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On December 31, 2016, Zhou Xiaochuan, secretary of the CPC Committee and governor of the People's Bank of China (PBC) visited the SAFE Investment Center to show his care for the frontline officials for yearend final accounts, who are committed to the operations and management of foreign exchange reserves, and sent through them his greetings to the workforce of the SAFE and their families. Accompanying him were Pan Gongsheng, member of the CPC Committee and deputy governor of the PBC, and administrator of the SAFE, and Yin Yong, member of the CPC Committee and deputy governor of the PBC, and director of the Investment Center of the SAFE. On behalf of the CPC Committee of the PBC, Zhou reaffirmed the achievements obtained in the operations and management of foreign exchange reserves. According to him, the year 2016 is the first year of the 13th Five-year Plan period, a year crucial to the building of a moderately prosperous society in all respects, and also a year to make breakthroughs in pressing ahead with the structural reform. Under the leadership of the CPC Central Committee and the State Council, the staff engaged in the operations and management of foreign exchange reserves worked with one mind and one heart and forged ahead. They flexibly responded to the heightened volatilities in the global economic and financial markets, and stably advanced the operation and management efforts, ensuring the security, liquidity and value preservation and increase of assets and making new contributions to serving the national development strategy and safeguarding the economic and financial security. Zhou stressed that since the year 2017 is a year to advance the 13th Five-year Plan in all respects, the tasks of reform will become heavier and the external environment will be more complex. By following the gist of the 18th CPC National Congress, and the Third, Fourth, Fifth and Sixth Plenums of the 18th CPC Central Committee, and the Central Economic Work Conference, the talents devoted to the operations and management of foreign exchange should work hard and make breakthroughs based on the basic function that foreign exchange reserves should safeguard the balance of payments. They should also be precise and down-to-earth to ensure the smooth operations and management of foreign exchange reserves, in a bid to better serve the development of China. 2016-12-31/en/2016/1231/1240.html
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On January 11, 2017, Pan Gongsheng, deputy governor of the People's Bank of China and administrator of the State Administration of Foreign Exchange met with Axel A. Weber, chairman of the Board of Directors of UBS AG in Beijing. The two sides exchanged views on issues such as the development of China's bond markets, flows of cross-border capital and bilateral cooperation. 2017-01-11/en/2017/0111/1243.html
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On the afternoon of March 12th, a press conference of the Third Session of the Twelfth National People's Congress (NPC) was held at the Media Center. Zhou Xiaochuan, Governor of the People’s Bank of China (PBC), Yi Gang, Vice Governor of PBC and Administrator of the State Administration of Foreign Exchange (SAFE), Pan Gongsheng, Vice Governor of the PBC, and Jin Qi, Chairperson of the Board of Silk Road Fund Co., Ltd. answered questions from Chinese and foreign journalists concerning the financial reform and development. The following is a transcript of the conference: [Wang Xiaoyun, Deputy Director of the Press Center of the Third Session of the Twelfth National People's Congress, and moderator of the conference] (March 12,2015 14:50:35) Good afternoon, dear friends from the press. Welcome to this press conference on Financial Reform and Development. We are honored to have four distinguished guests with us to answer your questions. Please allow me to introduce Mr. Zhou Xiaochuan first, who, since taking office as PBC Governor, has been repeatedly invited to the podium of the NPC press conferences—for nine consecutive years, according to a little research I did. Mr. Zhou is therefore an old friend, and a good friend, of the media, as well as an experienced speaker on this podium. Here I would like to extend special thanks to Mr. Zhou and his leadership team. Now I give the floor to Mr. Zhou. [Zhou Xiaochuan] (March 12,2015 14:51:16) Good afternoon, everyone! Let me first thank you for your interest in the financial reform and development, and for your attention and coverage over the years. Today, I am joined by Vice Governor Yi Gang, Vice Governor Pan Gongsheng, and Ms. Jin Qi, Chairperson of the Silk Road Fund, as we notice that some of you are interested in this newly established fund. Thank you very much. [Italian Press](March 12,2015 14:52:11) Thank you. I am a reporter from the Italian Press. My question is for Governor Zhou. I wonder when China will introduce the Deposit Insurance System, and when it will become effective. Thank you. [Zhou Xiaochuan] (March 12,2015 14:53:01) As we all know, the Deposit Insurance System is an important part of the financial reform. After a long period of intensive preparation, a draft of the Deposit Insurance Regulations was released at the end of last year for public comments. If the comments we collect reflect a positive outcome in general, we will conclude that the mechanism and conditions are basically mature for establishing the Deposit Insurance System. I believe the system will be launched in the first half of this year. [China Daily](March 12, 2015 14:54:26) Thank you. I am a reporter from the China Daily. China’s economy is faced with heavy downward pressure, and it is widely believed that China should loosen up its monetary policy. What is the Central Bank’s view on this? On the other hand, we notice that the Central Bank has been flexibly using monetary policy tools for its operations, which have produced an easing outcome. Given all these efforts, why does the Central Bank continue to say that its monetary policy remains prudent as before? Thank you. [Zhou Xiaochuan] (March 12, 2015 14:55:16) Let me answer your questions in this way. Firstly, compared with the past few years, China’s economic growth is slowing down, but this also coincides with a new phase of China’s economic development, which is called “New Normal”, a term frequently used by Chinese leaders. [Zhou Xiaochuan] (March 12, 2015 14:56:41) “New Normal” is a normal state, neither special nor problematic; there is then no need to come up with a new term for our monetary policy. Besides, you request a clarification of the trends of China's current monetary policy. Generally speaking, there are five broad categories of the monetary policy: easy, moderately easy, prudent, moderately tight and tight. [Zhou Xiaochuan] (March 12, 2015 14:58:38) In both text and meaning, these five categories cover a wide spectrum. Within each category, there is much room for flexible adjustments, but shifting from one category to another needs to take a huge step. Recently, the Central Bank has employed a number of monetary policy tools seldom used before, but the effect of each tool is not necessarily significant, especially when considering the colossal size of our national economy. [Zhou Xiaochuan] (March 12, 2015 14:59:42) One important indicator of our monetary policy is M2, the growth rate of which was specifically mentioned in the Report on the Work of Government. We have undoubtedly used various tools recently, including some targeted easing adjustments, but even when their effects are put together, the growth of broad M2 money supply is still moderate, and therefore our prudent monetary policy remains unchanged. [Xinhua News Agency, Xinhuanet.com](March 12, 2015 15:00:31) Thank you. I am a reporter from Xinhua News Agency and Xinhuanet.com. I have a question for Governor Zhou. The PPI has undergone negative growth for 36 consecutive months. Does that mean China’s economy is facing deflationary risks? After cutting interest rates twice and reducing the deposit reserve ratio once, why is the Central Bank still emphasizing a neutral stance in its monetary policy? How should the term “neutral” be interpreted? Thank you. [Zhou Xiaochuan] (March 12, 2015 15:01:30) Price is indeed a significant indicator of economic development. There are several indicators relating to price: CPI (Consumer Price Index), PPI (Producer Price Index), GDP Deflator, etc. PPI is closely related to investment activities, so it tends to fluctuate violently when our economic structure is shifting into the “New Normal”. [Zhou Xiaochuan] (March 12, 2015 15:03:51) Moreover, it should be noted that commodity prices in the international market have been fluctuating sharply these days. Therefore, when observing price changes, we should pay enough attention, allow a longer time frame and consider a broader picture, instead of jumping to conclusions. Under such circumstances, after several adjustments for the monetary policy tools, we have generally maintained moderate liquidity in the financial market, which is within the prudent and neutral category that you mentioned. Yi Gang, Vice Governor, is in charge of monetary policies. Maybe he can elaborate further? [Yi Gang] (March 12, 2015 15:04:43) Although there are many indicators to measure inflation, CPI is the most primary one. China’s CPI saw negative growth in some years, for example, in 1998 and 1999, as well as in 2002 and 2009, when the growth remained slightly negative. [Yi Gang] (March 12, 2015 15:06:20) We know that CPI went up by 2% last year, and this February’s CPI registered a 1.4% growth year on year. We are closely watching the trends of CPI and PPI. As Mr. Zhou mentioned earlier, although PPI has been dropping for 36 consecutive months, the downward pressure is global; it has been hit hard by the recent price shrinks in the oil, commodity and iron ore markets. While paying close attention to prices, we will adopt prudent monetary policies to regulate liquidity. In fact, a positive fiscal policy and a prudent monetary policy constitute the most desirable combination to respond to the current situation, and the policies are allowed to work as they are designed to. Thank you. [Taiwan Economic Daily] (March 12, 2015 15:07:07) Thank you. I am a reporter from the Taiwan Economic Daily. We have many questions in mind, but as time is limited, I have picked two that we are most concerned about. Currently, the Taiwan people have an increasing demand to possess and use Renminbi. Is it possible that the exchange quota of 20,000 yuan per day is expanded, or totally cancelled, just as what was done in Hong Kong last year? Besides, is there any progress in the signing of RMB Clearing Agreement between Taiwan and Mainland China, or has there been any obstacle? Thank you. [Zhou Xiaochuan] (March 12, 2015 15:09:47) The cross-border (cross-strait) use of RMB has just emerged. At this initial stage, some protection lines are drawn to guard against potential troubles; hence these arrangements that resemble quotas. But as the RMB’s cross-border business expands, we will be more experienced, and there will also be more demand for the RMB. Under such circumstances, these quotas can be reviewed and appropriately loosened—such opportunities definitely exist. Speaking of Taiwan’s RMB clearing business, the Taiwan branch of the Bank of China has in fact been acting as an RMB clearing bank, and it is in full operation. If business expands or new demand occurs, further study will be made. Thank you. [Financial News] (March 12, 2015 15:10:39) Thank you. I am a reporter from the Financial News. I have questions for Chairman Jin Qi. Hello, Ms. Jin, we know that setting up the Silk Road Fund is one of the initiatives to propel the “One Belt and One Road (OBOR)” strategy. What role do you think this Fund will play in this strategy? Will the investment only go to those countries along the “One Belt and One Road”? And will there be other concrete initiatives for future development and investments? Thank you. [Jin Qi] (March 12, 201515:13:36) Thank you for your question. As we all know, Xi Jinping, General Secretary of the CPC Central Committee, announced on November 8, 2014 that China will dedicate USD 40 billion to set up the Silk Road Fund. Then the People’s Bank of China took the lead and worked with relevant authorities on the preparation. The Fund completed the business registration in accordance with the Company Law of PRC at the end of last year. [Jin Qi] (March 12, 2015 15:14:54) Since the beginning of this year, we have made great endeavors to improve corporate governance structure. The Board of Directors, the Board of Supervisors, and senior management team have been created. And while further improving the structure, we will carry out substantial business as quickly as possible. [Jin Qi] (March 12, 2015 15:17:26) The Silk Road Fund, a mid- to-long-term development investment fund, aims to realize interconnection between the countries and areas along the “One Belt and One Road”. While we are working towards this goal, we need to follow four principles. The first one is the principle of connection. Our investment, first and foremost, needs to be aligned with those countries’ development strategies and planning. We need to capture our investment opportunities as the program proceeds. The program doesn't have strict geographical restrictions. We believe that as long as there is demand for interconnection, the Silk Road Fund can participate in relevant projects. To be specific, the Fund will adopt various financing methods, with mid- to-long-term equities as the main one, and make investment in infrastructure, energy development, industry cooperation and financial collaboration. In particular, we need to lay special emphasis on China’s “go-global” projects with high-end technology and high-quality capacity to facilitate China and the countries and areas along the “One Belt and One Road” to achieve common development and prosperity. [Jin Qi] (March 12, 2015 15:19:06) The second one is the principle of effectiveness. The capital of the Silk Road Fund comes from different shareholders, including Foreign Exchange Reserve, China Investment Corporation, the Export-Import Bank of China and China Development Bank, and all the capital has corresponding RMB liabilities. Therefore, the Fund is not in assistance or donation nature. We must follow the market-based principle and invest money in profitable projects in a way to achieve reasonable returns on investment in the medium and long term and well protect shareholders’ rights and interests. [Jin Qi] (March 12, 2015 15:22:09) The third one is the principle of cooperation. The Silk Road Fund is a mid- to long-term development investment fund established in accordance with the Company Law, instead of a multi-lateral development organization. We must abide by the laws and regulations of China and the countries which the investment goes to, maintain the international market rules and the international financial order, and emphasize environmental friendliness and sustainability. The strength of the Fund lies in the fact that it can provide mid-to-long-term equity investment. We must cooperate and complement domestic and foreign financial institutions, and provide more financing options to those projects that can realize stable and reasonable returns in the medium to long term in a diversified investment and financing manner including equities, financial claims, and loans. As a result, the Fund and other financial institutions are not substitutes for each other; they work with each other and are complementary to each other to achieve win-wins, so as to make our contribution to the development of the countries and areas along the “One Belt and One Road”. [Jin Qi] (March 12, 2015 15:23:43) The fourth one is the principle of openness. The Silk Road Fund is open. After running it for a period of time, we warmly welcome investors sharing our aspirations to join us or cooperate with us on sub-funds. And we are also willing to collaborate with international and regional multi-lateral financial institutions, including the soon-to-be-opened Asian Infrastructure Investment Bank (AIIB), China Development Bank, the Export-Import Bank of China, other commercial banks, and the China-Africa Development Fund on financing and investment projects. Each institution can complement each other’s advantages through collaboration, and make contributions to the regional and global development and prosperity. [Jin Qi] (March 12, 2015 15:24:35) At last, I would like to avail myself of this opportunity to thank all the communities of society and all friends from the press for your care and support. For your information, there was a report dated February 16 on the interview with Zhou Xiaochuan, governor of the Central Bank, on the Silk Road Fund. This report gives a comprehensive and detailed account of the Silk Road Fund and provides answers to a variety of questions that you are concerned about. Therefore, I won’t take up more time here. If you want to know more details, please refer to that report. Thank you. [Reporter from Reuters] (March 12,2015 15:24:57) Thank you. I am a reporter from the Reuters. I am wondering how the Central Bank distinguishesordinary capital outflows and hot money flight.Are you concerned that the appreciation of the US dollars will aggravate China’s capital outflow to a dangerous level? Thank you. [Zhou Xiaochuan] (March 12, 2015 15:25:24) This is a good question, I should say. Firstly, I agree with you that such concepts shall be differentiated. Some people call it fund outflow, some, capital outflow, and others, capital flight. As a matter of fact, these termsdo vary with each other. Since China is a major trade and investment country in the international market, we have both trade in goods and trade in services. All these are normal activities, and we need to make payments for goods and services we purchase, and for foreign investment as well. Therefore money flows out, and these are all normal inflows and outflows of funds. [Zhou Xiaochuan] (March 12, 2015 15:29:42) Importers, exporters and investors would think of a good timing. When is suitable to import more, such as when the oil price is cheaper; this is quite normal. When making imports, there are also options of either deferred exchange payment or immediate exchange payment. Foreign exchange could be received when making exports, and when such foreign exchange is received, exporters could also consider when to conduct exchange settlement. As a result, both capital and funds would flow to a certain degree, and we could see from China’s BOP, the inflow and outflow of most funds have normal trade and investment background. However, in some cases, it may be connected with hot money, which not only includes hot money from overseas countries but also from the Chinese people. Hot money is defined as flows of funds which are mainly targeted to pursue short-term speculative gains in the financial market, and could possibly be viewed as short-term investment-oriented hot money. Although the quantity is not easy to be accurately observed, its existence can be affirmed. [Zhou Xiaochuan] (March 12, 2015 15:30:44) Based on China’s currentstate, this is not severe yet. In other countries, capital flight is caused by loss of confidence in the national environment and a perception of the lack of guarantee of wealth. China encounters such circumstances as well, but compared with normal investment and trade, the quantity is not very large, and therefore I believe that distinguishingsuch concepts is important. [Zhou Xiaochuan] (March 12, 2015 15:32:44) If the Federal Reserve raises interest rate for US dollars, playersin the financial market may consider buying more US dollars, or depositingcertain US dollars overseas, which is reasonable, and I believe this tendency must exist. However, the signal given by the FED means that this action is relatively careful and prudent, and such measures have been taken before, but it still shows its patience. Overall, there would be some opportunities to manipulate financial assets, but it will not produce huge differences and speculative opportunities. Therefore, based on what we have observed, we don’t believe it would be a very serious threat. And in the meantime, if the United States raises interest rate, it would bring the positive side as well, indicating that the US economy has finally entered into a substantial recovery period after so many years since the outbreak of the financial crisis, which is a good sign for the global economy as well. So we should consider all dimensions of such an issue. Thank you and we will invite Mr. Yi Gang to give us more details. [Yi Gang] (March 12, 2015 15:33:10) I'd like to make some additions, since I’ve been considering this all the time. Currently, China has almost become the No. 1 or No.2 giant in trade in goods and trade in services, with a huge flow of trade in goods and trade in service. Besides, with respect to FDI and ODI, the inbound and outbound investments are also huge. As we all know, over 100 million person times went abroad last year, andthe people flow, material flow, capital flow and investment flow all created cross-border fund flow. [Yi Gang] (March 12, 2015 15:33:44) I’d like to share one figure with you. China’s foreign-related income of domestic enterprises and individuals amounted to over USD3.3 trillion, and our foreign-related expenditure wasmore than USD3.2 trillionlast year. Calculated by 240 working days every year, both the foreign-related income and expenditure handled each day by Chinese banks on behalf of clients (including both enterprises and individuals) exceeded USD10 billion. So this is the current situation. Therefore, China’s economy has become very open and has been fully integrated into the global economy since the reform and openingup policy was adopted. [Yi Gang] (March 12, 2015 15:34:34) I’d like to make another point. For example, whether there were outflows recently. We could see that the US dollar deposits of enterprises and individuals in domestic financial institutions increased by over USD100 billion, and the domestic US dollar deposits in this January increasedfurther by over 40 billion. What does this mean? It indicates that under current economic situations, China’s enterprises, individuals and financial institutions have all been optimizing their balance sheets, adjusting the currency structure of their assets and liabilities based on expectations. [Yi Gang] (March 12, 2015 15:38:34) The fast increase in US dollar deposits is a good sign thatmore foreign exchange has been owned by the people. We also observe that in the most recenthalf year, loans increased more slowly than they did before. So this reporter raised a very good question, that is, how weshall distinguish normal inflows and outflowsfrom capital flight? We have also been studying and observing this issue. As a matter of fact, to address the need of risk prevention, currency match and hedging, our economic entities have established a relatively stable mechanism by optimizing their balance sheets. Previously our foreign exchange reserves all went to the Central Bank, but now, enterprises, individuals and financial institutions like to possess more US dollars, which we could say is rational and normal. On the other hand, we are also on alert against some abnormal cross-border fund flows. Thank you. [Ta Kung Pao and Takungpao.com of Hong Kong] (March 12, 2015 15:39:12) Thank you. I’m a reporter from Ta Kung Pao and Takungpao.com of Hong Kong. We've noticed that thefluctuations of the RMB foreign exchange rate have been wideningrecently, which impacted the RMB deposits of Hong Kong residents as well as cross-border trade settlement, and are mainly reflected in the decline of account opening for RMB deposits and the shrinking in the issuance of typical bonds. I’d like to ask how the Central Bank will respond to this? Will the Central Bank introduce new measures this year to support Hong Kong in the construction of the RMB offshore market? Thank you. [Zhou Xiaochuan] (March 12, 2015 15:39:57) Yi Gang,Vice Governor of PBC, mentionedjust now that China's economy has become increasingly open to the outside. With such open economy, it is normal to witness the fluctuations of exchange rate, since it depends both on domestic economic fundamentals and on the supply and demand relationship of RMB in the global market and the international financial market. [Zhou Xiaochuan] (March 12, 2015 15:41:09) There is another factor. The volatility of exchange rate is related to whether there are crucial events internationally and whether there are causes for fluctuations as well. As a matter of fact, the whole world has been quite eventful since last year, so many factors have contributed to the fluctuations. If we adopt a comparative perspective, we could perceive that compared with many other currencies in the world, RMB is relatively stable in terms of exchange rate fluctuation in a certain period. We can make such comparisons and would find out that the exchange rates of many other currencies are more volatile than that of RMB. [Zhou Xiaochuan] (March 12, 2015 15:41:53) The US dollar has started to rallysince last year, which is anothercrucial factor. As Hong Kong dollar and US dollar are closer to each other, the fluctuations of the RMB exchange rate against US dollar are shown by the certain volatility of the exchange rate between the RMB and Hong Kong dollar. Generally speaking, we believe this fluctuation is normal, and traders, investors and players in the financial market can properly cope with such a fluctuation. [Zhou Xiaochuan] (March 12, 2015 15:42:33) We believe we have been communicating well on Hong Kong offshore RMB business. Whenever there is such a need, we would make some adjustments and introduce some new measures to support Hong Kong and perform the functions of an offshore RMB center. Following the launch of Shanghai-Hong Kong Stock Connect last year, we will launch Shenzhen-Hong Kong Stock Connect this year. All these efforts would provide more administrative convenience in terms of mutual communicationin the capital market and support for mutual communication in the capital market, to support Hong Kong to play its role. Thank you. [Beijing Times] (March 12, 2015 15:42:51) Thank you. I’m a reporter from Beijing Times. My question is for Mr. Zhou Xiaochuan. The Central Bank has been constantly promoting the interest rate liberalization process, and we’ve also noticed that during the asymmetric interest rate cut prior to the National People’s Congress, the Central Bank expanded the upward floating range for deposit rates. My question is whether it is possible that loan interest rate will be fully liberalized this year,given currentprogress of interest rate liberalization inChina? Thank you. [Zhou Xiaochuan] (March 12, 2015 15:43:35) Efforts have been made on interest rate liberalization for many years, and some people, after careful observation, may have discovered the pattern along this path: over the past years, for different products and varieties, we started from products with large-amount and gradually shifted to small-amount, and then expanded loans to deposits. Overall, considerable progress has been made in a step-by-step manner. [Zhou Xiaochuan] (March 12, 2015 15:44:42) Last year the upward floating range for the RMB deposit interest rate was expanded further by 20%, and the recent interest rate adjustment has further pushed up the floating range by 10%. Based on this, it is estimated that we are now very close to interest rate liberalization, or to the final removal of the upper limit for deposit interest rate. This year, if we could have a chance, it would be possible that the upper limit of deposit interest rate will be lifted, which means the final step will be taken. We could say this is highly probable. Do you want to share your ideas, Mr. Yi? [Yi Gang] (March 12, 2015 15:45:25) Our observation finds that after the upper floating range is raised to 1.3 times the benchmark rate this time around, our commercial banks still can conduct differentiated pricing that allows different camps of banks to have varying floating ranges, and that big banks had slightly lower upward floating ranges, such as around 10%. The medium-sized banks, which were previously called joint-stock commercial banks, witnessed an upward floating range of about 20%. Some small financial institutions, including rural cooperative financial institutions, saw a higher floating range, say, 20%-30%. Such differentiated pricing actually is helping create the optimization between commercial banks and clients. [Yi Gang] (March 12, 2015 15:47:04) According to my observation, it is notable that although the foreign-funded banks in China don’t have a big market share, they generally witness a relatively small upward floating range. 36% of foreign-funded banks basically use the benchmark interest rate, and 40% foreign-funded banks have an upward floating range of slightly more than 10%. If our financial institutions, our families, individuals and enterprises, after some time of adaptation, have all adapted to this environment, I believe China’s benchmark interest rates, such as the overnight and seven-day repurchase rate, are becoming mature, indicating that the conditions for interest rate liberalization are becoming mature too. In my view, the interest rate liberalization will increasingly head towards the direction of marketizationin the future. [Express Magazine and China Express Mail Service Weekly] （March 12,2015 15:47:26） Thank you. I’m a reporter from the Express Magazine and China Express Mail Service Weekly. My question is for Mr. Zhou Xiaochuan. China’s broad monetary supply has been at the forefront across the world, with a very high deposit rate. But why do the SMEs including courier firms still find it hard to raise funds and to do so at a low price? Thank you. [Zhou Xiaochuan] (March 12, 2015 15:48:21) Heated discussions on financing difficulties and costly financing have been carried out in the market and the media. As you may discover, this is a comprehensive phenomenon. There are many reasons behind it, and I cannot identify each here. I’d like to share with you several ideas I’ve noticed among the external opinions, which I believe merit attention. Why do the SMEs find it hard to raise funds and to do so at a low price, despite the huge monetary supply and large aggregate loans? One of the reasons is that some companies with low efficiency occupy too many funds, and thus squeeze out SMEs, making it less likely for SMEs to raise funds. This situation should be improved. [Zhou Xiaochuan] (March 12, 2015 15:48:56) It is said that the headquarters of most large- and medium-sized enterprises are located in large and medium cities, so clients in large- and medium-sized cities have more choices. That means you could select another bank even if one bank refuses to lend money to you since dozens of banks are located on a street. And if this bank requests higher price, you could go to another. As long as an SME’s performance is acceptable, it normally stands a chance to raise funds. It’s not a big problem. [Zhou Xiaochuan] (March 12, 2015 15:49:42) But for SMEs and some start-up micro businesses, since some of them are grassroots firms and grassroots financial services are still not adequate, they may have only one or two banks available in their neighborhood. If the loan officer believes your project not promising and likely to incur some risks, they would not extend loans to you whereas you couldn’t find any other bank. Therefore, the financial services at the grassroots level shall be further expanded to provide competitive financial services, which may help small and micro businesses to solve the difficulties of financing and reduce the cost of financing. Premier Li Keqiang also stressed in the Report on the Work of Government that efforts should be stepped up to support private capital to set up small and medium-sized banks, which is also another solution to this issue. [Zhou Xiaochuan] (March 12, 2015 15:50:51) Besides, this is relevant to the interest rate liberalization we mentioned just now. If price has rigidity, then the balance between market supply and demand would encounter certain barriers. As interest rate liberalization precedes further, the relationship between market demand and supply would be better balanced. It is for sure that there is still much work to do in financial policies, regulatory policies as well as macro control policies, which can further help SMEs to get loans. A series of measures have been introduced recently, including the “Ten Measures”introduced last year, as well as another measure for innovative enterprises. All these measures will take effectgradually, not instantly. We couldn't expect the problems to be solved immediately after the policies are introduced, but in a step-by-step manner. This is what I want to say, and just as I mentioned, you can consult considerable articles available on this issue. [HKSTV] (March 12, 2015 15:51:14) Thank you. I’m a reporter from Hong Kong Satellite TV. Zhou Xiaochuan, PBC governor, and Leung Chun Ying,the chief executive ofHong Kong, discussed many issues with each other during the National People’s Congress, including Shanghai-Hong Kong Stock Connect. What approach do you believe will be adopted to further promote the connectivity between each other's capital market, including Shenzhen-Hong Kong Stock Connect and mutual recognition of funds domiciled on both sides. Will unstable Hong Kong, if possible, affect existing policies? Thank you. [Zhou Xiaochuan] (March 12, 2015 15:53:23) Hong Kong is universally known as an international financial center. Both the Hong Kong SAR government and the chief executive are interested in the development pattern of the financial center and how it can play a bigger role and become more competitive. That's why they often communicate with and meet us. Shanghai-Hong Kong Stock Connect, launched last year, is a major progress in the financial market. People were generally happy to see the launch of Shanghai-Hong Kong Stock Connect, which runs stably now. However, as it is new to us, designers were not very sure about it when designing, confirming and preparing for its launch last year, and its design is somewhat conservative. But some time after its launch, it is found that this could be better designed, and our mind could be further emancipated. So we exchanged our ideas on this issue. Shanghai-Hong Kong Stock Connect has laid a foundation for the launch of Shenzhen-Hong Kong Stock Connect, and also provides some ideas for the latter on how it could function better and more effectively so as to make the market play a bigger role in resource allocation. [Zhou Xiaochuan] (March 12, 2015 15:55:13) Will the financial market develop smoothly? In my opinion, financial markets often go through ups and downs in the course of its development, which are either caused by itself or reflective of the economy and society, or even the geopolitics. Whenever something goes wrong with the industry, the share or bond prices would be reflected in the capital market. This means that the capital market is a tool for risk management, capable of both reflecting and managing risks. To manage risks, we must make full use of the capital market. Given the situations of the participants in the capital market of Hong Kong, which has been an international financial center over the years, we are fully confident in Hong Kong's capital market, and its ability to continue to play an important role in managing risks. Thank you. [Legal Daily and legaldaily.com.cn](March 12, 2015 15:55:47) Thank you. I’m a reporter from Legal Daily and legaldaily.com.cn. Premier Li Keqiang pointed out in this year's Report on theWork of theGovernment, "We must facilitate qualified private capital to duly incorporate financial institutions such as medium- and small-sized banks, and approve of one when it becomes mature, without setting any quota." Without setting any quota gives private banks more room for development. I am wondering what legislations will be developed and what regulatory measures will be improved to ensure the healthy development of pilot banks and guard against financial risks. Thank you. [Zhou Xiaochuan] (March 12, 2015 15:56:52) This question has drawn wide concern in society. The People’s Bank of China (PBC) has done a lot for this. China Banking Regulatory Commission (CBRC) is responsible for incorporating commercial banks. Sometimes we convene press conferences together with the PBC, CBRC, CSRC, CIRC and SAFE. Unfortunately, no CBRC leaders are present today, otherwise they would give you a better answer. Anyway, let me answer your question. [Zhou Xiaochuan] (March 12, 2015 15:58:28) First, I believe that we should understand the financial services provided by banks are also competitive services with high access threshold that is to ensure security since banks are responsible for managing capital for their clients. As a reporter said just now that SMEs find it difficult to raise funds, we would say this also needs competition. If private capital can meet this threshold, they should be allowed to set upunder the principle of fair competition medium- and small-sized new-type private banks that serve the communities. [Zhou Xiaochuan] (March 12, 2015 15:59:05) People used to have slightly different understanding of this issue, believing banking was a sensitive business that involved heavy risks, and didn't recommend common people to engage in this sector. But as time goes by, this concept has gradually changed. [Zhou Xiaochuan] (March 12, 2015 16:00:02) Second, the standards and qualifications must be clarified. One important issue is that private banks should be able to identify and mitigate risks. There also should be more stringent regulation on compliance of private banks than that of other industries. Therefore it is a prerequisite to ensure the maturity of regulation and the adequacy of regulatory forces. [Zhou Xiaochuan] (March 12, 2015 16:01:05) Third, financial infrastructure shall ensure the normal operations of private banks. Financial infrastructure covers payment, clearing and transaction. If the infrastructure is unsound or weak, it can also lead to sudden problems during operations of these institutions. [Zhou Xiaochuan] (March 12, 2015 16:02:12) In addition, you are right that the rules and systems shall be able to better support the operations of small- and medium-sized banks. China's existing laws don’t have particularly unfavorable provisions against private banks, but we should say that some of the regulations and systems shall be refined, with respect to private financial institutions, corporate governance and other weak points. More refined regulations and systems,including laws and regulations, shall be developed to better promote the sound development of private financial institutions. Thank you. [Hong Kong Cable TV] （March 12, 2015 16:02:38） Thank you. I’m a reporter from Hong Kong Cable TV. My question is about the RMB internationalization since the International Monetary Fund (IMF) will review Special Drawing Rights (SDRs) this year. What's the likelihood do you believe the RMB will be included in SDR? As the internationalization proceeds, some analyses state that the progress of internationalization will marginalize Hong Kong dollars. You said just now that the Hong Kong dollars are pegged to US dollars. Do you think it is necessary to adjust this relationship and this model to cooperate with the review? Thank you. [Yi Gang] (March 12, 2015 16:04:22) Let me answer this question. The IMF will review the currencies in the SDR basket this year, which is conducted every five years. As we all know, the RMB internationalization has proceeded rapidly over the past 5 years. Currently, the RMB is the world's No. 2 trade financing currency and No. 6 trading currency, and used by many national and regional monetary authorities as a reserve currency. [Yi Gang] (March 12, 2015 16:04:42) The IMF follows two standards in reviewing the currencies in the SDR basket: firstly, the sizes of trade in goods and trade in services behind the currency. It is no doubt that China will pass the review in this aspect, since its sizes of trade in goods and trade in services are at the forefront in the world. Second, free use of the currency. There are some different views on this standard now. But generally speaking, the development of the CNY and CNH markets, as mentioned by the reporter just now, as well as overseas RMB deposits, bonds and development of other derivatives show that RMB is developing towards a currency that can be used freely. [Yi Gang] (March 12, 2015 16:05:02) Undoubtedly, the inclusion of the RMB in the SDR basket is conducive to enhancing the representativeness of SDR, and can help promote the reform of the international monetary system. In my opinion, this would also facilitate the reform and opening-up of China’s financial sector. Therefore, we are also evaluating the possibility, and have been actively communicating with our counterparts in the IMF, in the hope that they could fully consider the progress of the RMB internationalization, and make RMB a currency in the SDR basket in the foreseeable future. [Yi Gang] (March 12, 2015 16:05:28) Of course, we should be objective concerning the inclusion of the RMB in the SDR basket, which should be a natural result. No matter when or whether the RMB will be included, China’s financial reform and opening-up will continue. [Yi Gang] (March 12, 2015 16:06:17) With respect to your second question, I would say that by following the basic law of "One Country, Two Systems", the two monetary authorities have been communicating with each other very effectively and the financial cooperation between the Hong Kong dollars and the RMB have been smooth. I don’t see any need to adjust this landscape. In my opinion, the system ofpegging the Hong Kong dollars to the US dollars has been running successfully, and therefore, our cooperation with Hong Kong Monetary Authority, including cooperation in the financial market, as well as in the construction of the CNH market as we’ve discussed today, will be further deepened. Thank you. [Jiangsu Newscasting] (March 12, 2015 16:07:05) Thank you. I’m a reporter from Jiangsu Newscasting. I have a question for Mr. Zhou. The P2P online lending has been developing rapidly, but also hasled to many risky events, while regulatory measures have not been introduced yet. Although this is not merely the job of the central bank, I'm wondering when the regulatory measures or opinions on Internet finance would be introduced. Is there a timetable? Could you share with us some details on that? Thank you. [Zhou Xiaochuan] (March 12, 2015 16:08:04) As you may know, the financial sector was preparing a new policy on Internet finance last year to support the development of Internet finance. However, proper regulation should be conducted under the existing regulatory framework. Although the document is still under discussion, I believe it will be published soon. [Zhou Xiaochuan] (March 12, 2015 16:08:20) Rounds of solicitation of ideas have been conducted in the industry. Please also note that Internet finance is quite different from P2P online lending, as one focus of Internet finance is Internet payment service. Another focus is crowdfunding, as you may know. Internet finance also covers online sales of other financial products such as insurance products. All these show that Internet finance is a broad concept. [Zhou Xiaochuan] (March 12, 2015 16:08:35) Since no license for a P2P online lending institution as a banking or depository financial institution has been officially applied for and obtained, a P2P online lending institution can’t be considered either a bank or a credit cooperative. In this sense, P2P online lending is still private finance. [Zhou Xiaochuan] (March 12, 2015 16:12:15) P2P online lending is different from other Internet financial business, which has been developing rapidly and healthily. As you may know, P2P online lending is more problematic, such as runaway, default and malpractices. Therefore, strengthening regulation of P2P online lending can be defined in the following two aspects: firstly, to promote the healthy development of P2P online lending, provide better services to customers and supplement the existing financial institutions. Secondly, to provide an outlet for thecustomers to redress an injustice and complain as the business goes wrong and the funds invested cannot be recovered. We should be very careful of such a case since it may cause moral hazards, and also should keep in mind the rules and risks associated with financialproducts and practices, especially online practices. Are you ready to take a risk when getting involved in such a case? Generally speaking, rules for Internet finance should be developed, but not likely to be very premature, since no one could be so smart as to foresee everything along with rapid development of technologies. Given this, regulatory rules will be introduced as business develops. With broad coverage, these rules are different from each other. For example, what rules will be developed for online payment? For crowfunding? And for P2P online lending? These should not be generalized. [Zhou Xiaochuan] (March 12, 2015 16:12:49) Overall, I believe that the financial sector, the regulatory authorities and the governmentsare all highly concerned about this issue. Meanwhile,I'd like to stress that when participating in the business, especially the new business, customers should be able to identify risks and be prepared for such risks, while the rules developed should avoid causing moral hazards. [Pan Gongsheng] (March 12, 2015 16:14:17) P2P online lending is one of theformats of Internet finance, which includes third party payment, P2P, crowdfunding, financing and the products soldby banks, insurance, securities and asset companies via online platforms. The PBC encourages the innovative development of Internet finance and advocates proper classified regulation. Just as Mr. Zhou said just now, since Internet finance contains different formats, the regulatory rules, the legal relationship and the nature of risks associated with these formats are different, indicating that different regulatory rules and intensity are required for different formats. The PBC is currently taking the lead to develop opinions on Internet finance and how to promote its healthy development. We are now in the process of approving the measures and expect to release them as soon as possible. Thank you. [CCTV, CNTV] (March 12, 2015 16:15:08) Thank you. I’m a reporter from CCTV and CNTV. Premier Li Keqiang has said many times that China's monetary policy will not adopt the "free flooding" approach. We have noticed since last year that the central bank used a series of monetary instruments such as targeted RRR cuts and mortgaged supplementary lending to support the development of small and micro businesses and the “three rural” economy. However, some voices challenged that the targeted regulation is not transparent enough, and the data are not reliable. I’d like to ask Mr. Zhou about the effect of the targeted regulation. How can the central bank ensure that the funds are channeled into the weak links of economic development, instead of going to the non-real economy like the stock market? Thank you. [Zhou Xiaochuan] (March 12, 2015 16:15:47) You may know very well that the monetary policy is aggregate policy, as is written in textbooks. However, based on China’s specific demand and the transmissive and structural characteristics of monetary policies, we believe that monetary policy can have proper and structural features, which will help China with its economic restructuring. China is not alone in this effort. Many other countries have tested and explored the structural role of monetary policies, indicating monetary policies may have such an effect. [Zhou Xiaochuan] (March 12, 2015 16:16:20) While some monetary policies can support sustainable structural adjustment based on existing money stocks, such as differentiated deposit reserve ratio, some policies are increment-oriented. Given the lack of liquidity in the market, incremental capital is needed and the central bank will adjustand inject the capital into the economy, especially where capital is most needed and where structural optimization is most required. Initially, the capital will promote structuraladjustment. Some time after the injection, the capital will flow into the economy, when such monetary policies will play a weaker role in structural adjustment and become aggregate policies again. [Zhou Xiaochuan] (March 12, 2015 16:17:35) From this perspective, it's not advisable to overestimate the role of structural policies in liquidity management and release of monetary base, as overestimation is not necessarily in line with the reality. I believe we need some time before assessing these policies. Although we have witnessed considerable positive effect, we will be more objective and accurate in theassessment after a period of time. This also reflects one of my points, that is, I don't agree with that the capital should not go to the stock market, which seems unsupportive to the real economy. [Zhou Xiaochuan] (March 12, 2015 16:18:50) Many entities on the stock market ranging from petroleum, chemical engineering to building, infrastructure, agricultural and foodstuff companies, raise funds on the stock market and borrow money from banks through their bank accounts. These funds have directly supported the development of the real economy. In particular, most entities raise funds by issuing shares on the stock market, whereby promoting the development of the real economy. Indeed, some financial transactions in other links of some stock markets and financial markets may be unrelated to the real economy, but such practice is merely speculation. It is a lopsided view that the funds going to the stock market will not support the development of the real economy. [Zhou Xiaochuan] (March 12, 2015 16:19:24) Some argue that the self-circulation of funds in the financial market means isolation from the real economy, which is also inaccurate. Considerable financial activities, as we observe, are carried out to allocate resources and serve the real economy in a direct or indirect manner. However, it's true that some financial products are developed for speculation, which we should guard against. Compared with other countries and regions, China, including the CPC Central Committee, the State Council, the central bank and the whole financial community, stresses the role of finance in serving the real economy most. [Zhou Xiaochuan] (March 12, 2015 16:20:47) For your information, in 2008 when the global financial crisis broke out, it were China’s officials and scholars who were the first to point out that the cause of this crisis was the disconnection of some financial activities with the real economy, and stress that financial activities should be carried out to serve the real economy. Later at the Central Economic Work Conference, a long paragraph was dedicated to the role of financial services in serving the real economy. This is our situation. The enormous activities we are carrying out via monetary policy and financial market are highly related to the real economy. Thank you. [Tass News Agency] (March 12, 2015 16:41:51) Thank you. I’mfrom Tass News Agency. Mr. Zhou, I'm a Russian, and I'm wondering what you would say about Sino-Russian financial cooperation?What’s theprogress of the payment systems in China and Russia? What do you think are the prospects for China and other countriesincluding Russia to settle transactions in their own currencies? Are you confident in these prospects? Thank you. [Zhou Xiaochuan] (March 12, 2015 16:42:08) Since China and Russia are neighbors and big economies, the two sides cooperate deeply in trade investment and have been stressing the bilateral financial cooperation all the time. In addition to support to trade settlement and bilateral investment as well as cooperation in the financial market, new approaches to financial cooperation have emerged since the end of the global financial crisis, such as bilateral currency swap, direct listing of bilateral currencies, and encouraging trade and investment settlement in home currencies, including encouraging entry into the other's inter-bank market or capital market to make investments, and encouraging the central banks to manage their foreign exchange reserves using the other's currency and make investments in the other's market. Given these, the new approaches have been adopted between the two sides. [Zhou Xiaochuan] (March 12, 2015 16:42:26) China has made such arrangements with dozens of countries, including Russia, we should say. Undoubtedly, such arrangements may not be the most aggressive or the most effective at the beginning, and some are still in the starting phase, but anyway, the future potential will be fully tapped. Thank you. [Wang Xiaoyun] (March 12, 2015 16:42:45) This is the end of today's press conference. Thank you, reporters and distinguished guests. [www.npc.gov.cn] (March 12, 2015 16:43:25) Today's press conference is over. Thank you! (Source: www.npc.gov.cn) 2015-05-12/en/2015/0512/1156.html
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Yi Gang, Secretary of Party Leadership Group and Administrator of the State Administration of Foreign Exchange (SAFE), chaired on January 22 a party leadership group meeting to restudy the gist of the fifth plenary session of the 18th CPC Central Commission for Discipline Inspection (CCDI), study the implementation measures, listen to the work report by the disciplinary inspection team of the party leadership group and make plans for rectifying undesirable work styles, upholding integrity and combating corruption in 2015. The attendees listened to the report delivered by the disciplinary inspection team on rectifying undesirable work styles, upholding integrity and combating corruption. In 2014, the SAFE implemented the gist of the third and fourth plenary sessions of the 18th CPC CCDI and the State Council's second work conference on clean government, performed its principal and supervisory responsibilities, and managed and governed CPC members in accordance with regulations. Following the gist of the CPC Central Committee's eight-point guideline for official conduct, the SAFE improved the anti-corruption and integrity systems and mechanisms, enhanced education and administration of CPC members and officials, and rigorously investigated and dealt with regulatory and disciplinary offenses, while focusing on its main business, dedicating itself to the "three transformations" and strengthening disciplinary inspection and supervision departments' capabilities of fulfilling their responsibilities, thus providing a political guarantee for foreign exchange administration. Under the leadership of the CPC CCDI and the SAFE Party Leadership Group, the disciplinary inspection team conscientiously performed its supervisory responsibilities by enhancing supervision, being strict in disciplinary inspection, rigorously carrying out the accountability system, strengthening its business capabilities and cleaning up the undesirable work styles, whereby successfully completing its tasks. The meeting pointed out that the speech by Xi Jinping, General Secretary of the CPC, at the fifth plenary session of the 18th CPC CCDI provided guidance and an ideological tool for CPC members to fully understand the tough situation in the fight against corruption and to press ahead with rectifying undesirable work styles, upholding integrity and combating corruption. Taking implementation of the gist of Xi's speech and of the requirements of governing the CPC in a strict way as a key political task, the CPC organizations of the SAFE at all levels should convey the pressure level by level and perform the "two responsibilities" to fully implement the decisions and plans of the CPC Central Committee and the CPC CCDI, based on the foreign exchange administration practice and the actual building of CPC members and officials team. The meeting studied the general ideas and work priorities in the SAFE's efforts to rectify undesirable work styles, uphold integrity and combat corruption in 2015. It was decided at the meeting that a work conference on rectifying undesirable work styles and upholding integrity would be convened soon to implement the gist of the fifth plenary session of the 18th CPC CCDI and make plans for the work in 2015. 2015-04-02/en/2015/0402/1153.html
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The State Administration of Foreign Exchange (SAFE) has recently held the 2015 Advanced Workshop for Branch Directors in Zhengzhou, Henan. Following the plans of the CPC Central Committee and the State Council and the spirit of the Workshop of the People's Bank of China with Branch and Sub-branch presidents, participants at this workshop studied and analyzed both domestic and overseas financial and foreign exchange positions, with training and discussions conducted based on the priorities of foreign exchange administration. Based on the current foreign exchange position, panel discussions on monitoring and analysis of trade in goods, ongoing and ex-post regulation of the capital account, monitoring and warning of cross-border capital flows, and new framework for foreign exchange regulation were held and experts and scholars were invited to give lectures at this workshop. Due to complex and changing economic conditions both at home and abroad, China has witnessed sharper short-term fluctuation of cross-border capital flows but basic equilibrium of supply of and demand for foreign exchange since the beginning of this year, said Yi Gang at the workshop. Foreign exchange authorities have been persistent in pressing ahead with reforms while guarding against risks. To be specific, they deepened the reform of capital account convertibility, further promoted trade and investment facilitation, paid close attention to ongoing and ex-post regulation, and guarded against impacts from cross-border capital flows, thereby improving their capabilities to support economic restructuring, transformation and upgrading. It was unanimously agreed that since the SAFE proposed the "five shifts" in concepts and approaches of foreign exchange administration in 2009, foreign exchange authorities have achieved tremendous fruits in administration streamlining and power delegation, management transformation, monitoring and warning, and system integration, thereby laying a solid foundation for giving the market a decisive role in allocation of foreign exchange resources. To deliver a good performance in the subsequent reform of foreign exchange administration, Yi Gang stressed that foreign exchange authorities need to adapt to the changes in the foreign exchange position, identify the breakthrough point of the foreign exchange administration reform and continue to enhance the management and service quality based on administration streamlining and power delegation, so as to speed up building a macro-prudential policy framework for foreign exchange administration. In the next step, Yi Gang proposed that foreign exchange authorities should implement the plans of the CPC Central Committee, the State Council and the CPC Committee of the People's Bank of China, taking a holistic approach to reform and innovation, proactively adapting to the new normal of economic development, pressing ahead with the reforms of administration streamlining and power delegation, combination of deregulation and regulation, and service optimization, and innovating ongoing and ex-post regulation, so as to fully discharge the responsibilities granted by the state. First, continuing to streamline administration and delegate power, deepening the reform in the key areas of foreign exchange administration, and pressing ahead with capital account convertibility to support the development of the real economy. Second, improving monitoring, analysis and warning of cross-border capital flows and reinforcing the basis of data system, while cracking down on foreign exchange irregularities and intensifying risk prevention. Third, further strengthening operation and management of foreign exchange reserves to ensure the security, liquidity and value preservation and growth of foreign exchange reserves. Fourth, intensifying analysis and study, and further enhancing party building in the SAFE offices, cleaning up work styles and upholding integrity, teambuilding and internal management, so as to support the work priorities of foreign exchange administration. 2015-09-16/en/2015/0916/1170.html
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To ensure fair competition and a good order in the foreign exchange market, and enhance the transparency and credibility of administrative law enforcement regarding foreign exchange, the State Administration of Foreign Exchange (SAFE) has recently improved the disclosure system of administrative punishment information in accordance with the Regulations of the People’s Republic of China on the Disclosure of Government Information, and the Interim Regulation on Enterprise Information Disclosure, so as to enhance the timeliness of the disclosure of administrative punishment regarding foreign exchange and provide more access for public enquiry. Starting from January 1, 2016, the SAFE will follow the general procedures to disclose the information on administrative punishment of public institutions, enterprises and other institutions (excluding banks) for their violations of foreign exchange administration, and provide fuzzy inquiry by name of institution in addition to inquiry by organizational code. The general public will be allowed to input the name of institution or the organizational code at the official website of the SAFE to search for the administrative punishment information of relevant market players. 2015-09-16/en/2015/0916/1169.html
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Foreign exchange reserves exceed the optimal level “In all circumstances (no matter how serious the impact will be), foreign exchange reserves of USD 3.7 trillion are enough” Caixin: China saw its foreign exchange reserves reach approximately USD 3.7 trillion at the end of the third quarter. Is this beyond the optimal level? Yi Gang: Yes, I think so. There are those who are preparing for events that will be even more disastrous than the 1997 Asian financial crisis and the collapse of Lehman Brothers. But in my opinion, the USD 3.7 trillion in foreign exchange reserves is enough for any scenario. Massive foreign exchange reserves can reflect China’s strong national power, improve confidence, and deter speculators from assaulting China. With these benefits, massive foreign exchange reserves offer guarantees for financial and economic security. But the reserves need to be capped. Too much reserves will lead to fewer benefits and higher costs. It will not be cost-effective if the foreign exchange reserves exceed an equilibrium that lies between the marginal cost and the marginal benefits curves. The marginal costs include the heavy pressures on resources and the environment imposed by the vast exports and the interest paid by the central bank to hedge against the excess liquidity that results as it acquires US dollars and increases the monetary base. Further, it is not an optimal choice if the central bank intervenes in the market; instead it is the market that should play a decisive role. Caixin: Where does China sit on the curve now? YG: For sure, China has exceeded the intersection of the two curves. But it is still uncertain how far it is from that equilibrium point. What is the optimal level for foreign exchange reserves? Some say the reserves should be large enough to address several months’ needs for payments for imports, or to account for a certain part of the external debt, or they should be measured by the trade volume, investment volume, or even by stress tests that are designed to measure the volume of foreign exchange reserves required in cases of the most serious assaults. Passing all these measurements indicates that our foreign exchange reserves are already high enough. Caixin: What are your ideas about diversifying foreign exchange reserves investments? Hasn’t there been talk about launching several funds for this purpose? YG: Everyone is welcome to make suggestions regarding foreign exchange reserves investments but the suggestions must be conducive to sustainable development and beneficial for the nation and its people. The adoption of suggestions will depend on their performance. Foreign exchange reserves that the central bank bought through market interventions correspond to the bank's liabilities on the balance sheet. These assets must be managed well or there will be grave macroeconomic consequences. So suggestions are encouraged and appreciated. The establishment of the China Investment Corp. (CIC), for example, proved to be a good solution. Thereafter, the China Reform Holdings Corp., dubbed CIC II, was also set up. Both firms have their own unique characteristics. Investments by the SAFE using foreign exchange reserves have also proved fruitful. These investments can be compared across the board. In general, assets should match liabilities, which should be the case also for rights and obligations. We cannot have the kind of power that comes with no obligations. This means that if we are to manage an asset, we must take responsibility. If performance is poor, many would challenge any further adoption of such an approach. Given the fact that a relatively long period is needed to prove the results and the asset quality of an investment, assets should not be quickly transferred, otherwise it will be difficult to know which investments are fruitful. Therefore, efforts should be made at the institutional level to make sure assets are matched with liabilities and rights are matched with obligations, encouraging full incentives and proper competition. Any further advice will be deeply appreciated provided it clearly states the responsibilities. But please make sure the mechanism and the tactics have the ability to yield good results. The only solution is to pursue balanced international payments "The market plays a decisive role in balancing international payments. In addition, the RMB exchange rate also matters—international payments will automatically be balanced when the RMB exchange rate reaches an equilibrium" Caixin: How can we curb the further growth of the foreign exchange reserves? It seems that the reserves are still growing, which is partially due to the decision of the Fed to delay the QE tapering. YG: The only solution is to achieve an equilibrium for international payments, with more spending on imports, travel, and services, as well as more outbound investments. As international payments become more balanced, the foreign exchange reserves will stop growing. This is the simplest solution. Caixin: What did you mean when you said at a SAFE meeting, in conveying the spirit of the Third Plenary Session of the 18th CPC Central Committee, that China should "accelerate development of a market-based mechanism and institutions that promote an equilibrium in the balance of international payments?" YG: Policy-wise, we can put more emphasis on the importance of imports to promote a balance of international payments. In fact, imports can create a lot of jobs and imports of key raw materials and energy resources are critically important to China. Many imported commodities in the past that were in high demand by the middle classes were mistaken as luxuries and these imports were discouraged. Currently, as income is increasing rapidly, a large middle-income group has emerged. What they need, for instance, is imported commodities like apparel, notebooks, and cosmetics. It is necessary that we attach priority to these imports in terms of taxes and distribution channels, with the aim of bridging the wide pricing gaps. The pricing gaps between the domestic market and foreign markets can only be narrowed after the distribution channels are liberalized and tariffs are properly adjusted. Some people blame the pricing gaps with foreign brands that intentionally jack up prices in China. This is a bit absurd. But I believe that slightly higher prices are acceptable provided there is enough competition. Caixin: The year 2012 witnessed a substitution of the capital and financial account deficit and the current account surplus for the double surpluses in China's balance of payments that began in 1999, indicating that the balance of payments has finally started to move in a self-regulating and self-balancing direction. But why did the double surpluses reappear this year? YG: On the one hand, they are associated with cross-border capital flows. Most developed countries have been pursuing loose monetary policies, putting tremendous pressures on China. The United States, for example, has introduced a quantitative easing (QE) policy. Japanhas loosened its monetary policies both quantitatively and qualitatively. The European Central Bank has prudently protected its fragile economic recovery. For example, earlier this year, it showed deep concern about strengthening the euro. After the interest rate was cut on October 7, the euro fell by 1 percent. On the other hand, China's surplus in trade in goods is higher than it was last year, and it has exceeded USD 200 billion over the past 10 months. In addition, expectations of yuan trends among individuals and firms on the Mainland and in Hong Kong are important factors. Taking these factors into consideration, this year we are facing relatively stronger pressures from capital inflows. Caixin: Abnormal cross-border capital flows have risen recently, resulting in increased volatility, especially in terms of the capital and financial account. How can we strengthen our ability to monitor and analyze cross-border capital flows and improve the early-warning system? YG: The State Administration of Foreign Exchange (SAFE) has in place a comprehensive response plan that will be triggered when capital inflows reach a certain threshold. Rather than being tabled, this plan has been initiated three times and since its introduction in 2010 it has proven to be efficient. In my opinion, administrative controls over capital flows usually have limited and temporary effects. A new measure to regulate capital flows usually proves to be very effective within the first three months but it becomes less effective later on as people discover countermeasures, in the same way that a virus becomes resistant to drugs. The ultimate solution, as highlighted at the Third Plenary Session of the 18th CPC Central Committee, is to have the market play a decisive role in allocating resources, that is, leaving the market to play a decisive role in balancing international payments. In addition, the RMB exchange rate also matters—international payments will automatically be balanced when the RMB exchange rate reaches an equilibrium. The market-based mechanism for setting the yuan exchange rate should be improved. “In my opinion, the exchange rate is very close to an equilibrium level. But I hope that the mechanism will be more flexible and resilient" Caixin: The Decision on Major Issues Concerning Comprehensively Deepening the Reforms (hereafter “the Decision”), deliberated and approved at the Third Plenary Session of the 18th CPC Central Committee, highlights that China will improve its market-based exchange-rate formation mechanisms for the yuan. What is your interpretation of this? YG: Above all, a market-based exchange-rate formation mechanism for the yuan means that the RMB exchange rate will be decided by market supply and demand, which is the fundamental feature of the mechanism. From this, there are three key takeaways. First, develop markets, making market access and market transactions more convenient by requiring fewer administrative approvals, and developing hedging products according to market demand. As there is still a long way to go in terms of deepening the foreign exchange market with more diversified products in China, it is necessary to develop the market. Second, increase the flexibility of the RMB exchange rate and allow it to fluctuate in both directions. The volatility range for the RMB exchange rate against the USD can be expanded as at present it is the narrowest of all major currencies, whereas interest rates in China are high, leading to almost no costs for conducting interest arbitrage. An expanded range of volatility can push up the costs of interest arbitrage but will not have a serious impact on companies. Third, it is hoped that the RMB exchange rate will remain stable at an equilibrium level and will not, as was the case in the past, be fixed based only on the USD. These three key takeaways indicate our future work priorities. Put simply, China will continue to follow the marketization path while remaining stable. Caixin: You said common people will benefit from a stronger yuan. But many exporters suffer when the yuan appreciates. How do you account for the yuan's highs and lows over the past years? YG: The impact of the RMB exchange rate over the past few years needs to be viewed holistically. We know RMB appreciations hurt exporters. Now there has been talk about the yuan "being forced to appreciate" and that will have a very negative impact. But we also need to see the other side, that is, the benefits of a more market-based RMB exchange rate. First, China's economic strength has improved significantly, with last year’s GDP exceeding USD 8 trillion. Second, there are material benefits for the general public. Last year, for example, China imported more than 58 million tons of soybeans, more than 270 million tons of oil, and more than 700 million tons of iron ore. Had the yuan not appreciated, the soybean oil and bean pulp used for animal fodder would have been much more expensive. The more than 80 million people traveling abroad and those studying overseas could do so at lower costs. Why do so many people criticize an RMB appreciation? Because export companies speak with loud voices, while common people and those who benefit indirectly are the silent majority. But an RMB appreciation needs to be capped. I do not wish to see the yuan appreciate more than it should; an appropriate, balanced, and largely stable level is preferable. An important criterion for assessing whether an exchange rate is appropriate is the balance of international payments. As the balance of international payments reaches an equilibrium, the exchange rate will also be balanced. Overall, the RMB exchange rate has been stable. According to the Bank for International Settlements, from 2000 to 2013 the RMB exchange rate against a basket of 52 currencies rose 17.3 percent and 21.9 percent in terms of the nominal effective exchange rate and the real effective exchange rate respectively. This was an average appreciation of more than 1 percent every year. This is absolutely in line with improvements inChina's productivity and its economic development. So the yuan was not forced to appreciate and the appreciation did not hurt the economy. The fact that China has been posting "double surpluses" in most years for more than a decade also shows that the yuan is not over-appreciated. Caixin: What do you think of the trends in the RMB exchange rate? Will the yuan continue to appreciate? YG: In my opinion, the exchange rate is now very close to an equilibrium level. But I hope the mechanism can be more flexible and resilient. Caixin: Does the reform aim to allow the yuan to freely float? Is a sound exchange-rate formation system the same as a free-floating exchange rate? YG: It would be free-floating in most cases. The Third Plenary Session of the 14th CPC Central Committee set the goal of gradually making the yuan convertible. Basically, that means making it a free-floating currency as determined by the market. But this is not mutually exclusive with demands for the central bank to take actions that comply with and respect market rules in cases when a crisis or a special event might occur. In other words, free-floating does not mean the central bank cannot intervene under any circumstances. Getting this straight may dispel the concerns of most people. Caixin: How far are we from free-floating? YG: We are now very close to a free-floating level. In 2012, for example, most of the time the central bank did not intervene in the market. Caixin: Even when we have a free-floating exchange rate in the future, will it be easy for the central bank to intervene in the market? YG: Any intervention will have to be rule-based. That means the personal judgment of any official cannot be used to justify an intervention. There needs to be a certain set of rules that clearly states the preconditions, means, and extent of any intervention, with clear terms and conditions in place so that power remains in a transparent cage. Rule-based intervention stresses the role of the market in orientation and decision making, with the aim of improving market transparency and boosting market confidence. It is hoped that the market can be simple, ruled by law and fully competitive, with clear regulations and transparent information. Caixin: Is the timing of the reform also a concern? YG: There is indeed an argument for this. But if public opinion and ideas do not change, all that work will have been for nothing. Even if we pick the best time, things will change. In 2008, for example, when we hosted the Olympics, an appreciation [of the RMB] was put on hold for a year and a half because of public pressures—many people considered the Olympics a top priority and did not want anything to go wrong. In the future, however, will an RMB appreciation be put on hold again if there is to be another Lehman Brothers crisis or if exports weaken? In fact, weak exports are more of a reason not to stop a RMB appreciation because the yuan will depreciate when exports are weak. Exports will soon see a turnaround due to a depreciation of the yuan. Whenever something unexpected occurs, people's first reaction has always been to call for suspending the RMB exchange-rate reform. This is not a problem regarding determination to reform but a problem of philosophy. It is very difficult to guide public opinion as by habit everyone always thinks exchange-rate flotation needs to be suspended whenever something uncalled for occurs. Caixin: Making the yuan float freely is a step-by-step process. Is it possible to first allow that to occur in the Shanghai Free Trade Zone (FTZ)? YG: Many people think in this same way. I think that in theory this assumption is flawed as China is but one market. If the Shanghai FTZ's policy has the front line open but the second line is under control, the assumption may work. But if it has the front line open and the second line is under control throughout the country, it would make the FTZ an offshore market with no direct connection to the mainland market. This makes no sense for the Shanghai FTZ, since we already have Hong Kong as an offshore market. If we cannot have the second line under control, we cannot make such an assumption work in the Shanghai FTZ, as capital moves freely between the FTZ and the rest of the mainland. This means the market in the entire country is free. This is where it becomes difficult. Orderly capital account convertibility "Capital account convertibility is designed to further protect and expand people's property rights" Caixin: The Third Plenary Session of the 18thCPC Central Committee highlighted that capital account convertibility should be accelerated. What is the next step? YG: Capital account convertibility was elaborated upon in the Decision. There was one sentence on interest rates and RMB exchange rates, but an entire paragraph on capital account convertibility. It reads: "Push ahead a two-way opening of the capital market, increase the convertibility of cross-border capital and financial transactions in an orderly way, build and fine-tune a system to manage foreign debts and capital flows under the framework of macro-prudential management, and accelerate capital account convertibility for the Renminbi." This shows how much significance the CPC Central Committee has attached to capital account convertibility. China achieved current account convertibility in 1996 and joined the WTO (the World Trade Organization) in 2001. These two events made China a major trade power—the world's largest exporter and the world’s second-largest importer. These are the changes that current account convertibility has brought to China. In fact, capital account convertibility is designed to further protect and expand people's property rights. For instance, under the planned economy urban residents were not allowed to buy housing. Later it became their right to choose whether or not to buy a home. This change protects their property rights and expands their rights to choose. In addition, in the past it was difficult for people to travel abroad for personal affairs, but now overseas tourism has become very convenient and part of their rights. The allocation of assets both at home and abroad has become an economic agent's right, while making the capital account convertible recognizes and expands such a right. Efforts shall be made to drive capital account convertibility. The two-way opening of the capital market will make China an overseas investment power as well as a major destination for overseas investments. This definitely will be good for China. Caixin: But many worry about outflows of capital and external shocks. How do you respond to this? YG: Some worry that if we open up, capital will flee and China's stock market will crash. In fact, once we liberalize the market, a lot of capital will vie to come in. Another worry is that an open capital account will leaveChinavulnerable to external shocks. It is said that it was due to the capital controls that China was not affected too much by the Asian financial crisis. This actually should not be attributed to the capital controls, but it is difficult to convey this idea to people and to convince them. The biggest worry is that many people interpret convertibility as an open door for hot money to freely flow in and out of China. That's unnecessary. This worry has been addressed in the Decision, which states that "efforts need to be made to create and fine-tune a system to manage foreign debts and capital flows under the framework of macro-prudential management.” In fact, we have already achieved a lot of progress toward this goal. China's system for balance-of- payments statistics is the most advanced in the world. While other countries base their statistics on sample payments, China counts each and every payment. Caixin: Does capital account convertibility mean no control? YG: A macro-prudential management framework must conform to the laws and market rules. Within these boundaries, capital can flow freely. What is macro-prudential management? It means you have a clear idea about capital inflows and outflows, understanding previous cases such as George Soros' attack on the British pound or on the Thai currency. Analyzing these cases, you should understand what has happened in the market and what kind of rules can be created to protect most investors and prevent cut-throat competition. This is the core philosophy of macro-prudential management. In addition, mechanisms for anti-money laundering, anti-terrorism financing, and anti-tax havens will be maintained. An IMF working paper once reported that imposing temporary controls on some capital accounts is possible under some special circumstances. Caixin: Can the pilot program for capital account convertibility come into force immediately in the Shanghai FTZ? Is the scheme almost completed? YG: Yes, the scheme is almost finished. The Shanghai FTZ will see a lot of progress in this regard, and some substantial and experimental steps will be taken. As it has been said, there are still major questions about the connections between the Shanghai FTZ and the rest of the Chinese market. Caixin: The Decision highlights that efforts should be made to push ahead with a two-way opening of the capital market. Has any progress been achieved in the Qualified Domestic Individual Investors (QDII2) program? YG: The scheme is being developed. Being prudential at the macro level to prevent risks "In this way, economic and financial security can be ensured and firms and individuals can enjoy maximum freedoms and conveniences. Those are the desirable outcomes of regulation" Caixin: The State Administration of Foreign Exchange (SAFE) has launched measures to manage the banks’ synthetic position in foreign exchange settlements and sales, linking the limits of the consolidated position floors for foreign exchange settlements and sales to the foreign exchange loan-deposit ratio as a tool for macro-prudential management. Can you elaborate on the content and policy tools for macro-prudential management? YG: In macro-prudential management, one should be prudent and watch out for risks. Take a maturity mismatch for example. If many firms focus on short-term growth, they will be warned. If they focus too heavily on short-term growth and market liquidity is reversed, they will be at risk. A currency mismatch is also something to watch out for. If the exchange rate changes drastically, there will be damage to a sound balance sheet. Linking the banks' consolidated positions to foreign exchange loans, which was initiated in May, is a typical macro-prudential management approach, as foreign exchange loans involve the source of capital for foreign currency loans and matching the loan terms with currencies. When maturity and currency mismatches reach certain thresholds, limitations should be imposed on banks. The minimum requirement to avoid a currency mismatch is to require banks to sustain consolidated positions, while coupling their consolidated positions with loans to achieve balanced development and to make sure maturities and currencies are well matched. Caixin: The revised Procedures for Reporting the Balance of Payments (hereafter Procedures) will come into force on January 1, 2014. I am wondering how the new procedures will facilitate enhanced monitoring of cross-border capital flows. YG: The release of the Procedures will make monitoring much more sound. Our philosophy is that a strong statistical system for the balance of international payments should be in place while power should be in a transparent cage so as to ensure a sound monitoring of the statistics on the balance of international payments and cross-border capital flows while leaving monitoring transparent to the absolute majority of persons who obey the law. In this way, economic and financial security can be ensured and firms and individuals can enjoy the maximum possible freedoms and conveniences. Those are the desirable outcomes of regulation. Caixin: RMB foreign debts, including trade financing, direct investments, and bonds, have gradually increased over the past two years. I am wondering how to manage these debts, and whether these debts should be incorporated into the foreign debt statistics. YG: According to the rules of the balance-of-payments statistics, foreign debts should be incorporated into the scope of the statistics, regardless of the currency. In the US, for example, foreign debts are denominated in US dollars, which does not have an impact on the country's statistics on foreign debts. In other words, the country's foreign debts have not been offset by the use of the home currency. This is justified both in theory and in practice. So far, the foreign debts published by the Chinese government have not included RMB foreign debts in order to maintain the old statistical methodology. However, this issue has been addressed in theory, that is, foreign debts should include all the liabilities between Chinese and foreign economic agents. Cultivating a new benchmark for a market-based interest rate "The conditions should include: 1. The benchmark interest rate adopted by the central bank has been replaced by the market-based interest rate; 2. Banks carry out their internal accounting based on the market-based interest rate" Caixin: What is the next step in accelerating liberalization of the deposit interest rate? YG: Currently interest rates of bonds and financial products have been liberalized, as have loan interest rates, whereas deposit interest rates still remain a big concern. They will gradually be liberalized as the conditions are met. Instead of being low, China’s deposit interest rates are actually well in excess of those of the HKD, USD, YEN, and EUR. The one-year deposit interest rate is 3.25 percent, and the yuan is stable and appreciating. What other currency has such an interest rate? Caixin: Will the deposit interest rate drop after liberalization? YG: Most people believe that the deposit interest rate will rise after liberalization, but they need to consider the related problems if the deposit interest rate is to rise again. Caixin: What do you mean by saying “when conditions are met”? YG: There are two conditions: 1. The benchmark interest rate launched by the central bank has been replaced by the market-based interest rate; 2. Banks carry out their internal accounting based on the market-based interest rate. The Shanghai interbank offered rate (Shibor), for example, might replace the current benchmark interest rate. If banks price their products and verify deposits and loans, and capital transactions between parent banks and branches are based on the Shibor rather than the deposit interest rate, then that will be a signal for liberalization. The Shibor is just an example—the repo rate might be more important in the future. If a mature market-based benchmark rate can be identified to largely replace the benchmark rate launched by the central bank, it will be time to liberalize the deposit interest rate. But we worry that the market will become chaotic if the deposit interest rate is liberalized and no new benchmark interest rate has been found to replace the current benchmark. Caixin: Is it possible that the deposit interest rate will be liberalized first in selected regions, such as the Shanghai FTZ, Wenzhou, or Qianhai? YG: We encourage regions to implement the pilot program for deposit interest rate liberalization within the possible scope and we believe considerable innovations can be made. But any region that wants to liberalize the deposit interest rate must first satisfy two requirements: one, it must prove logically that it is ready in theory; and two, it must make sure that the market will remain stable and orderly when the pilot program is implemented and that the liberalization of the deposit interest rate is in the public interest. Caixin: What are your ideas about the recent financial strains in the bond market? YG: Certain volatilities in the market are normal since we want to allow the market to play a decisive role in allocating resources. We should be more tolerant of such volatility, but the central bank will not allow such volatility to reach a point whereby economic activities are impacted. But just as the interest rate is decided by market demand and supply, the bond price is decided by the demand and supply of bonds and we need to be poised to tackle the consequences of ups and downs in the interest rate. In principle, we should respect the market's role in allocating resources. (Originally published in issue no. 26 of Century Weekly by caixin.com, 2013.) 2013-12-02/en/2013/1202/1091.html
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On May 16, 2012, the 37th annual meeting of the International Organization of Securities Commissions (IOSCO) convened in Beijing . The China Securities Journal conducted an interview with M SunLujun, head of the Capital Account Administration Department of the SAFE, on issues related to the QFII system. Q1: This year marks the 10th year since China launched the QFII system. How do you regard implementation of the system during the past ten years? A: Ten years have past since the QFII system was launched in China at the end of 2002. It is an institutional arrangement under such circumstances that foreign investors are granted limited access to China ’s capital market, and the RMB capital account remains nonconvertible. This arrangement allows qualified foreign institutional investors living up to certain standards to make portfolio investments in China 's capital market within verified investment quotas. Implementation during the past ten years shows that the QFII system is an important move by the government to promote the opening-up of the capital market and the convertibility of the RMB capital account. The involvement of QFIIs in the domestic stock market has played an important role in improving the framework of the system, investment philosophy, corporate government, risk control, and technical level of the capital market, as well as enhancing the services of domestic custodians and investment banks. It also stimulates cooperation between domestic and foreign financial institutions, facilitates the standardization and internationalization of the capital market, and provides practical experience for further reform and development of the capital market. Q2: From the perspective of the assignment of responsibilities, the CSRC is currently responsible for examining and approving the qualification and market admittance of QFIIs, while the SAFE is responsible for examining and approving the QFII quota to invest in the domestic stock market. Could you briefly describe the procedures for QFII quota examination and approval? A: According to the relevant laws and regulations of the QFII system, QFII institutions shall, upon receipt of portfolio investment business licenses from the CSRC, submit through trustees, within one year, investment quota applications to the SAFE. The SAFE implements a collective examination mechanism to examine the investment quotas. A quota examination committee is established consisting of the heads of the SAFE departments to examine QFIIs that have submitted complete and regulatory compliant applications. A meeting is held once a month to examine the applications. This mechanism has played an active role in enhancing the transparency, fairness, standardization, and timeliness of the QFII quota examination. The SAFE has maintained close communications and coordination with the relevant CSRC departments. An effective information-sharing mechanism has been established to facilitate communications. Q3: Could you say something about examination and approval of the QFII quota in recent years? A: Since implementation of the QFII system, the SAFE has worked closely with the CSRC in controlling the pace of the quota examination and in increasing the scale of investments by QFIIs. This has been achieved in accordance with the government target to support and promote the reform and development of the capital market, and based on the circumstances of the BOP conditions and the development of the stock market. As of May 16, 2012, the SAFE had approved an investment quota of USD26.013 billion for 138 QFIIs (excluding three institutions with nullified quotas due to changes in the investment entities and the approved relevant quotas). In general, the pace of the quota examination is consistent with the demand of the QFIIs. For instance, during the initial period of QFII implementation and the expansion of the global financial crisis in 2008, the amount of the approved quota was relatively small due to fewer applications submitted by the QFIIs; during periods when the QFII system was steadily carried out, the SAFE approved average quotas of USD3-3.5 billion each year. It should be noted that in 2011 the country faced great pressures from cross-border fund inflows. In response, the SAFE properly slowed the pace of QFII quota examination, with a total amount of USD1.92 billion approved for the whole year. Since the beginning of 2012, China ’s balance of payments has moved toward equilibrium. In order to further promote the reform and development of the capital market, the SAFE timely adjusted and accelerated the pace of the QFII quota examinations. As of May 16, 2012, USD4.373 billion had been granted to 38 QFIIs, nearly equal to the total investment quota approved in 2010 and 2011. Q4: We noticed that the CSRC recently released data showing that by the end of April 2012, 163 overseas institutions had been granted QFII qualifications. According to data newly released by the SAFE, as of May 8, 2012, only 141 QFIIs had been granted investment quotas. What is the source of this discrepancy? A: The CSRC gathered and released data on QFII qualifications, and the SAFE gathered and released data on QFII investment quotas. The discrepancy is due to three factors: (1) some QFIIs did not submit the applications to the SAFE on time; (2) some QFIIs had to alter their submitted applications due to fundraising reasons or adjustments to the investment schedule; (3) some QFIIs asked to defer the approval of the quotas due to fundraising difficulties. Excluding the above reasons, the SAFE has maintained a pace consistent with that of the CSRC in QFII examination and approval. Q5: Recently, the CRSC said that it will take measures to further promote the development of the QFII system, such as the lowering of the threshold for QFII admittance, further introducing overseas long-term funds, and so forth. Does the SAFE have similar plans? A: During formation and implementation of the QFII system, the SAFE has established close communications and coordination with the CSRC. The two authorities have also established a mechanism for smooth data-sharing. The SAFE has taken steps to promote the facilitation, standardization, and transparency of foreign exchange administration relating to the QFII system by revising the policies and regulations, establishing a quota examination committee, providing window guidance, and so forth, and by responding actively to the rational policy demands of the QFIIs. With respect to the quota examination and exchange policies, the SAFE has played a role similar to that of the CSRC in providing preferential policies on quota approval to a single QFII institution, a lock-up period for the principal, and so forth, in compliance with the policy orientation that mid- and long-term investors (overseas pension funds, insurance funds, donation funds, and so forth) should be further encouraged. Q6: Recently, the total quota for QFIIs was increased to USD80 billion upon approval of the State Council. What plan does the SAFE have for examining the increased quota? A: The State Council recently approved an increase in the QFII investment quota to USD80 billion. To facilitate the reform and development of the domestic stock market, the SAFE has made active adjustments to the investment quota and exchange administration, such as actively facilitating quota examination and approval, providing rapid access to the quota examination for mid- and long-term funds, including overseas pension funds and insurance funds, providing preferential policies for the amount of the initial investment quotas, increasing the initial approval amount for the aforesaid QFIIs, and properly streamlining the processes for managing the exchange accounts and RMB accounts of the QFIIs. Looking toward the future, the SAFE will continue to bolster the reform and development of the domestic capital market, maintain close communications and coordination with the CSRC, carry out policies for encouraging mid- and long-term overseas investment funds, further improve the quota examination mechanism for QFIIs, and increase the efficiency of the quota examination, thus further satisfying the quota needs of the QFIIs to invest in the domestic stock market and promoting the reform and development of the QFII system and the capital market. 2012-07-13/en/2012/0713/1057.html
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Premier Li Keqiang recently signed Decree No. 642 of the State Council on promulgation of the Resolution of the State Council on the Amendments to the Measures for the Declaration of Balance-of-Payments Statistics (hereafter, the Resolution), which will come into effect on January 1, 2014. Experts at some relevant research institutes and government departments were interviewed in order to grasp a deeper understanding of the amendments. In 1995, the People’s Bank of China (PBOC) promulgated the Measures for the Declaration of Balance-of-Payments Statistics (hereafter, the Measures) upon approval of the State Council. The Measures were formulated to obtain a comprehensive understanding of China’s foreign economic situation, which could provide an important basis for macro-economic decision-making. The Measures have played an active role in China’s Balance of Payments (BOP) statistics during the past 20 years. What was the reason for this important amendment at this time? Ding Zhijie (dean of the School of Finance of the University of International Business and Economics): The past 20 years witnessed the burgeoning development of China’s foreign economy. The amendments were implemented to adapt to the new circumstances, tackle new challenges, and meet the new requirements. With respect to the new circumstances, in recent years there has been a constant expansion of China’s BOP transactions, a growing diversity of transactions in terms of content, type, and mode, development of new products, such as cross-border portfolio investments and financial derivatives, and the emergence of new businesses, such as e-banking and international bank cards, thus calling for new methods to monitor, analyze, and provide early warnings for the BOP statistics. As for the new challenges, in recent years there have been increasing uncertainties regarding BOP operations, a growing severity of abnormal inflows of cross-border capital, and greater difficulties in supervising them. This has made it necessary that monitoring and analysis of cross-border capital flows be strengthened and that early-warning capability be enhanced by improving the current BOP statistical and declaration systems. As for the new requirements, in 2009 the IMF published the Balance of Payments and International Investment Position Manual (hereafter, the Manual, sixth edition), specifying the universal international standards for the compilation of BOP statistical statements. The revised Manual refined the existing system in terms of its principles, scope, and classification and framework of the statistics and enhanced the statistics on the stock of the BOP positions. These changes subjected China’s BOP statistical data and methods to higher standards and created good opportunities for China to improve its BOP statistical system so that it is consistent with the latest international standards. The amendments reflect the most recent requirements as a result of the rapid changes in the BOP situation and macro-economic monitoring and analysis. What are the highlights of the amended measures as compared with the previous measures? Zhao Qingming (expert on international finance): Five areas are highlighted in the amendments. First, the current statistical declaration system (scope, object, and so forth) has been comprehensively revised based on the latest international standards for BOP statistics. Second, some key areas were revised, such as BOP stock statistics and the declaration obligations of non-Chinese residents. Third, the Measures have been supplemented by some content that was missing from the previous version and by those vulnerable aspects of the BOP statistics, including stock statistics and the obligations of the declaration entities, such as Chinese and non-Chinese residents. Fourth, the amendments optimize the channels and specify the obligations of registration, settlement, and trusteeship agencies in terms of submitting portfolio investment data in a more convenient and accurate manner, thus easing the burdens on the declaration entities and increasing the efficiency and accuracy of the submitted data. Fifth, the statistical obligations of declaration entities and the statisticians, as well as the penalties for violation of the regulations, are specified. Guan Tao (director of the BOP Department of the SAFE): The amended Measures cover six areas. First, external financial assets and liabilities of Chinese residents are incorporated into the statistics. Second, non-Chinese entities are treated as declaration entities so as to acquire more comprehensive and accurate data on BOP transactions, especially transactions with non-Chinese residents that take place within China. Third, a series of new declaration requirements for agencies that provide services, such as registration, settlement, and trusteeship, have been added due to the development and administration of e-banking, international bank cards, and the securities market. Fourth, the declaration obligations of Chinese residents who have external financial assets and liabilities have been added. Fifth, the confidentiality obligations of the above entities have been added based on the revision of the declaration entities. Sixth, it is explicitly specified that penalties shall be imposed on the relevant entities in accordance with the Regulations on Foreign Exchange Administration of the People’s Republic of China, and the penalties set forth in the previous Measures are hereby abolished. All in all, for the present and for the foreseeable future, the revised version will meet the requirements for BOP statistics and monitoring. The amendments also introduce some new requirements for China’s current BOP statistical system. Suggestions and opinions from experts were solicited regarding implementation of the new version. The BOP Department of the SAFE, as the entity responsible for implementing the Measures, has also been making preparations for their implementation. Zhang Bin, director of the Global Macro-economy Research Office of the Research Institute on the World Economy and Politics at the Chinese Academy of Social Sciences, has suggested that the relevant systems be improved and that the statistics on China’s external financial assets, liabilities, and transactions be strengthened so as to provide an important basis for macro-economic control. Current statistical methods should be further improved to meet the new requirements in the Measures and to fulfill the obligations in the amendments. Efforts should be intensified to disseminate information about the relevant policies in order to enhance awareness among the declaration entities as well as the general public regarding their declaration obligations. Guan Tao described three new initiatives for implementing the Measures. The first is to revise and publish national standards for the Statistical System for External Financial Assets and Liabilities and Transactions and the Classification and Coding of BOP Transactions as required by the Balance of Payments and International Investment Position Manual (sixth edition). The second is to improve the direct declaration and statistical systems for external financial assets, liabilities, and so forth, to refine the statistical content of the BOP sampling survey, and to explore the estimation and statistical methods so as to reduce the social costs and to streamline the procedures for the declaration entities while maintaining the quality of the statistical data. The third is to intensify training efforts on the BOP statistics by increasing the frequency of training classes, enhancing face-to-face communications with the data submission agencies such as the banks, carrying out training and dissemination campaigns at various levels, and compiling brochures that interpret the BOP statistics so as to impart the relevant knowledge to both the general public and the declaration entities. 2013-11-22/en/2013/1122/1089.html
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An outreach meeting on theoretical study by the central division of the leading Party group was recently convened by the State Administration of Foreign Exchange. Yi Gang, administrator and secretary of the leading Party group of the SAFE, presided over the meeting. The meeting was held to convey the spirit of the Central Economic Work Conference and the Central Conference on Urbanization and to make future plans for foreign exchange administration. It was agreed by the participants that the Central Work Economic Conference was held in the context that the Third Plenary Session of the Eighteenth Chinese Communist Party Congress established the overall planning regarding the deepening of the reform. The Conference was of great significance for pursuing sustainable and healthy development of the economy in 2014. The Conference comprehensively summarized the progress in economic development in 2013, conducted in-depth analysis into circumstances both at home and abroad, and proposed the essential requirements to make progress while maintaining stability and to implement the reform while make innovations in economic development in 2014. The Conference was of vital importance for us to consolidate our convictions, gather our strength, deepen reform in an all-round manner, and maintain a positive momentum for economic and social development. The Central Conference on Urbanization was the first of its kind since the launch of the reform and opening-up policy convened by the Party Central Committee, and it was an important move for deepening the reform in an all-round manner. It is of crucial strategic significance for the advancement of urbanization in the right direction. It was stressed at the meeting that 2014 will be the first year for the SAFE to comprehensively implement the spirit of the Third Plenary Session of the Eighteenth Chinese Communist Party Congress and to deepen the reform in an all-round manner. The SAFE should comprehensively carry out the spirit of the Eighteenth Chinese Communist Party Congress and its Second and Third Plenary Sessions, adhere to the keynote of making progress while maintaining stability, carry out reform and innovation in each area of social and economic development, maintain the continuity and stability of macro-economic policies, focus on stimulating the vitality of the market, accelerate transformation of the mode of economic restructuring, effectively improve the quality and benefits of economic development, and promote sustainable and healthy economic development as well as social harmony and stability. The Conferences mandated that all members of the SAFE should study and fully implement the spirit of the Conferences, adhere to the keynote and essential requirements of the Party Central Committee’s planning for economic work in 2014, and with concerted efforts, thoughts, and actions unite with respect to the decisions and arrangement of the Party Central Committee. All members of the SAFE should carry out the reform and make innovations in each area of foreign exchange administration, deepen the reform by giving play to the decisive role of the market in allocating resources, make endeavors to achieve breakthroughs in key areas of foreign exchange administration, and step up improvements in the market-oriented system and the mechanism that facilitates an equilibrium in the balance of payments. It is essential that the role of foreign exchange administration be enhanced to serve the real economy, the policies of foreign exchange administration be aligned with the deepening of the reform, foreign exchange administration improve the reform approaches and methodologies, major efforts be directed to transforming the concepts and approaches of foreign exchange administration, and routine administration and services be carried out. All members of the SAFE should promote the reform in compliance with the spirit of the Party Central Committee and in a correct, accurate, orderly, and harmonious manner, work conscientiously with solidarity, and strive to achieve the sustainable and healthy development of the economy and society. 2013-12-16/en/2013/1216/1095.html