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Q6: How can the operation and management of foreign exchange reserves follow the principles of safety, liquidity, and value increment? A: Safety, the primary principle, can be broken down into three key elements: diversification, long-term perspectives, and strategic considerations. As the saying goes, dont put all your eggs in one basket; in other words, when one door shuts, another door opens, hence the need to diversify. There are continued worries that we are taking too much of this asset or too much of that currency, but in fact this risk is under control, due to our sustained efforts in recent years to diversify investment. As for a long-term perspective, when we are determining the asset structure we should comprehensively consider the long-term factors, such as the risk-returns of various assets and market development trends. As a responsible long-term investor in the international market, we must not be a super retail-investor. With regard to strategic considerations,when we are determining the currency composition, we need to comprehensively consider the macro strategic factors, such as Chinas international balance of payments structure, foreign payment demands, and the developmental trends in the international monetary and financial systems, because the stability of macro elements can ensure the safety of our foreign exchange reserve investments. The liquidityprinciple should be understood in the context of Chinas national circumstances. The renminbi is not an international currency, so the liquidity requirements of the foreign exchange reserves should not be generally confined to foreign payments, such as for imports. Instead, we need to take into consideration the national economic development strategy and make sure that the foreign exchange reserves can be used as a magic weaponin a timely and effective manner if a reversal in capital flows threatens to trigger a monetary crisis or even a financial crisis. The principle of value incrementrequires maintenance of the long-term stable profitability of the reserve assets during the management of the foreign exchange reserves. This is in line with the above two safety and liquidity principles. As a result, the profits from the foreign exchange reserves might not be the highest in a given year, but we are confident that in the long run, there will be stable and substantial returns. Q7: Did Chinas foreign exchange reserve investments suffer huge losses during the recent international financial crisis? A: It is safe to say that this international financial crisis was the most devastating crisis in decades. Against this backdrop, it is inevitable that various investments suffered certain impacts and influences. However, we are proud to report that Chinas foreign exchange reserves withstood the test of this severe financial crisis and the overall safety of our assets has been maintained. In 2008 and 2009, the hardest-hit years, we managed to earn decent profits on the basis of breaking even. Our most important management method is to properly allocate assets and diversify investments. In terms of allocation of asset types, we make a point of spreading risks among investment products, such as those from governments, institutions, and international organizations, as well as corporate assets and funds. In terms of currencies, we have built a loose composition that encompasses the major traditional currencies, such the US dollar, the euro and the Japanese yen, as well as the currencies of the emerging economies. Such a diversified allocation can help hedge against risks and ensure adequate leeway for asset management. In addition, risk prevention and management has always been an important part of our investment work. Investments of Chinas foreign exchange reserves emerged from the recent financial crisis fairly unscathed due to the fact that we do not have risky products such as sub-prime mortgages. Q8: Recently, Fannie Mae and Freddie Mac de-listed their shares from the New York Stock Exchange. Have Chinas foreign exchange reserve investments in Fannie Mae and Freddie Mac suffered losses? A: Fannie Mae and Freddie Mac, both government-sponsored institutions chartered by the US Congress to help fund home mortgages, hold under their name 50 percent of the real estate loans in the US residential real estate market and are critical to Americas housing market and economic development. Because of the large-scale and high liquidity of their debt securities, Fannie Mae and Freddie Mac received a lot of investments from the foreign exchange reserves of many central banks around the world. During the financial crisis, this pair of mortgage giants was supported by a government bailout and therefore remained solid. Presently, the US government holds about 80 percent of their shares and is their biggest shareholder. Their being de-listed from the NYSE has not had any negative impacts on their debt securities. Chinas foreign exchange reserves were not invested in Fannie Mae and Freddie Mac shares. As for debt securities, repayment of the principal and interest is being maintained and prices are stable. We will continue to closely follow the latest Fannie Mae and Freddie Mac developments to ensure the asset safety of our foreign exchange reserves. Q9: Under Europes current sovereign-debt crisis, will the SAFE adjust its investment strategy for foreign exchange reserves in the European market or reassess the euro assets that it holds? A: Generally, although the bailout measures have been rolled out and implemented to help high-debt countries such as Greece prevent debt defaults and restructuring, we should continue to pay close attention to any new developments in the crisis. We have always firmly supported the EU integration process and have also supported the package of financial stability measures that the EU and the International Monetary Fund have adopted. We believe that, under the joint efforts of the international community, all of Europe will definitely overcome the current difficulties and maintain the stability and healthy development of the financial markets. As a responsible long-term investor, in terms of our foreign exchange reserves China has always adhered to the principle of diversified investment and the European market was, is, and will remain one of the major investment markets for our foreign exchange reserves. Q10: If there is a sharp depreciation in the US dollar, will China's foreign exchange reserves suffer a heavy loss? A: To address this issue, a comprehensive analysis will be required. First, we must take into account the currency composition of Chinas foreign exchange reserves and the trends in the exchange rates of other currencies against the RMB. A number of currencies constitute the foreign exchange reserve assets. Even if the US dollar were to depreciate, the euro and other currencies might appreciate, thus to a certain extent cancelling out one another. Therefore, in order to understand the impact of a depreciation of the US dollar on Chinas foreign exchange reserves, we need to conduct a specific analysis of the composition of China's foreign currency basket. Second, an actual gain or loss in Chinas foreign exchange reserve assets will only occur when they are exchanged for RMB. Foreign exchange reserves mainly exist in the form of foreign currency assets and are used to ensure the countrys international liquidity, including payments for imports, international financing, debt payments, as well as maintenance of the stability of the currency and financial systems. Unless there are special circumstances such as a war or a crisis, the People's Bank of China will never convert its foreign currency reserve assets into RMB on a large scale. Therefore, due to the above reasons, a depreciation of the US dollar against the RMB will not cause an actual loss in Chinas foreign exchange reserves. Third, the value of China's foreign exchange reserve assets is decided by its real purchasing power. Foreign exchange reserves are mainly for external payments, so whether there is a loss in foreign exchange reserves mainly depends on a decrease in their purchasing power. If there is inflation in the United States, the real purchasing power of the foreign exchange reserve assets will be affected, which means the same amount of US dollars will buy less than before. Yet, the reality is that China's foreign exchange reserves have been maintaining stable income after many years of operations and their return on assets (ROA) is higher than the US inflation rate. In recent years, the US consumer price index (CPI) has been generally low, therefore the ROA of China's foreign exchange reserves insures a steady increase in their purchasing power. Fourth, the book loss in Chinas foreign exchange reserves caused by an appreciation of the RMB is far less than the book surplus of Chinas financial assets. As of March 2010, China's foreign exchange reserves amounted to USD2.42 trillion. During the same period, if calculated by the exchange rate at the end of March 2010, the total assets in China's banking sector were approximately RMB84.3 trillion, equivalent to approximately USD12.3 trillion and 5.1 times that of China's foreign exchange reserve assets. This means that when the RMB appreciates, the book gain in RMB assets is roughly equivalent to 5.1 times of the book loss of the foreign exchange reserve assets. If we take into account other financial assets such as stocks and bonds held by residents as well as real estate assets, the book gain in RMB assets will be even greater. It is worth emphasizing that the above-mentioned loss or gain only means a change in book value, which would only occur if there is an actual conversion between the RMB and the other currencies. 2010-07-06/en/2010/0706/938.html
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In order to ensure the economic and financial security of the state and to severely crack down on hot money, since February 2010, the State Administration of Foreign Exchange (SAFE) has launched a series of special campaigns to combat hot money in provinces and cities with large amounts of foreign exchange businesses. With intensified efforts to crack down on cross-border fund flows with no verifiable trade/investment background, by the end of October 2010, 197 cases in violation of the foreign exchange regulations were discovered and disclosed, involving a total sum of USD7.34 billion. Among these cases, 178 were filed and penalties were imposed. For the purpose of raising the awareness of banks and enterprises in handling the foreign exchange business in compliance with the regulations, warning and instructing entities involved in the violation of the regulations and of creating a social synergy for cracking down on the hot money,the SAFE has decided to circulate the non-compliance cases in stages, based on the types of entities involved. During implementation of the special campaigns, priority was given to inspections of banks handling the settlement and sales of foreign exchange, short-term external debts, offshore financing, as well as to the sources and utilization of foreign exchange funds and so forth. Inspections show that with constant efforts to improve financial services, all the designated foreign exchange banks have enhanced their awareness of the compliance risks, with further improvements achieved on the overall condition of compliance operations. However, there are still some banks that put a priority on business expansion and ignore compliance operations. Their inadequate fulfillment of the verification of authenticity has given rise to the inflow of hot money, producing a negative impact on the equilibrium in the balance of payments as well as on the healthy and stable development of the national economy and finance. Cases of bank violations of the foreign exchange regulations that have been penalized are hereby circulated as follows: On November 22, 2007, China Construction Bank Limited, Jiangmen Branch, handled settlement of foreign exchange in the amount of HKD31.5 million for capital of a foreign-funded enterprise. These funds were subsequently used to extend loans to the administration committee of a high-tech industrial development zone, but the purpose of the funds as declared by the enterprise was a security deposit for land purchases This violates the relevant regulations on the administration of exchange settlement for capital. In accordance with the Regulations of the People's Republic of China on Foreign Exchange Administration, the SAFE decided to impose administrative penalties on the branch in the form of fines. During the period from January 20 to May 22, 2009, the Agricultural Bank of China Limited, Guanghua Sub-Branch in Chengdu City, handled the cross-border collection of foreign exchange for 28 individuals within the territory of China. Among the individuals, 20 collected funds from a payer who was outside the territory of China, with and 8 collecting from the same payer, after which the funds were settled and transferred immediately to an individual within the territory of China. Such acts violate the relevant regulations on the administration of individual foreign exchange due to the fact that large sums of money were split into smaller amounts for the settlement and sales of foreign exchange. In accordance with the Regulations of the Peoples Republic of China on Foreign Exchange Administration, the SAFE decided to impose administrative penalties on the sub-branch in the form of fines. On November 21, 2007 and March 27, 2008, the Bank of China, Zhenhai Sub-Branch in Ningbo City, handled the settlement of foreign exchange for the external debts of a company in the amount of USD13.58 million. It was verified that the purpose of the settlement failed to conform to the purpose ratified by the SAFE; meanwhile, the bank failed to pay the settled funds directly to the payee within the prescribed time limit. This violated the relevant regulations on the administration of foreign exchange settlement for external debts. In accordance with the Regulations of the Peoples Republic of China on Foreign Exchange Administration, the SAFE imposed fines on the sub-branch and ordered that it correct its behavior. On May 7 and 8, 2009, the Bank of China, Guchengtai Sub-Branch in Xining City, handled the settlement of foreign exchange for the capital fund of a foreign-funded enterprise in the amount of HKD85.3 million and HKD28.2 million respectively. The funds were subsequently used for capital investments, which exceeds the business scope of the enterprise and violates the relevant regulations on the administration of foreign exchange settlement for capital funds. In accordance with the Regulations of the Peoples Republic of China on Foreign Exchange Administration, the SAFE decided to impose administrative penalties on the sub-branch in the form of a 3-month suspension of involvement in foreign exchange settlement and sales. During the period from October 2006 to July 2007, German-based NORD/LB, Shanghai Branch, handled 12 agency import deals with a letter of credit for a number of Chinese-funded banks, involving a total sum of USD26.98 million. With no prior notice delivered to the Chinese-funded issuing bank, the branch transferred all the financial claims to the aforesaid Chinese-funded bank to its overseas branches. This violated the regulations of the state on the administration of external debts. In accordance with the Regulations of the Peoples Republic of China on Foreign Exchange Administration, the SAFE decided to impose administrative penalties on the branch in the form of fines. On February 1, 2008, the Bank of East Asia (China) Limited, Guangzhou Branch, handled the settlement of foreign exchange for a Hong Kong resident in the amount of HKD11 million to be used for the purchase of non-residential housing. This violated the relevant state regulations allowing overseas individuals to purchase commercial residential housing for their own use within the territory of China for the purpose of satisfying their basic living needs. In accordance with the Regulations of the Peoples Republic of China on Foreign Exchange Administration, the SAFE decided to impose administrative penalties on the branch in the form of fines. During the period from September 1, 2008 to June 30, 2010, the Agricultural Bank of China Limited, Yichun Branch, handled 35 foreign exchange settlements of capital for a number of foreign-funded enterprises, involving a total amount of over RMB100 million. The branch failed to carefully examine the relevant funds and to preserve the vouchers for the settlement in accordance with the law. This violated the relevant regulations on the administration of foreign exchange settlements of capital. In accordance with the Regulations of the Peoples Republic of China on Foreign Exchange Administration, the SAFE decided to impose administrative penalties on the branch in the form of fines. In 2009, a number of institutions, including Taijiang Sub-Branch within the jurisdiction of the Business Department of the Industrial and Commercial Bank of China Limited, Fujian Branch, failed to handle the settlement and sales of foreign exchange for individuals through the information system for the administration of settlement and sales of foreign exchange for individuals in 42 deals involving a total amount equivalent to USD265,000. These institutions, including the Gulou Sub-Branch within the same jurisdiction, failed to handle the deferred payments of foreign exchange for enterprises in accordance with the regulations in three deals involving a total amount equivalent to USD2.94 million. In accordance with the Regulations of the Peoples Republic of China on Foreign Exchange Administration, the SAFE decided to impose administrative penalties on the aforesaid sub-branches in the form of fines. As the main channel for handling foreign exchange business, all designated foreign exchange banks should further consolidate the concept of scientific development, earnestly fulfill their social responsibilities, and strictly comply with the policies for the administration of foreign exchange business. The involved banks referred to in this Circular should pay great attention to their violations of the relevant regulations, examine their handling of the business using the regulations as a benchmark, and conscientiously correct their non-compliance in their handling of the business. Banks and relevant institutions should draw lessons from the above cases, strengthen their internal management, and handle their businesses in compliance with the laws and regulations. The SAFE will, in addition to performing its role to further improve financial services and facilitate the business operations of market entities, strengthen supervision over the foreign exchange business of banks, improve constantly the effectiveness of foreign exchange inspections, increase the efficiency of supervision and inspection, crack down severely on cross-border flows of hot money in accordance with the law, and continue to promote the healthy development of the foreign-related economy and finance. October 28, 2010 2010-10-28/en/2010/1028/962.html
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To maintain national economic and financial security and to crack down strongly on cross-border flows of hot money, since February 2010, the SAFE has launched special campaign to combat hot money. Careful inspections have been carried out of foreign exchange receipts and payments in foreign trade and settlement of foreign exchange by enterprises as well as foreign exchange settlement and sales by individuals. The inspections show that most enterprises and individuals have handled businesses such as foreign exchange receipts and payments and settlement and sales of foreign exchange in strict compliance with the relevant regulations for the administration of foreign exchange. However, some enterprises and individuals still carried out fake transactions or adopted deceptive means in violation of the regulations. They collected advances on sales based on fake transactions, conducted false settlements of foreign exchange for foreign investments, and some individuals carried out settlement and sales of foreign exchange by splitting large sums of money into smaller parts. Such violations have resulted in the inflow of hot money.Cases of the relevant violations and penalties on enterprises and individuals are hereby announced as follows: In 2009, China Best Food Limited in Qingdao of Shandong province failed to declare its trading activities by classifying relevant activities into categories, such as processing with imported materials, transit trade, and general trade, when handling foreign exchange collections and payments for trade, resulting in 13 deals with incorrect declaration data involving a total of USD13.86 million. Such behavior was in violation of the relevant regulations on statistics and declaration of the balance of payments. In light of this, the SAFE rendered a decision to impose a fine as an administrative penalty upon said company pursuant to the Regulations. During the period from January to September, 2008, Adani Industrial Co., Ltd. in Yingkou city of Liaoning province collected advances on sales totaling USD11.06 million. To date, the company has not carried out the verification and writing-off of the collection of foreign exchange from exports. An inspection revealed that the inflow of capital was based on fake transactions, which violated the relevant regulations on administration of the verification and writing-off of foreign exchange collections from exports. In light of this, the SAFE rendered a decision to impose a fine as an administrative penalty upon said company pursuant to the Regulations. In December 2009, Wuzhou Property Development Limited in Huaian city of Jiangsu province handled settlement of foreign exchange in the amount of HKD155 million for foreign investment, with the declared purpose of payment for land use. However, an inspection revealed that RMB80 million of the funds was used to grant loans within the territory of China, which violated the relevant regulations on the administration of foreign exchange settlement for capital funds. In light of this, the SAFE rendered a decision to impose a fine as an administrative penalty upon said company pursuant to the Regulations. During the period from February 2007 to December 2009, a company located outside the territory of China remitted 164 deals of funds into the personal saving accounts of 95 staff members of Unitera Garment Co., Ltd. in Yingkou city of Liaoning province, amounting to a total of USD5.89 million. The staff members settled the relevant exchange and then returned the funds in RMB to the company. The splitting of large sums of funds into small parts for foreign exchange settlement and sales by this company violated the relevant regulations on the administration of foreign exchange for individuals. In light of this, the SAFE rendered a decision to impose a fine as an administrative penalty upon said company pursuant to the Regulations. During the period from January 2009 to April 2010, Ma, an individual within the territory of China, collected USD8.29 million from outside China in the name of his relatives and staff members of the company where he worked (146 people in total) and settled the exchange. Mas splitting the large sums of funds into small parts for settlement and sales violated the relevant regulations on the administration of foreign exchange for individuals. According to the Regulations, the SAFE rendered a decision to impose a fine on Ma as an administrative penalty. In April and June 2009, Yuantian Investment Management Consulting Co., Ltd. in Dalian city of Liaoning province settled foreign exchange of RMB102 million for foreign investment by using a false contract, which violated the relevant regulations on the administration of foreign exchange settlement for capital funds. In light of this, the SAFE rendered a decision to impose a fine as an administrative penalty upon said company pursuant to the Regulations. In July 2009, Hanshi Infrastructure Construction Co., Ltd. in Nantong city of Jiangsu province settled exchange for foreign investment for payment for construction. The settled funds of RMB27.8 million were transferred to the personal accounts of persons surnamed Ye, Chen, and others in Putian city of Fujian province. Such behavior violated the relevant regulations on the administration of foreign exchange settlement for capital funds. An inspection revealed that the above funds were actually remitted from an underground money shop outside of China. The company hoped to obtain qualifications as a foreign-invested entity based on the fake capital fund and then to return the settled funds to the underground money shop. In light of this, the SAFE rendered a decision to impose a fine as an administrative penalty upon said company pursuant to the Regulations. In November 2009, Xiehe Wind Power Equipment Manufacture & Technical Service Co., Ltd. in Fuxin city of Liaoning province used RMB3.1 million acquired from the settlement of foreign investment capital for a subscription of new shares instead of normal production and operations. Such behavior violated the relevant regulations on the administration of foreign exchange settlement for capital funds. In light of this, the SAFE rendered a decision to impose a fine as an administrative penalty upon said company pursuant to the Regulations. During the period from December 2009 to March 2010, Zhanfeng Trading Company in Changzhou city of Jiangsu province handled the settlement of foreign investment capital in the amount of USD9.85 million for payment for demolition compensation and for funds for land transfers. However, the company did not obtain the corresponding land-use rights. The settled funds in the amount of RMB57.18 million were transferred to the account of Yingkai Steel Trading Co., Ltd. in Suzhou of Jiangsu province. Such behavior violated the relevant regulations on the administration of foreign exchange settlement for capital funds. In light of this, the SAFE rendered a decision to impose a fine as an administrative penalty upon said company pursuant to the Regulations. All market entities shall conscientiously establish an awareness of their social responsibility and operate in a prudent and scientific manner in strict compliance with the policies on foreign exchange administration. The penalized enterprises and individuals shall regard this as a warning and firmly establish an awareness of law-abiding operations. All other enterprises and individuals shall also draw lessons from the above-mentioned cases to strengthen their self-discipline and to operate their business in strict accordance with the law. The SAFE shall vigorously facilitate trade and investment and enhance a service-oriented awareness so as to meet the reasonable foreign exchange demands of enterprises and individuals. Furthermore, there will be strengthened efforts to supervise and inspect the foreign exchange business of market entities with respect to regulatory compliance and to crack down on the flow of hot money,thus safeguarding the foreign-related economic and financial security of the state. November 1, 2010 2010-11-01/en/2010/1101/963.html
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To ensure the economic and financial security of the state, safeguard normal order in the foreign exchange market, and block the major channels for cross-border flows of hot money,the State Administration of Foreign Exchange (SAFE) is collaborating closely with the public security organs to intensify efforts to crack down on illegal foreign exchange transactions, including underground money shops and online foreign exchange speculation. A number of cases involving underground money shops and online foreign exchange speculation have been discovered. The cases that have been investigated and resolved as follows: On June 16, 2009, the Shenzhen Branch of the State Administration of Foreign Exchange collaborated with the public security organs in ferreting out an underground money shop operated by the Wu brothers under the fraudulent name of the Wuji Dongcheng Shop.A total amount of RMB1.1 million in cash was seized on site, and 370 bank accounts in an amount of over RMB30 million were frozen. On August 3, 2010, the Wu brothers were sentenced to fixed prison terms and fined by the local Peoples Court for the crime of illegal operations. AFG Investment Management (Shanghai) Co., Ltd., established by Lü, carried out financial business such as foreign exchange transactions, the taking of deposits, loan extensions, and credit card agency without approval from the relevant authorities, involving a combined transaction value of RMB11.1 billion. On May 12, 2010, the local Peoples Court imposed fines on the company for the crime of illegal operations, and Lü was sentenced to a fix prison term and fined for the crime of illegal operations and illegal cross-border transactions. Lüs illegal income of more than RMB50 million was confiscated. On March 18, 2009, a case of illegal foreign exchange transactions was ferreted out in Zhuhai city, involving the criminals Chen and Lin and their associates. The amount of HKD1.3 million and RMB30,000 in illegal transactions was seized, and a total of RMB2.29 million of illegal foreign exchange transactions in bank accounts was frozen. On June 8, 2010, Chen was sentenced to a fixed prison term and fined by the local Peoples Court for the crime of illegal operations. The cash seized on site and the funds deposited in the frozen accounts were confiscated and turned over to the national treasury. During the period from January to May 2009, Wu carried out illegal foreign exchange transactions in a teahouse located in Dongcheng District of Dongguan city, and collected service charges from his customers. On May 21, 2009, the den was discovered out and destroyed. The police captured 19 passbooks, 36 bankcards, laptops, and other tools for illegal foreign exchange transactions. In July 2010, Wu was condemned to a fixed prison term and fined by the local Peoples Court for the crime of illegal operations. On April 23, 2010, the Foreign Exchange Administration in Jiangmen city, in collaboration with the public security organs, cracked down on an underground money shop operated by Huang from Enping city. A total of USD110,000 was seized on site. In September 2010, the Foreign Exchange Administration in Jiangmen city imposed administrative penalties on Huang and Zhou in the form of fines in accordance with the Regulations of the Peoples Republic of China on Foreign Exchange Administration. In March 2009, Liu and his associate investors collaborated in registering and establishing UBS International Holdings Co., Ltd. in Hong Kong through Hong Kong United Accounting & Secretarial Limited. They rented a place on West Zhongshan Road in Shanghai and engaged in illegal gold business including foreign exchange and gold transactions. On January 15, 2010, Liu and the other two associated were sentenced to fixed prison terms and fined by the local Peoples Court for the crime of illegal operations. In June 2007, Li cooperated with his associate sin establishing the Shanghai Mobijet Enterprise Investment Management Co., Ltd. and engaged in illegal gold business including foreign exchange and gold transactions. On May 31, 2010, the local Peoples Court imposed fines on Shanghai Mobijet Enterprise Investment Management Co., Ltd. for the crime of illegal operations, and Li and the other two associates were sentenced to fixed prison terms and fined for the crime of illegal operations. Kunming Xinghui Economic Information Consulting Co., Ltd. illegally introduced clients to become involved in the online foreign exchange margin trading operated by the overseas GFX Capital Markets Ltd. In 2008, the Foreign Exchange Administration of Yunnan province, collaborating with the public security organs, captured 41 pieces of computer equipment used for criminal purposes and relevant evidence, and arrested 28 suspects. On February 9, 2010, Xu and nine other major suspects were sentenced to fixed prison terms and fined by the local Peoples Court for the crime of illegal operations. The equipment and illegal gains involved in the crime were confiscated as required by law. During the period from December 2007 to October 2008, Xiamen Baochangxing Investment Consulting Co., Ltd. and its branch in Zhangzhou city engaged in illegal foreign exchange margin trading without a license to engage in related financial business. The case involved a total sum of USD2.44 million from illegal operations and USD390,000 from illegal income. On May 10, 2010, Li and his associates were sentenced to fixed prison terms and fined by the local Peoples Court for the crime of illegal operations. Between May 2007 and 2009, He and Cui used Baijiaxin Investment Consulting Management Co., Ltd. as the agent for Shanghai Baifujin Company in Taizhou city of Zhejiang province and accepted 20 clients and an amount of over RMB5 million to carry out online foreign exchange speculation. By paying and collecting funds in RMB within the territory of China while collecting and paying corresponding foreign exchange funds outside the territory of China, the two received illegal service charges of more than USD40,000. On September 13, 2010, He was sentenced to a fixed prison term and fined for the crime of illegal operations and Cui was detained and fined by the local Peoples Court. All market entities shall firmly establish a sense of legal governance, and earnestly comply with the regulations on foreign exchange administration. Carrying out business at illegal places and through illegal channels for transactions such as underground money shops and online foreign exchange speculation is strictly prohibited. The foreign exchange administration departments shall continue to strengthen cooperation with the public security organs and play an active role in cracking down on underground money shops, online foreign exchange speculation, and other kinds of illegal foreign exchange activities. In addition, intensified efforts shall be made to combat foreign exchange-related criminal activities and stiff penalties shall be imposed on cross-border flows of hot money so as to conscientiously safeguard the foreign-related economic and financial security of the state. November 5, 2010 2010-11-05/en/2010/1105/964.html
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Mr. Deng Xianhong, Deputy Administrator of the SAFE, was recently interviewed by Rui Chenggang, reporter from the Finance and Economics Channel of CCTV. Rui Chenggang (hereinafter referred to as Rui): First, I would like to express my thanks to you for accepting this interview. Can we start from the term? Deng Xianhong (hereinafter referred to as Deng): OK. Rui: How do you define hot money? Deng: To date, there is no uniform definition of hot money. From my point of view, hot money should be categorized differently in countries allowing free capital flows and countries imposing foreign exchange controls. In China, all illegal capital flows without authentic transactional backgrounds (either in trade or investment) and in violation of the foreign exchange administration regulations are considered hot money and are the target of our attack. One of the goals of our macro-economic regulatory policy is to lessen interest-oriented pursuit of the market featured by excessive speculation. And we will take strong administrative measures to combat hot money,which is in breach of both the laws and regulations. Rui: As for hot money statistics, we have many approaches in the media. How do you calculate the amount of hot money? Deng: In the context of partially imposed capital controls, hot money flows into a country in the guise of being legal. In other words, it is impossible for hot money to get across the border if it is identified as illegal. Therefore, only by inspections and examinations can we know the amount of hot money. Hot money is somewhat like disbanded soldiers who hide themselves in the thick forest. Only by searching the forest can we get to know the actual number of disbanded troops. Certainly some funds may escape from capture. But I can definitely say that in China, there are no massive inflows of hot money and hot money is only dispersed in small amounts. Rui: You disagree with the comment that the inflow of hot money is accelerating. Why is this comment being spread throughout the society? Deng: Analysis shows that there is a considerable amount of net inflows and surplus. However, we cannot equate such inflows and surplus with hot money. Our analysis indicates that a large amount of the net inflows and surplus results from the allocation of assets and liabilities of enterprises based on their expectations of market interest rates and exchange rates. Serious analysis shows that the settlement of foreign exchange contributes slightly to the increase in net inflows and surplus. However, when it comes to foreign exchange purchases and payments, a large amount of the transactions (imports) are carried out in the form of trade financing, deferred payments, external loans with internal guarantees, overseas agent-based payments, and overseas financing as a substitute for foreign exchange payments. Thus, it appears that the outflow of foreign exchange is relatively small. Rui: It is true that in the wake of the global financial crisis, the country is facing increasing inflows of capital or liquidity and that may not necessarily be hot money.Is this the reality? Deng: It is the reality. To combat the financial crisis, some developed countries adopted quantitative easy monetary policies which gave rise to an overwhelming liquidity of funds. Amidst the financial crisis, China took the lead in restoring its economy and achieving a rapid increase in foreign trade. That led to the formation of a gap that led to some expectations about interest margins and exchange margins. The country will see a considerable amount of net inflows of funds, and the inflows will trigger an increase in a favorable balance. Though this has created some pressure for us, we cannot equate the net inflows and surplus with hot money. As mentioned previously, all capital flows with verifiable transactional backgrounds are the results of normal economic activities. Rui: What are the major motivations for the inflow of hot money in pursuit of arbitrage by illicit means? Deng: The expectation of an RMB appreciation, the expectation of a rising stock market, and the expectation of a rise in the real estate market. The hot money is generally driven by such expectations, which in turn serve as the target for hot money inflows. Rui: In addition to their basic functions, what are the major roles of commercial banks in preventing the inflow of hot money? Deng: Inspections show that some banks have failed to perform their verification duty, that is to say, some banks have failed to comply completely with the policy requirements for foreign exchange administration, which has given rise to the inflow of hot money.Generally, our inspections during the past few years show that banks have strengthened their regulatory compliance. The banks compliance with the relevant regulations plays an important role in preventing hot money because complete compliance by one bank will mean effective administration of thousands of market entities. Rui: It is really hard to impose effective regulation on the underground money shops. What are the SAFEs effective approaches for combating against such underground money shops? Deng: During recent years we have come up with some effective methods for cracking down on underground money shops. For example, we established close collaboration with the public security organs to jointly combat the underground money shops and we have encouraged social forces to become involved. Since the beginning of 2010, we have discovered 13 large-scale money shops. Instead of combating the shops separately, we are now cracking down on them en masse. Rui: The last question: Are there any foreign investors who have different opinions about the intensified efforts for combating hot money? I mean, they may worry that these efforts may affect their investments? Is this a double-edged sword to a certain degree? Deng: A good question. It is true that we need to pay special attention to law-based administration when combating hot money. We should take effective measures to combat the illegal inflow of funds. Meanwhile, we need to ensure that the crackdown is carried out according to the law. It should not affect the legal operations of market entities. In a word, we need to achieve a trade-off between cracking down on hot money and implementing the reform of foreign exchange administration. Rui: Thank you so much. 2010-11-10/en/2010/1110/967.html
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We are looking for individuals with extraordinary intellectual capability and curiosity, ability to rapidly learn and apply new concepts, as well as self-motivation and responsibility to join us. We seek diversified educational backgrounds and encourage applicants from all academic disciplines. About Us In fulfilling the responsibilities of foreign reserve management, we put the interests of the nation and the people at the very first. Aiming at long-term preservation and value adding for our reserve assets, we embrace prudential, professional and active investment management, with strategic and tactical asset allocation and diversification over a long-term investment horizon. With headquarter in Beijing and offices in overseas financial centers, we carry out around-the-clock asset management, under an efficient and coherent decision-making / risk control framework. With a young, qualified and motivated team from diversified backgrounds, we value a SAFE culture of ethics and integrity, a constant pursuit of knowledge and truth, and a team spirit of interaction and liveliness. As we value people as the most important asset, we offer competitive incentives and training packages for our team. Vacancies We have the following job vacancies, based in Beijing headquarters and overseas offices: general affairs, asset allocation, investment management, external managers, risk management, compliance and internal audit, legal affairs, operations, information technology and human resources. Please refer to the attached vacancy list for details. General Requirements ·Bachelor degree or above from world renowned universities. ·Relevant working experience specific to the vacancy. ·Good command of both Chinese and English as working language. ·Computer proficiency. ·Other criteria specific to the vacancy. Application Procedures ·Please visit http://safe.chinahr.com to submit your CV and cover letter. To facilitate the screening, we ONLY accept the application through our website. ·Application deadline: ·Short-listed applicants will be invited to interview after documentation screening. ·New recruits will be required to sign employment contracts with probation in accordance with Chinese and local regulations. Contacts Tel: 86-10-66218899-1133/3073(ext.) (8:00-17:00 Beijing Time) Fax: 86-10-66213319 Email: HR@mail.rmd-safe.gov.cn (recommended) Apply FILE: Job Openings of Recruitment Program 2011 2010-10-25/en/2010/1025/960.html
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To bring into better play the vital role of the market in selecting the best market makers and to respond to the increasing varieties of trading products on the inter-bank foreign exchange market as well as the increasingly segmented market positioning of commercial banks, in August 2010 the State Administration of Foreign Exchange issued the Circular on the Printing and Distribution of Guidelines for Market Makers on the Inter-Bank Foreign Exchange Market (Hui Fa [2010] No.46), in which a trial market-making business was introduced into the inter-bank foreign exchange market, with more accessibility granted to non-market-makers to become involved in market-making competition. According to the Circular, a system for the grading of market makers was established, and the liquidity and trading efficiency of derivative markets, including the forward-swap market, were increased. The appraisal mechanism for selecting the superior market makers and eliminating the inferior market makers was perfected, and the initiative for market makers to participate in market making was enhanced. The Circular represents another important move on the part of the SAFE to speed up the development of the foreign exchange market as well as to gradually improve the market mechanism since the introduction of the market-maker system into the inter-bank foreign exchange market in January 2006. So far, by adhering to the principles of willingness and selecting the best, the SAFE has given the go-ahead to 26 spot market markers and 18 forward-swap market makers. Qualifications for a trial spot market marker and a trial forward-swap market maker were granted to 7 and 12 commercial banks respectively. For details thereof, please refer to the Namelist of Inter-bank Foreign Exchange Market Makers. FILE: Guidelines for Inter-bank Foreign Exchange Market Makers 2010-12-30/en/2010/1230/974.html
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To effectively control the cross-border flow of funds, to crack down on the inflow of hot moneyin violation of the relevant regulations, and to maintain the security of the foreign-related economy and finance, the State Administration of Foreign Exchange (SAFE) recently promulgated the Circular on Relevant Issues Concerning Strengthening the Administration of Foreign Exchange Operations (Hui Fa [2010] No. 59) (hereinafter referred to as the Circular). The Circular deals with seven issues: (i) strengthening administration of the banks comprehensive positions in the settlement and sales of foreign exchange, and implementing a minimum level of management of the banks balance of positions calculated on a cash basis; (ii) making adjustments to the policies on the administration of online inspections of foreign exchange collections and settlement for exports, reducing the proportion of foreign exchange collection from the processing of imported materials for the online inspections of foreign exchange collections and settlement for export, and strictly handling the procedures for the settlement or transfer of foreign exchange funds in accounts to be verified; (iii) strengthening administration of the quotas on the short-term external debts and the balance of external guarantees of financial institutions, and imposing tight restrictions on banks operations in excess of the quotas; (iv) strengthening administration of capital contributions by foreign-funded enterprises in overseas countries and regions, and further clarifying the requirements for the examination and verification of foreign exchange under circumstances when the actual payer is inconsistent with the overseas investor; (v) strengthening examination of the authenticity of the settlement of funds which are repatriated as capital raised from overseas listings in accordance with the requirements for tightening foreign exchange settlement for payments; (vi) regularizing administration of overseas incorporation of companies with special purposes by domestic institutions and individuals, and imposing penalties on enterprises and individuals operating in violation of the regulations in accordance with the law; (vii) increasing penalties on banks operating in violation of the regulations in the form of imposing fines, terminating relevant operations, circulating notices of criticism, and so forth, and investigating the responsibilities of the senior management staff who are directly liable for the violations. The promulgation of the Circular will further regularize cross-border flows of funds through such channels as trade, foreign direct investment, round-tripping investment, overseas listings, and so on, particularly administration of the bankscomprehensive positions for foreign exchange settlement and sales and short-term external debts. Promulgation of the Circular will strengthen the banks obligation to carry out examinations of authenticity in the handling of foreign exchange business, which will be conducive to further cracking down on the inflow and settlement of foreign exchange funds in violation of the laws and regulations, preventing financial risks caused by cross-border inflows of hot money,and thereby promoting the healthy and orderly development of Chinas economy and finance. 2010-11-09/en/2010/1109/965.html
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To deepen the reform of the foreign exchange administration system, boost the sustainable development of the foreign-related economy, and further promote the facilitation of trade, the SAFE recently promulgated the Circular on Issues Concerning Implementation of the Reform of the Verification and Writing-off System for Foreign Exchange Payments for Imports (hereinafter referred to as the Circular). It has been decided that the reform will be carried out as of December 1, 2010. The reform covers four areas: first, enterprises will no longer be subject to on-site verification procedures for the operation of routine business, greatly facilitating external payments for trade; second, the on-line verification procedures processed by the banks for foreign exchange payments by enterprises for imports have been lifted, lessening the burden on the banks and facilitating the routine business operations of the banks; third, the SAFE will make use of the directory for the administration of enterprises; the directory of enterprises that have a need for foreign exchange payments for imports will be shared nationwide, and foreign exchange remittances by enterprises in different regions will no longer be subject to recording in advance with the foreign exchange authorities; fourth, the SAFE will carry out off-site inspections, monitoring, and early warnings on enterprises via the Verification System for the Collection and Payment of Foreign Exchange under Trade, implement on-site verification of abnormal trading entities, identify the categories for the classified evaluation of enterprises, and implement classified administration. The reform of the verification and writing-off system for foreign exchange payments for imports represents a fundamental change to the current model of verification administration, and a constructive innovation in the foreign exchange administration system and trade mechanism. Implementation will: first, promote conceptual and practical innovation in foreign exchange administration, thereby realizing the transformation from case-by-case verification to aggregate verification, from on-site verification to off-site verification, and from behavioral supervision to subject supervision; second, lubricate the process of trade, streamline the procedures for foreign exchange payments for imports, reduce costs for enterprises, facilitate enterprise operations, and promote the smooth implementation of business activities by legitimate enterprises; third, play a positive role in guarding against risks; when there are any changes in the foreign exchange circumstances or any misbehavior by the trading entities, the foreign exchange authorities will be able to take effective measures to enhance on-site inspections of Class-B and Class-C enterprises, carry out strict measures for classified supervision, and impose penalties on enterprises that do not comply. 2010-10-27/en/2010/1027/961.html
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Initial estimates reveal that in Q3 of 2010 the current account and the capital and financial account (including net errors and omissions) continued to post a surplus and international reserves maintained a growing momentum. In Q3, the surplus under the current account totaled USD102.3 billion, a year-on-year increase of 103 percent as calculated on a comparable basis (the same below). Specifically, the surpluses in goods, income, and current transfers reached USD81.4 billion, USD14.5 billion, and USD10.8 billion, respectively, whereas the deficit in trade in services amounted to USD4.4 billion Meanwhile, China's surplus under the capital and financial account (including net errors and omissions) totaled USD5.7 billion. In particular, net inflows of direct investments amounted to USD23 billion. International reserve assets posted an increase of USD108 billion, a rise of 31 percent. Specifically, transactions in foreign exchange reserve assets registered an increase of USD107.3 billion (exclusive of the influence of non-transaction changes in value such as exchange rates and prices) and the reserve position in the IMF registered an increase of USD700 million. In the first three quarters of 2010, China's surplus under the current account totaled USD204 billion, an increase of 30 percent year on year; the surplus under the capital and financial account (including net errors and omissions) totaled USD82.1 billion; and international reserve assets posted an increase of USD286 billion, a rise of 7 percent year on year. 2010-11-25/en/2010/1125/968.html