferring overseas the illegal gains through offshore accounts and non-resident accounts in a centralized manner to eliminate the channels for transferring illegal gains and income such asbribes andgraft. Third, the SAFE organizes special off-site inspections of the main channels, players and businesses with abnormal flows of cross-border capital, and analysis and identification of the clues to foreign exchange transactions in violation of relevant laws and regulations, so as to precisely crack down on players that violate the foreign exchange laws and regulations. [10:21] [Wang Yungui]: Overall, by adapting to the requirements from market players for easier foreign exchange administration, the SAFE was committed to collaboratively pressing ahead with administration streamlining and power delegation, combination of regulation and deregulation and providing optimized services, and stably implemented reformative measures for foreign exchange administration in the second quarter, playing a significant role in making full use of the vitality of market players and promoting the sustainable and healthy economic development. [10:21] [Wang Yungui]: Now we will take your questions and please remember to tell us where you are from before you raise questions. [10:22] [Reporter]: Mr. Wang, I am from the CAIJING Magazine. The State Council recently adopted the policy of limited convertibility for Guangzhou, Tianjing and Fujian Free Trade Zone. I am wondering the differences between the policy and the ongoing capital account reform. When will the detailed provisions be promulgated? [10:24] [Wang Yungui]: Let's invite Mr. Guo Song to answer this question. [10:25] [Guo Song]: In the past, the capital account was administered by business lines such as direct investments, portfolio investment and external debts, with the extent of administration prescribed in each policy dependent on the degree of risk. The limited convertibility is a new approach we are planning to adopt or are exploring. According to this approach, we will no longer determine or distinguish the use of funds within the limit, or no longer follow the traditional way of administration, that is, investors may make direct investments or portfolio investments within the limit. We believe this is a new way of reform. The successful experience from some other countries and regions which have tested such a way shows that this approach will be effective. In our view, if this policy is introduced, the degree of overall convertibility of the capital account in China will be improved significantly. But when this approach will be adopted depends on our internal work processes. [10:25] [Reporter]: I am from China Daily. I have a question for Mr. Wang. According to Governor Zhou Xiaochuan, the Regulations on Foreign Exchange Administration will be revised this year to further liberalize the convertibility of capital accounts. I am wondering the progress of the revision. In what logic will the Regulations be revised? When will the revised version be disclosed? Thank you. [11:06] [Wang Yungui]: This is a very good question, which concerns the academia and media. According to Mr. Zhou, there is still a lot to do to press ahead with the capital account convertibility and one of them is revising the Regulations. The current version came into force in August 2008 after being approved by the State Council. Over the past few years, the Regulations has played significant roles in advancing the foreign exchange administration reform, serving the real economy and guarding against and controlling financial risks. [11:06] [Wang Yungui]: As China enters the new normal of economic development, the administration streamlining and power delegation will be further accelerated, and the foreign exchange administration reform will be deepened. Looking back and into the future, it is necessary to further consolidate the reform fruits by adjusting and revising the Regulations, which is underway under the leadership of the People's Bank of China. The main logic of revising is summarized in four aspects as follows: [11:06] [Wang Yungui]: First, continuing to streamline administration and delegate power. The permission and approval involved in the Regulations on Foreign Exchange Administration for the regulation of the capital account will be canceled, simplified or handed down. It is expected that streamlining administration and delegating power will provide room for the capital account convertibility. As a result, a large part of the revised version will be dedicated to adjustments relating to administration streamlining and power delegation. [11:06] [Wang Yungui]: Second, further intensifying statistical monitoring. After the realization of the capital account convertibility, we believe that the statistics and monitoring of cross-border capital flows will be enhanced, and some transactions will even be recorded. This means that administration will still be required after achieving the capital account convertibility. But how? What's important is that comprehensive and continuous monitoring of cross-border capital flows along the entire chain will be conducted. Therefore, the revised version will emphasize statistical monitoring in terms of declaration of the balance of payments, monitoring of cross-border capital flows, statistics on external debts, and statistics on foreign exchange settled and sold. [11:06] [Wang Yungui]:Third, innovating the concept for financial regulation by learning from the lessons of the international community on financial regulation after the 2008 subprime mortgage crisis. At that time, the international community focused on strengthening macro-prudential management in crisis monitoring, and intensified the regulation of systematic financial institutions. While propelling the capital account convertibility, China needs to draw from the latest international experience and practice in financial regulation. As a result, the revised version will stress macro-prudential monitoring of cross-border capital flows, introduce policies for strengthening macro-prudential management of external debts and highlight provisions on business operations by financial institutions. While liberalizing specific approvals, this means lines of defense against macro risks will be built. [11:06] [Wang Yungui]: Fourth, improving measures for crisis response and stepping up efforts to revise and improve the provisions on guaranteeing the balance of payments. Given that the surplus or deficit of the balance of payments will adversely impact the economic development, preventing and controlling external risks is critical. The revised version sets forth the temporary control terms in case of sharp fluctuation in the balance of payments or in the domestic financial market, which satisfies the special requirements of the IMF on crisis and accords with the international practice. [11:06] [Wang Yungui]: To sum up, we expect to provide room for the capital account convertibility and build lines of defense against risks, making sure no systematic and regional financial risks will occur, which is our bottom line. [11:07] [Reporter]: I am from CBN. Reportedly, the IMF announced on June 12 that a team has been sent to assess China regarding the Special Drawing Right (SDR). Could you tell us about the progress of the assessment? [11:12] [Wang Yungui]: Currently, the assessment of SDR is led by the People's Bank of China (PBC) and carried out by the SAFE. The assessment is now carried out in accordance with the unified requirements of the PBC, so you can consult the PBC about the specific progress. But I want to stress here that having the RMB included in the SDR basket is a key plan made by the CPC Central Committee and the State Council during the reform and opening up and under the new normal of economic development. Including the RMB in the SDR basket is critical for pressing ahead with the RMB internationalization and further reducing the likelihood of currency mismatch in China's foreign-related economy and financial risks. Just as Mr. Zhou and Mr. Yi said, we will actively promote the inclusion of the RMB in the SDR basket, but this should be a natural result. We will cooperate with the IMF in the assessment for including the RMB in the SDR basket, enabling the international community to acquire a clearer and more comprehensive understanding of the use of the RMB in the global market.[11:12] [Reporter]:I am from Xinhua News Agency. I have two questions. First, how does the hunt for corrupt officials who have fled abroad and recovery of ill-gotten gains, which is part of the Skynet Act, turn out?Since the beginning of the year, cross-border e-commerce has boomed, but some small companies have been found having difficulty in foreign exchange settlement for exports. For example, they can only handle receipts and payments under small-sum trade in goods through a third-party payment institution, with a single transaction of not more than USD 50,000. More small companies export goods in small packages and cannot settle foreign exchange, perhaps due to incorrect declaration to the Customs, and have to settle through underground banks. Given this, my second question is how to make it easier and more convenient for companies to settle foreign exchange while promoting and supporting the development of cross-border e-commerce. [11:43] [Wang Yungui]: Let's invite Mr. Zhang to answer the first question. [11:43] [Zhang Shenghui]: I would first like to clarify that cracking down on transferring ill-gotten gains through offshore companies or underground banks is part of the Skynet Act, which has been carried out nationwide by the SAFE, PBC, Ministry of Public Security, Supreme People's Court, and SupremePeople'sProcuratorate since this April. Under the deployment of the Office of International Hunt for Corrupt Officials Who Have Fled Abroad and Recovering Ill-Gotten Gains under the Central Anti-Corruption Coordination Team, this act focuses on clamping down on illegal acts of transferring overseas the illegal gains through offshore accounts and underground banks in a centralized manner to confiscate illegal gains such as bribes and graft as many as possible. Under the command of a special action steering team, the SAFE, highly concerned over this act, has developed an inspection scheme for the special action in the first place, and called on its branches in the key areas to hold meetings to make deployment, in an effort to press ahead with the act by making full use of the experience of foreign exchange authorities in cracking down on illegalities such as underground banks and its own advantages. This act is underway now and it is improper to disclose more details here. But as the act proceeds, we will immediately disclose relevant information to you if necessary. Thank you! [11:43] [Wang Yungui]: Let's invite Mr. Du to brief us about cross-border e-commerce and foreign exchange settlement. [11:43] [Du Peng]: I remember that on the briefing for the third quarter of last year, I introduced something on the third-party payments for cross-border e-commerce, which has produced some results. By summarizing the experience gained on the preliminary pilot program in Beijing, Shanghai, Chongqing, Zhejiang and Shenzhen, we have scaled up nationwide the pilot program on online payments through a third party starting from this January, which means that qualified institutions across the country will be allowed to engage in this business. Regarding the inconvenience to make payments in some places, I'd like to answer as follows: [11:44] [Du Peng]: First, this business is launched to allow companies and individuals to make online deals through third-party payment institutions. Individuals are free from the annual cap of USD 50,000, provided that the transaction is authentic. [11:44] [Du Peng]: To further expand online payment and satisfy companies' and individuals' demand for cross-border business, we raise the cap of original USD 10,000 to USD 50,000 for a single transaction. 1.329 million deals of receipt and payment via e-commerce under the pilot program have been handled since September 2013, involving USD 3.32 billion. In particular, the transaction value for this January through May alone approached the amount involved from the kickoff of the pilot program to the end of last year, indicating this business has grown rapidly. Meanwhile, it is noticed that among these transactions, a single payment involves less than USD 100 on average, far lower than the cap of USD 50,000. [11:44] [Du Peng]: On the other hand, as for the pilot program of cross-border online payment, we recognize the electronic data on all the transaction links of e-commerce, as the ground for authenticity review. This means individuals and companies can have cross-border online payments processed with a payment institution, without the need to present the customs declaration form. [11:44] [Du Peng]: To facilitate foreign exchange settlement in the case of mailing bulk goods overseas, we have launched a pilot program in Zhejiang and Fujian allowing commercial instruments to replace the customs declaration form as the basis for foreign exchange settlement, which has produced positive results. This approach is a desirable response to the failure to get the customs declaration form, the case you said just now. [11:44] [Du Peng]: Next, we will study whether it is viable to further increase the payment cap in accordance with the overall plan for economic and strategic development by the State Council, if the risk is controllable. [11:45] [Reporter]: I am from the Financial News. In the SAFE annual report recently released, I notice that the SAFE identified many clues to foreign exchange transactions in violation of laws and regulations through big data analytics. I'm wondering how the foreign exchange big data review system works and what major and serious cases have been identified through this system? [11:46] [Zhang Shenghui]: This system was developed around 2009 and put into operation in 2010. Its features include: First, wide coverage. This system covers many players of foreign exchange-related transactions as well as information on foreign exchange transactions under the current account and capital account. Second, strong search capability. Capable of screening suspected transaction leads from enormous data on foreign exchange transactions, which is conductive to locking on the players violating laws and regulations and illegal acts. This system has significantly enhanced the relevance and effectiveness of foreign exchange inspections and is of great help to intensify ex-post regulation. [11:46] [Zhang Shenghui]: For example, a branch of the SAFE used this system to identify and confirm that a company conducted false entrepot trade to gain spread between domestic and overseas interest rates. Another branch analyzed and confirmed that a company used fake invoices to illegally settle the foreign exchange that was equivalent to the RMB in value. Overall, this off-site inspection system has played significant roles through big data analytics. [11:47] [Zhang Shenghui]: The use and improvement of the off-site inspection system in recent years have produced positive results in cracking down on foreign exchange violations. From 2012 to 2014, based on the analysis and investigation using this system, the SAFE verified 1,524 cases of foreign exchange violations, imposing an administrative fine of RMB 650 million. Of the cases verified by the SAFE in 2014, up to 1/3 was identified and verified using this system, involving a fine that was 70% of the total. Moreover, the cases identified using this system generally involved a large amount and had serious impact on foreign exchange receipts and payments. [11:47] [Zhang Shenghui]: To sum up, using the off-site inspection system to make big data analytics has been the normal of foreign exchange inspections. Thank you! [11:47] [Wang Yungui]: I'd like to say something more. Over the past few years, especially since 2009, the SAFE has been committed to promoting administration streamlining and power delegation in foreign exchange administration, emphasizing integration of the systems for unified data monitoring. We have since merged and streamlined systems relating to foreign exchange administration on a large scale, and shared some key data, and hence built a platform for monitoring cross-border capital flows, which is chiefly used by the business line under the charge of Mr. Zhang. [11:58] [Wang Yungui]: This system gathers the shared resources of all the SAFE's systems relating to cross-border capital flows, which concern trade in goods, trade in services, direct investments as well as some transactions under the capital account, and cover logistics and capital flows, as well as various company catalogues. With this system, we can understand foreign exchange settlement and sales by companies around the clock.[11:58] [Wang Yungui]: For example, a company may, without filing its information with the SAFE in advance, transfer funds under relevant accounts and settle and sell foreign exchange for cross-border transactions. However, this can be identified using this system. While it will not interrupt any creditable acts in such a case, the SAFE can identify transactions in violation of laws and regulations by using the flexible search modules of the system and regular statements. Although the many cases Mr. Zhang mentioned just now were dealt with by us with limited inspection forces, and many clues are yet to be verified, I want to say here that we will further facilitate trade and investments to provide effective services to market players, but given that many transactions in violation of laws and regulations have been recorded, the SAFE will, in the meantime, identify suspected transactions through this inspection system. Many of the key cases of foreign exchange violations have been identified through off-site big data analytics. Many punished enterprises wonder how the SAFE identified the violations as they were very careful, but this big data system did it. The system is also a key showcase of the CPC Central Committee's and the State Council's emphasis on strengthening ongoing and ex-post management. In my view, the SAFE is forward-looking by building this system, which also accords with the requirements on streamlining administration and delegating power, and intensifying regulation. Thank you! [11:58] [Reporter]: I have one more question. The QDII2 scheme has drawn wide concern recently. It is reported that a pilot program will be carried out in 6 cities. When will the policy on the pilot program be introduced? [12:03] [Wang Yungui]: We have noted the relevant reports on the scheme, too. As far as I know, the People's Bank of China and relevant departments are studying this scheme, and I don't know whether the real scheme will be like the one that has been reported. I am also learning. Anyway, either the QDII or the QFII scheme, or even the QDII2 scheme as you mentioned, is a key strategic plan made by the PBC and the SAFE for uniformly propelling the capital account convertibility in accordance with the plans of the CPC Central Committee and the State Council. For details such as whether the policy will be introduced soon, when it will be introduced, and whether a pilot program will be carried out in 6 regions, you should consult relevant competent authorities. The SAFE will cooperate with relevant departments to vigorously press ahead with the capital account convertibility, improve services to entities and intensify regulation. It is also our hope to pave the way for individuals to make overseas investments through legitimate channels. This also accords with the overall spirit and requirements of the Third Plenary Session of the 18th CPC Central Committee that the market should be given a decisive role in resource allocation. We will keep a close eye on relevant progress. Thank you! [12:03] [Reporter]: I am from Reuters. What about the cross-border capital flows in the second quarter? Is there any change compared with the first quarter or the last year? My second question is that do you think it is possible that we would make an official announcement on the capital account convertibility, just as someone calls for. In other words, is it likely that the government will make an announcement on the full capital account convertibility or capital convertibility? [12:31] [Wang Yungui]: The two questions are very important. As for your first question, the cross-border capital flows in the second quarter, although the data for the second quarter have not been released, I can tell you that the foreign exchange receipts and payments became more balanced in April and May. Despite the deficit in foreign exchange settlement and sales in the first quarter, the situation has become more optimistic since April. The statistical data for May will be unveiled tomorrow. From January through May, China witnessed USD 20 billion in net inflows of cross-border capital. Foreign exchange settlement and sales by banks has turned better after April. To be specific, China saw net sales of foreign exchange by banks in the first four months, but USD 1.3 billion in net settlement of foreign exchange by banks in May. Net sales of foreign exchange by banks persisted for 9 months from August 2014 to April 2015, but turned into net settlement of USD 1.3 billion in May, indicating the market is becoming more balanced. We are delighted to see a more balanced market, which is favorable for market players to deploy their funds and rationally mitigate risks associated with foreign exchange rate and for us to reform foreign exchange administration in a robust environment. [12:31] [Wang Yungui]: As for your second question, my understanding is that the decisions made at the Third Plenary Session of the 18th CPC Central Committee on deepening the economic institutional reform are the key plans of the CPC Central Committee and the State Council, which clearly stated the requirements on the capital account convertibility. Under the new economic normal, the capital account convertibility is a significant arrangement for utilizing domestic and overseas markets and resources in a coordinated manner. Efforts should be made to gradually press ahead with the capital account convertibility, with relevant reforms conducted in a certain sequence. Its logic is that we should guard against systematic financial risks and avoid introducing external risks in the uncertain international economic and financial environment to impact our strategic plans to adjust structure and promote reforms. The PBC and the SAFE will actively and stably press ahead with the capital account convertibility in accordance with the plans of the CPC Central Committee and the State Council to effectively guard against risks. But as for whether it is necessary to announce the capital account convertibility, the IMF and other international institutions have no such requirements. I believe the capital account convertibility in China will be achieved in a step-by-step manner, with relevant reforms advanced one after another. [12:31] [Reporter]: It was reported yesterday that the Shenzhen-HK Stock Connect scheme might be postponed, because the SAFE and the China Securities Regulatory Commission haven't agreed on the quota for cross-border investments. How's everything going now? Will it be postponed like the Shanghai-HK Stock Connect?[12:31] [Guo Song]: As the SAFE is not a major participant, I recommend you consult the China Securities Regulatory Commission. As far as we know, there should be no barrier against the launch. [12:32] [Wang Yungui]: This is the end of today's conference. Thank you for coming.[12:32] (The original text is available at www.people.com.cn) 2015-07-20/en/2015/0720/1163.html
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[Moderator]: Good morning, friends from the press. Welcome to the Policy Press Conference of the State Administration of Foreign Exchange (SAFE) for the first quarter of 2015. The theme of today's press conference is Foreign Exchange Administration Policies for 2015 Q1. [10:16] [Moderator]: I am Wang Yungui, director-general of the General Affairs Department of the SAFE. Today my three colleagues are present at the conference as well. They are Du Peng, director-general of Current Account Management Department, Guo Song, director-general of Capital Account Management Department, and Zhang Shenghui, director-general of Supervision and Inspection Department. [10:17] [Moderator]: First, I’d like to share with you the recent foreign exchange administration policies. Since the beginning of 2015, the SAFE has actively adapted to the new normal of economic development, accelerated "five shifts" in foreign exchange administration, stepped up efforts to streamline administration and delegate power, taken reform and making breakthroughs as its work priorities and promoted the convertibility of capital accounts in a good order, while combining delegation and regulation, and stressing risk prevention and control, thus driving the stable and healthy development of the economy. Below are the reform measures introduced in the quarter: [10:17] [Moderator]: First, deepening the foreign exchange administration reform for cross-border e-commerce [10:18] [Moderator]: The SAFE kicked off a pilot program for foreign exchange payment for cross-border e-commerce in Shanghai, Beijing, Chongqing, Zhejiang and Shenzhen in 2013, allowing payment institutions to handle receipt, payment, settlement and sales of foreign exchange funds under small-sum purchases and cross-border activities including booking air tickets, staying in hotels and studying abroad, which have been widely applauded by the public. Based on this, the SAFE further advanced the pilot program and rolled it out nationwide in January 2015. It simplified the foreign exchange payment process and relaxed the quota on a single online transaction from the equivalent of USD 10,000 to the equivalent of USD 50,000. Meanwhile, the principles of real name and transaction-by-transaction data collection were followed to prevent the risks arising from abnormal transactions. [10:28] [Moderator]: The pilot program has taken shape so far, providing convenient payment support for cross-border online shopping such as overseas purchases by companies and individuals. Payment institutions processed USD 1.7 billion in foreign exchange receipts and payments through the pilot program in 2014, and USD 610 million in foreign exchange receipts and payments between January and February 2015. [10:28] [Moderator]: Second, removing or delegating to lower-level authorities the administrative approval for foreign exchange insurance business [10:29] [Moderator]: The SAFE released the Guidelines for Foreign Exchange Administration for Insurance Business in January 2015 and nullified eight relevant foreign exchange administration rules together with the China Insurance Regulatory Commission (CIRC), including the Interim Regulations on Foreign Exchange Administration for Insurance Business. The Guidelines made it clear that all the qualification approval for domestic insurance companies to run foreign exchange insurance business would be delegated to the SAFE branches, and that the approval for opening or closing foreign exchange accounts by insurance companies would be canceled, except for registration for opening an account for the first time, and that an insurance company's foreign exchange funds can be collected or paid in a centralized way. [10:29] [Moderator]: Third, carrying out a pilot program to reform macro-prudential management of external debts [10:31] [Moderator]: In recent years, the SAFE has stepped up efforts to streamline administration and delegate power, actively explored the replicable and promotable experience in the capital account reform, and combined motivating the market dynamics and accelerating transformation of management models to facilitate cross-border financing and investment by companies, which have delivered progress in capital account convertibility. Overall, the reforms in the Twelfth Five-Year Plan period have effectively promoted the convertibility process. Latest statistics show that of the 40 capital account transaction items, 34 items have been partially convertible or beyond, accounting for 85%. [10:31] [Moderator]: Following the gist of the Decision from the Third Plenum of the 18th CPC Central Committee, the SAFE has taken a crucial step in building and improving the external debts system under the macro-prudential management framework since the beginning of this year. In February 2015, the SAFE approved that a pilot program of macro-prudential management adopting the external debts proportional self-discipline model should be conducted in the Core Area of Beijing Zhongguancun National Self-dependent Innovation Demonstration Area, Jiangsu Zhangjiagang Free Trade Zone, and Shenzhen Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Area. To be specific, the outstanding external debts of a non-financial enterprise in the pilot zone should not exceed twice the net assets of the enterprise for the previous year, and the total debts of a Chinese non-financial enterprise should not surpass 75% of its total assets. This reform has helped balance the treatment of Chinese and foreign-funded companies, and better satisfied companies' demand for cross-border financing, and thus can somewhat ease companies’ difficulties of raising funds and reducing the cost of financing. This policy has attracted strong interest from companies immediately after its introduction. In one week, more than ten companies in the pilot zones raised funds from abroad at a low cost through this policy. These companies are generally Chinese companies with demand for overseas financing and this policy helped them reduce the cost of financing by 2-3 percentage points. [10:31] [Moderator]: Fourth, removing the administrative approval for foreign exchange administration for FDI and ODI [10:31] [Moderator]: The SAFE released in February 2015 the Circular on Further Simplifying and Improving the Policies for Foreign Exchange Administration of Direct Investments and launched many facilitation measures for direct investments, including four reform measures, i.e.: removing the verification for registration of foreign exchange under direct investment, simplifying the management of confirmation and registration of capital contributed by foreign investors under the domestic direct investment, removing filing of foreign exchange for overseas reinvestment, and canceling annual check of foreign exchange under direct investment. Since the launch of the reform, the absolute majority of the businesses under direct investment can be processed directly at banks, and companies need not go to a foreign exchange authority for registration or verification. This indicates that the administrative approval for administration of foreign exchange under direct investment has been basically removed and foreign exchange under direct investment is generally convertible. [10:32] [Moderator]: Fifth, enhancing management of franchised institutions for domestic and foreign currency exchange for individuals and of their business [10:32] [Moderator]: The SAFE issued the Circular on Relevant Issues Concerning Standardizing Domestic and Foreign Currency Exchange Franchise Business for Individuals and Foreign Currency Exchange Business,requiring that the SAFE branches should enhance the market access management for domestic and foreign currency exchange franchise business for individuals and foreign currency exchange business, rigorously review applicants' qualifications, intensify day-to-day supervision and management, and stressing that the SAFE branches must suspend or revoke the business of any franchised institution if it runs the business without permission or beyond its business scope or is suspected of getting involved in online foreign currency speculation, to better maintain the market order. [10:32] [Moderator]: Sixth, cracking down on foreign exchange-related legal and regulatory offences [10:32] [Moderator]: The SAFE has continued to aggressively crack down on abnormal foreign exchange flows since the beginning of 2015 to guard against the risks arising from cross-border capital flows. First, inspecting banks as the main target. At the end of 2014, the SAFE organized special nationwide inspections of banks that operate the foreign exchange business, and emphasized internal control and external regulation of banks. It identifies serious problems and hidden risks associated with the foreign exchange business in banks to clamp down on operation violations. Moreover, it identifies the weak points of banks in implementing the foreign exchange administration policies and regulations to enhance banks' compliance in operating foreign exchange business and curb regulatory and legal offences regarding the foreign exchange business. The special inspection is underway now and expected to be completed by the end of May. Second, continuing with subsequent handling of cases carried forward from the 2014 special inspections such as of entrepot trade and forward foreign exchange settlement, and foreign exchange regulatory offences. The SAFE investigated and dealt with 1903 cases throughout 2014, with an administrative fine of RMB 445 million. In particular, the SAFE cooperated with the public security authorities to uncover 32 cases of foreign exchange legal offences such as underground money shops and confiscated RMB 222.4 billion from these cases, thus effectively intimidating regulatory and legal violators regarding foreign exchange. [10:32] [Moderator]: Overall, the SAFE, based on market demand, has actively promoted the capital account convertibility and steadily implemented a series of foreign exchange administration reforms and measures, which have played significant roles in satisfying domestic individuals' demand for holding and using foreign exchange, facilitating market players like companies to conduct cross-border financing and investment and guarding against abnormal cross-border capital flows. [10:33] [Moderator]: Now please ask your questions on these foreign exchange administration policies and remember to tell us where you are from before raising your questions. [10:33] [Journalist]: I have two questions and the first is about the RMB account convertibility policy. Zhou Xiaochuan, PBC governor, said last weekend that the PBC is expecting to basically realize capital account convertibility by the end of this year, and I am wondering what steps the SAFE would take to achieve this target. In face of the challenges from the global market, including the differentiation of European and American policies and the pressure from capital flight on the emerging capital market, how will the SAFE respond to the risks arising from the implementation of these steps? [10:48] [Journalist]: The second question is about foreign exchange settlement and sales. What other non-banking financial institutions besides Harvest Fund and Guotai Junan will be qualified for running this business? [10:48] [Guo Song]: Capital account convertibility is a significant issue that is to be addressed during the 12th Five-Year Plan period while this year is the last year in the period. Zhou Xiaochuan, PBC governor, has proposed the necessary work to be done, including modifying the foreign exchange administration regulations, further opening the capital market and facilitating individuals' investment or transfer. We have been pursuing capital account convertibility for years from all aspects. As was said earlier, about 85% of the 40 capital account transaction items we assessed are partially convertible now. [10:49] [Guo Song]: How to advance this process? It can be done in multiple ways. What we should do is to streamline administration and delegate power, lessen interference into the transactions and cut approval items. We have done a lot over the past five years, reducing administrative approval items concerning capital account from more than 50 to 17, or by 71%. [10:49] [Guo Song]: What's more, what was prohibited in the past is being opened and done, where we also have done a lot. Given that the capital account convertibility requires coordination and cooperation among multiple departments, the SAFE has introduced within the compass of its power many measures to pursue the capital account convertibility. For example, the centralized management of MNCs' funds enables conglomerates to operate capital within the company more easily. The QDLP pilot program currently in force in three regions aims to identify more channels for going global or bringing in. Moreover, the pilot reform of macro-prudential management of external debts is now carried out in three regions for proportional self-discipline of external debts. All these measures are advancing the process of capital account convertibility. [10:49] [Guo Song]: As for your second question, I would like to say that we did grant the qualifications to two securities firms for foreign exchange settlement and sales. But what they can do after obtaining the qualification is still in question. Will more institutions obtain the qualification in the future? Definitely, provided that the two institutions deliver a good performance. But if the two institutions find nothing could be done, I guess other institutions will not be interested in this in the future. [10:49] [Financial channel of CCTV]: I noticed that China witnessed a trade surplus of more than USD 120 billion, while a deficit of foreign exchange settled and sold of more than USD 120 billion in the first two months of this year. Are the two figures contradicting with each other? Does this indicate massive outflows of cross-border capital? How will the SAFE respond to this? [11:16] [Wang Yungui]: I'd like to use figures to make a clarification. This contains three aspects: first, as is monitored, there is still a net inflow of cross-border receipts and payments. From August to December 2014, there were net outflows of cross-border receipts and payments, or the outflows exceeded the inflows of cross-border receipts and payments by enterprises and individuals via banks, but this situation reversed in January and February 2015. Data show that after deducting cross-border payments from cross-border receipts, there was a net inflow of USD 55.1 billion, representing a year-on-year increase of 38%. Specifically, the net inflow under trade in goods stood at USD44.9 billion, which was 5.6 times that of the same period last year. Therefore, the monitoring data indicate that there is still a considerable net inflow of cross-border receipts and payments. [11:16] [Wang Yungui]: The second figure is about foreign exchange settlement and sales via banks. There was a deficit of USD 25.4 billion in foreign exchange settlement and sales in January through February. What's your idea of this deficit? It should be viewed from two perspectives. First, plenty of export revenue has not been settled but been deposited as foreign exchange. From January to February, the proportion of export revenue translated into the RMB was down by 10 percentage points while the foreign exchange deposit of enterprises and individuals rose by USD 63.9 billion, indicating the surplus or deficit in foreign exchange settlement and sales is a structural adjustment between the central bank's foreign exchange reserves and private foreign exchange savings. In others words, enterprises and individuals are optimizing the currency structure of their balance sheets by holding more USD assets, which doesn't mean capital outflows however. [11:17] [Wang Yungui]: The third figure is about the basic items of the balance of payments. Generally there are two basic items of the balance of payments, namely, trade and direct investment. Customs statistics show that China witnessed a surplus of trade in goods of USD 120.6 billion in January to February 2015, up by 11.8 times year-on-year, and used USD 22.5 billion in foreign capital, up by 17%. The sum of the two figures surpassed USD 140 billion. These basic figures of the balance of payments also show there is no capital outflow. [11:17] [Wang Yungui]: Given these figures, China's GDP is rapidly increasing, compared with its international counterparties, and the investment, consumption and export remain robust, with great potential for growth. China kept adjusting itself over the past few years, with enforced strengths in structural optimization and self-motivation for economic development. Overall, no data is supporting the assertion that China 's economy is on the decline and capital is flowing out of the country. [11:17] [Journalist]: What was your consideration to conduct macro-prudential management of external debts starting from last year? What's the effect? [11:22] [Guo Song]: The macro-prudential management of external debts has been written into the resolution document of the Third Plenum of the 18th CPC Central Committee to build a management system for external debts and capital flows under the macro-prudential framework. To implement the resolution document of the Third Plenum of the 18th CPC Central Committee, the SAFE adopts the proportional self-discipline management of external debts. Proportional self-discipline is a simple concept with the same meaning of a buzzword, macro prudence. Macro prudence takes many factors into consideration, such as the level of a country's total liabilities and the level of corporate liabilities. The proportional self-discipline is being explored on a small scale, aiming to implement the resolution of the Third Plenum of the 18th CPC Central Committee and create a fair market environment. It used to be easy for foreign-funded enterprises to borrow external debts but hard for Chinese companies to do so since the overseas market was not opened and posed many restrictions. The data we released show that almost none of the Chinese enterprises had external debts. The second aim is to create a fair market environment that enables both Chinese and foreign-funded enterprises to have equal treatment in this area. The third aim is to address the difficulties and reduce the cost of financing by enterprises. Overseas financing is surely cheaper than domestic financing, which, just as Mr. Wang Yungui said earlier, is about 1-2 percentage points lower. That's why overseas financing is considered a way to ease the difficulties of and cut the cost of financing. But as the proportional self-discipline measure was just launched and signing a loan contract takes time, there are not many transactions yet. We do not expect many transactions, but do hope that this can satisfy some companies' demand to win fair market competition. In the past, borrowing external debts required approval from the SAFE, which is now replaced by proportional self-discipline, that is, all the companies can borrow money without prior approval from the SAFE, provided that these companies' external debts do not exceed a certain proportion of the approved assets as of the end of the previous year. [11:23] [Journalist]: Can QFII and RQFII access the inter-bank market, according to the foreign exchange policy? [11:28] [Guo Song]: Definitely. QFIIs must make sure that less than 50% of its assets will access the inter-bank market. But there is no similar limit on RQFIIs. All of the assets of RQFIIs can access the market. But they can also choose not to enter the market. [11:28] [Journalist]: It was recently reported that the QFII and RQFII systems may require registration? What would you say about this? [11:29] [Guo Song]: We have been considering reforming the QFII and RQFII systems. It is relatively convenient for RQFIIs to make investments as we carried out some reforms in this regard. We are also considering making some changes to the QFII system. For example, removing the upper limit of USD 1 billion, which I believe will be completed in a couple of days. We are considering facilitating capital inflows and outflows too. [11:29] [Journalist]: The data released by the Bank for International Settlement at the end of last year show that the Chinese companies had overseas debts of USD 1.1 trillion. What about the data that have been monitored by the SAFE? The overseas media have been recently saying that as the US dollar appreciates, these debts would be at stake, putting heavy pressure of capital outflow on China 's economy. [11:54] [Guo Song]: As of last September, China reported a balance of USD 894.8 billion in foreign currency debts, which is quite different from USD 1.1 trillion you just said. The data I said refers to the balance of foreign currency debts the Chinese institutions including the Chinese government owe to overseas counterparties, which exclude the domestic currency. The two figures are different in statistical standards. Some institutions with overseas debts or liabilities might be registered overseas, so in theory they are not Chinese institutions and excluded from our statistics and management. The problem is whether these debts will increase the liabilities of domestic players if transferred into China . We have also noticed that the corporate liability ratio is overly high now. In carrying out the pilot program of proportional self-discipline of external debts in three regions as I said earlier, we attach a restrictive term that the total liability ratio should not exceed 75%. We don't expect to see over-indebted companies, either. But it is likely. Will over-indebted companies affect the country's overall liability risk? This is another question. Currently, China's overall external debts are at a rational level, say, a little more than USD 890 billion, which can match our foreign exchange reserve of USD 3.95 trillion, indicating that China is fully solvent at the country level. A company's solvency is an individual case. Generally speaking, the risk is within control. [11:54] [Journalist]: The IMF will review currencies in the SDR basket in the second half of this year. My question is how likely the RMB will be included in the SDR basket this time? What new actions will be taken or what has been done to promote the inclusion of the RMB in the SDR basket? [11:57] [Wang Yungui]: Mr. Zhou and Mr. Yi answered your questions in detail during the National People's Congress and Chinese People's Political Consultative Conference. We should be objective in having the RMB included in the SDR basket. We would do our best to make it happen, but also assess the situation objectively. [11:57] [Wang Yungui]: While driving the inclusion of the RMB in the SDR basket, we should focus on the domestic reforms, promoting the two-way opening-up of the capital market, further boosting the convertibility of the RMB under the capital account, and enhancing the free use of the RMB in international exchange. With all these efforts, inclusion of the RMB in the SDR basket would become a natural result. [11:57] [Economic Daily]: Mr. Zhou said we might realize capital account convertibility this year, but some scholars are concerned about capital flight given the changes in the domestic and international environment. What would you say about this? What approach is or will be adopted to control the possible capital flight as we are striving to realize capital account convertibility or after capital account convertibility has been realized? [12:09] [Wang Yungui]: It was required by the Third Plenum of the 18th CPC Central Committee that we should realize capital account convertibility. To this end, the PBC and the SAFE have done a lot. As I said earlier, 85% of capital account is convertible now. This means there is only the last mile left on the path to capital account convertibility. In the process, we devoted ourselves to promoting reforms while preventing risks, and fully assessed the possible impact of the capital account convertibility on cross-border capital inflows and outflows. According to the domestic and international authoritative literature, it is very hard to make certain whether a country will witness capital inflows or outflows after the full convertibility of capital account is realized. Persistent efforts should be made to explore and improve the reform schemes as the reforms proceed. Under the leadership of the CPC Central Committee, the State Council and the PBC, the SAFE has always combined the process of convertibility with administration streamlining and power delegation. Meanwhile, by building relevant statistical information system and management information system, the SAFE has closely monitored and analyzed the cross-border capital flows, and collected statistical data. So far, our schemes and reform steps have proved feasible. [12:09] [Wang Yungui]: Whether it is capital inflow or outflow depends more on the macro economic conditions in the domestic and global market. The current domestic economic conditions prove that our efforts in promoting reforms and adjusting structure are effective. We also believe that the absolute majority of domestic and international market players will calmly and objectively assess capital inflows and outflows. I said just now that China witnessed a trade surplus of roughly USD 120 billion and received USD 22.5 billion of FDI in January through February, which indicates that there are net cross-border capital inflows. Therefore, it is viable to stably realize capital account convertibility amid the current reformative environment. In this process, our top priority is to control risks and capital outflows, so as to guard against the systematic and regional financial risks, which is our bottom line. The roles and responsibilities of individual players who fail to put risk prevention measures in place as we pursue capital account convertibility should be defined by the market by clearly defining the ownership, while we are committed to guarding against systematic and regional financial risks. [12:10] [South China Morning Post]: I want to confirm what Mr. Guo said just now. Is it true that we will see the upper limit on QFII exceeding USD 1 billion in a couple of days? [12:10] [Guo Song]: It's true. We will release the data soon, and you will see that. [12:11] [South China Morning Post]: Is it a natural breakthrough, instead of an institutional change? [12:11] [Guo Song]: Institutional change takes time. [12:11] [South China Morning Post]: My second question is what the SAFE would say about the overstatement of the RMB, as said by Asian Development Bank? Both the OECD and Asian Development Bank expect China to improve the RMB exchange rate formation mechanism. What are the new considerations in the RMB exchange rate reform this year? Will the trade-weighted exchange rate be adopted to make the RMB exchange rate more reflective of the market demand? [12:27] [Wang Yungui]: The RMB exchange rate formation mechanism reform has always been a key issue in the exchange rate reform, not merely about the level. We have been stressing that the exchange rate reform should focus on the building and improvement of the mechanism. Specifically, the RMB exchange rate formation mechanism aims to give the market a decisive role in the formation of the RMB exchange rate. As you can see, the central bank phased out the normal interference in the market in the past year, with the bilateral exchange rate between the RMB and US dollar fluctuating by 2% or -2% every day while the exchange rate of RMB against other currencies fluctuating in a broader range, which indicates that the exchange rate is decided by the market is playing a larger role. When studying the exchange rate of RMB against foreign currencies, we should look at the exchange rate of RMB against a basket of currencies, including euro and Japanese yen, not just the US dollar. While the exchange rate of RMB against the US dollar depreciates, it is likely that the exchange rate of RMB against many other currencies appreciates. The RMB has been appreciating all the time, including in the first two months of this year, according to the two exchange rate indexes of the Bank for International Settlements, namely, the nominal effective exchange rate and the real effective exchange rate. In monitoring the exchange rate, other countries focus on the exchange rate against a basket of currencies. The US dollar index, for example, is an index for the USD exchange rate against a basket of currencies. This holds true for China . As the RMB exchange rate formation mechanism reform kicked off in 2005, it was made clear that a managed RMB exchange rate mechanism would be adopted and adjusted with reference to a basket of currencies. Relevant regime design should be conducted under the existing policy framework. [12:28] [Journalist]: A source said yesterday that a foreign-funded company in Shanghai violated laws by having its foreign exchange settled to buy housing, but failed in the lawsuit against a foreign exchange authority. I wonder why a company will be fined after its foreign exchange has been settled, and what's the cause of such a case? [12:35] [Zhang Shenghui]: It is normal that the administrative enforcement authority and the administrative counterpart have conflicts or disputes with each other on some issues. It is everyone's legitimate right to request hearing and administrative reconsideration, or even to file a lawsuit, and we respect such rights. Since every case has its unique features, it is hard to generalize them. Of the more than 1,900 cases we handled in 2014, only 6 cases requested reconsideration, which was low. But it should be noted that people's awareness to protect rights and the state's requirements on law-based administration are increasing, which I believe will ensure that the law enforcement team stringently abide by laws and will protect the rights of administrative counterparts. [12:36] [Moderator]: This is the end of today's press conference. Thank you for your attention to foreign exchange administration and for coming to this conference. A press conference on foreign exchange situation will be held at the Information Office of the State Council by late April. We are looking forward to your attendance to pay more attention to foreign exchange administration in China . Thank you. [12:36] (The original text is available at www.people.com.cn) 2015-06-05/en/2015/0605/1159.html