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In recent years, in order to adapt to the new situation and new requirements of China’s opening up, the foreign exchange authorities, in light of the changes in the balance of payments situation, has actively carried out policy adjustments and systemic innovations, with a focus on expanding capital outflow channels, and has introduced a series of policies and measures on foreign exchange administration reform, thus, significantly improving the capital account convertibility level. The convertibility for direct investment is basically realized, and the level of investment facilitation is significantly improved In recent years, the foreign exchange authorities, by deepening the reform, streamlining administration and instituting decentralization, and optimizing processes, have created a favorable policy environment for attracting foreign investors to make direct investments in China, and have effectively supported the “going global” efforts of various types of domestic institutions to participate in international competition and cooperation. In terms of overseas direct investments, since 2006 the foreign exchange authorities have gradually lifted limits on the amount of foreign exchange purchases for overseas investments, and, at present, have realized the “supply of foreign exchange on the basis of needs” for overseas direct investments throughout the country. In 2009, the foreign exchange authorities further deepened the foreign exchange administration reform of overseas investments, changed the two procedures for administrative examination and approval, i.e., that for the examination of the source of the foreign exchange funds for overseas direct investments and that for approval for outward remittances of capital, into the procedure of ex-post registration, expanded the source of foreign exchange funds for overseas direct investments by domestic institutions, and began to allow domestic institutions to remit early stage expenses during the preparatory stage before formal establishment of their overseas projects. After the above reforms, in terms of foreign exchange administration of overseas direct investments, there are no prior approval procedures and convertibility is basically realized, which significantly facilitates enterprise participation in international economic and technological cooperation and competition. In terms of direct investments in China , the main procedures are registration administration and authenticity examination. In recent years, the foreign exchange authorities have defined and regulated foreign exchange administration in such areas as settlement of the foreign exchange capital of foreign-invested enterprises, foreign capital utilization in the real estate industry, and return investments, and have promoted the reasonable and effective utilization of foreign capital. The international investment position statistical data from the foreign exchange authorities indicate that as of the end of September 2011, the asset balance for direct investments in China by foreign investors was USD 1625.6 billion, and the asset balance for overseas direct investments was USD 345.5 billion, an increase by 1.65 times and 2.81 times respectively compared with the end of 2006. The level of convertibility for securities investments has improved significantly, and cross-border securities investments have become active In 2002 and 2006, China introduced the Qualified Foreign Institutional Investor (QFII) system and the Qualified Domestic Institutional Investor (QDII) system respectively; the former allows qualified foreign institutional investors to make investments in the domestic securities market, and the latter allows qualified domestic institutions to make investments in overseas securities markets. In 2007, the total QFII investment quota was increased from USD 10 billion to USD 30 billion upon the approval of the State Council. Thereafter, the foreign exchange authorities issued a series of normative documents and further improved foreign exchange administration of cross-border securities investments. As of March 9, 2012, the foreign exchange authorities had approved a total of USD 24.55 billion in investment quotas to 129 QFIIs (excluding the 2 QFIIs whose quotas were cancelled), and a total of USD 75.247 billion in investment quotas to 96 QDIIs. The foreign exchange authorities actively promoted work related to the pilot program of domestic securities investments by RMB Qualified Foreign Institutional Investors (RQFII). In December 2011, on the basis of the formulation of the pilot measures related to the RQFII together with the relevant departments, the foreign exchange authorities timely issued supporting provisions on foreign exchange administration and allocated the RQFII investment quota in accordance with such principles as appropriately considering the level of operations and the type of product risks. As of January 2, 2012, the foreign exchange authorities had allocated the first batch of the RQFII investment quota, a total of RMB 20 billion. The steady implementation of the above system has preliminarily established a bidirectional flow mechanism for capital under securities investments, promoted the opening up and development of the domestic capital market, expanded the overseas investment channels for domestic institutions and individuals, and better met the objective requirements of domestic and overseas market players to make cross-border securities investments. Bidirectionally developing the cross-border claim and debt business, steadily promoting the convertibility of other investments In order to increase policy support for subsequent financing of enterprises established overseas, and to support those enterprises that have “gone global” to develop better and faster, in 2009 the foreign exchange authorities began to allow qualified enterprises of various types, upon approval, to use, within a certain limit, their self-owned foreign exchange, foreign exchange purchased with RMB and other permitted foreign exchange to grant overseas loans, and such matters as the opening of special foreign exchange accounts for overseas loans, the domestic transfer of funds, and foreign exchange purchases began to be directly handled by designated foreign exchange banks. In 2009, in order to support post-disaster reconstruction in Sichuan and to support Guangdong to continue to give play a forefront role in the reform, the foreign exchange authorities allowed Chinese-funded enterprises in Sichuan and Guangdong to borrow short-term external debt within a certain limit, and in 2010 promoted this policy nationwide on the basis of a summary of the pilot experience. In 2010, the foreign exchange authorities further simplified the management procedures for external guarantees, cancelled the approval procedures for the banks’ external guarantee performance, relaxed the qualification requirements for the debtor and the restrictions on financial indicators, and expanded the business scope of external guarantees. Implementation of the above policies relieved the problems of overseas investment enterprises, such as financing difficulties and insufficient working capital, and also steadily promoted improvement in the convertibility level of other investments. Streamlining administration and instituting decentralization, and further improving the level of convertibility under the capital account The foreign exchange authorities actively simplified the procedures for administrative examination and approval, and each year introduced multiple measures to simplify the business examination procedures. First, they adjusted the management methods of some businesses from examination on a case-by-case basis to aggregate control. For instance, in 2010 the policy for management of external guarantees was reformed, the previous management method of case-by-case approval was adjusted to annual balance control, and the enterprises may handle the business themselves without the approval of the foreign exchange authorities. Second, they granted more authority to the branches and sub-branches of the SAFE, and integrating the overlapping administrative functions. In recent years, the foreign exchange authorities simplified dozens of business examination procedures, such as those for opening capital accounts in other localities, transferring the property of individuals overseas, and partial market withdrawal under the securities investments, and simplified the materials required for business examinations. Third, some businesses which were originally examined by the foreign exchange authorities were authorized to be handled by the banks. For example, with respect to such businesses as those related to foreign exchange purchases or payments for the profits of foreign investors in some financial institutions with foreign capital participation, the foreign exchange to be used for payment of overseas listing expenses from China by the overseas listed domestic companies, and the record of the transfer of the foreign exchange capital gained through the reduction in state-owned shares in overseas listed companies to the National Social Security Fund are currently directly handled by the banks. These measures help reduce the costs to the enterprises and the burden on society, improve operating efficiency, and also further improve the level of convertibility under the capital account. The foreign exchange authorities will steadily and orderly promote capital account convertibility for the Renminbi in accordance with the relevant requirements of the Twelfth Five-Year Plan and the National Financial Working Conference. On the basis of the specifications, the foreign exchange authorities will expand the use of RMB in cross-border trade and investment. The foreign exchange authorities will gradually expand capital outflow channels, encourage qualified institutions in China to “go global,” and relax the restrictions on overseas investments by domestic residents. The foreign exchange authorities will gradually expand the opening up of the domestic financial market and establish a system and mechanism for guarding against the impact of bidirectional flows of cross-border capital. As an important content of the reform of China ’s foreign exchange administration system, capital account convertibility for the Renminbi is not the ultimate goal. The realization of capital account convertibility for the Renminbi is a gradual process and a systematic project involving many departments, and relevant reforms are required to promote coordination and an improved capability to cope with external impacts. During the process of promoting convertibility under the capital account, the foreign exchange authorities will keep a close eye on economic development at home and abroad and will take measures for promoting convertibility that are consistent with China’s stage of economic development, the level of market development, the tolerance of enterprises, the level of financial supervision, and the international financial environment. While relaxing some controls, the foreign exchange authorities will continuously improve and strengthen macro and prudential supervision, further improve statistics, monitoring, and early warnings of cross-border capital flows, effectively guard against the impact of capital flows, and safeguard the economic and financial security of China . 2012-06-07/en/2012/0607/1055.html
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To implement the State Council's requirements that the financial community support the growth of the real economy, provide more conveniences for trade and investment and promote the development of trade in services, the State Administration of Foreign Exchange (SAFE) recently issued the Circular on Printing and Forwarding the Regulations on Foreign Exchange Administration for Trade in Services (Hui Fa [2013] No.30, or the “Circular”), stating that a nationwide reform of foreign exchange administration will kick off on September 1, 2013. To further clarify this reform, the relevant person-in-charge at the SAFE was interview by a journalist. Q: What is the background of this reform? A: During the 12th Five-Year Plan period, a critical period in building China into a moderately prosperous society and in promoting the development of the service sector, an acceleration of the development of the service sector is very important to advance the economic restructuring and the upgrading and optimization of the industrial structure. As stated in the 12th Five-Year Plan for the Development of the Service Sector by the State Council, in order to further expand the opening-up of the service sector efforts should be stepped up to rigorously develop trade in services by establishing a promotion system, enhanced laws and improved regulations, and offering more conveniences. The Guidelines of the General Office of the State Council on the Financial Community's Support for Economic Restructuring, Transformation, and Upgrading also state that the foreign exchange administration system for trade in goods and services must be improved by advancing, streamlining, and deregulating foreign exchange administration, with a focus on delivering more conveniences for trade and investment. The SAFE is seizing this opportunity to initiate a reform of foreign exchange administration in support of trade in services based on in-depth investigations and extensive solicitation of comments and suggestions, with the aim of creating a better policy environment for foreign exchange administration so as to facilitate the healthy development of trade in services. Q: What are the guidelines for this reform? A: This reform, as an important part of the reform of institutions and mechanisms for foreign exchange administration, reflects the country's overall requirements for the transformation of the concepts and approaches to foreign exchange administration. First, we will provide more conveniences for foreign exchange transactions via such measures as removing the administrative approvals and streamlining the verification of documents; second, we will transform the administrative model from stressing outflows rather than inflows to balanced administration of outflows and inflows; third, we will replace ex-ante administration focusing on approvals and verifications by ex-post administration stressing monitoring and analysis; fourth, we will replace monitoring each transaction with integrated monitoring focusing on the participants in the foreign exchange transactions. The above measures aim to build a more convenient, regulated, transparent, and efficient system of foreign exchange administration in support of trade in services. Q: How will this reform benefit institutions and individuals in China? A: Focusing on promoting the facilitation of foreign exchange administration, this reform will bring greater conveniences to institutions and individuals in terms of foreign exchange transactions for trade in services. Specifically, the benefits are as follows: First, purchases of and payments in foreign exchange for trade in services will be handled by financial institutions without verification. Second, in theory small amounts of foreign exchange receipts and payments for trade in services (equivalent to USD 50,000 or less per transaction) can be handled by the financial institutions without the need for document verification. This will facilitate most trade in services, but it is not applicable if the amount of the foreign exchange receipts and payments for trade in services for each transaction exceeds USD 50,000 or the equivalent in other foreign currencies. Third, the requirements for document verification for some foreign exchange transactions will be simplified, including simplifying and integrating the existing verification rules for dozens of documents, eliminating the verification of most approval and filing documents by the relevant authorities and eliminating the tax certificate requirement for external payments in foreign exchange. Fourth, conditions for overseas deposits of foreign exchange income from trade in services by organizations in China will be loosened, with corporate groups allowed to deposit abroad their foreign exchange from trade in services. Q: What changes will this reform make to the tax policy for external payments in foreign exchange? A: The SAFE and the State Administration of Taxation (SAT) jointly issued on July 9 the Announcement of Issues regarding Tax Record Filings for External Payments in Foreign Exchange for Trade in Services (SAT and SAFE Announcement No.40, 2013), jointly determining the program to reform the tax policy for external payments in foreign exchange. According to the announcement, the tax certificates will be replaced by record filings for external payments in foreign exchange, meaning that foreign exchange payers only need to register their payments with the tax authorities before making any payments. The record filing is applicable to payments in excess of USD 50,000 or the equivalent in other foreign currencies. Q: The new policy canceled the verification of documents for foreign exchange receipts and payments for trade in services in the amount equivalent to USD 50,000 or less per transaction, thereby providing more conveniences for enterprises. What is the basis for introducing this reform measure? A: This policy is based on the fact that China’s trade in services features frequent and small-value transactions, and USD 50,000 as the cutoff point is set according to the statistics and analysis of foreign exchange receipts and payments for trade in services during recent years. Based on the 2012 statistics, 88 percent of the foreign exchange transactions for trade in services totaled no more than USD 50,000 (or the equivalent in other foreign currencies) per transaction; thus the removal of the document verification for each of these transactions will benefit the majority of enterprises involved in trade in services in China. The remaining 12 percent of transactions associated with trade in services that are subject to document verification by financial institutions account for about 92 percent of the total value of enterprise transactions for trade in services. This approach, focusing on controlling the majority, will help further enhance the efficiency of foreign exchange administration and reduce social costs. Q: How will this reform influence financial institutions in terms of handling the relevant foreign exchange transactions? A: Integrating the regulations for foreign exchange administration in support of trade in services will provide a clearer and simpler basis and more conveniences for financial institutions. Streamlining the document verification will help financial institutions reduce their operating costs and improve their operating efficiency. Furthermore, the reform further clarifies the authority and responsibilities of the financial institutions in terms of the verification of their business, strengthens their due diligence responsibilities, and encourages them to improve internal controls and related business processes to prevent abnormal cross-border flows of capital via trade in services. Q: How will “facilitation” and “risk prevention” be balanced in this reform? A: Integrating “facilitation” and “risk prevention” is a crucial principle in this reform. While introducing measures to promote facilitation of trade in services, the foreign exchange authorities will strengthen balanced ex-post management, and intensify the monitoring of the inflows and outflows of foreign exchange based on an off-site regulatory system integrating macro analysis, intermediate monitoring, and micro checks established to enhance the ability to identify, predict, and prevent the risks entailed in foreign exchange transactions associated with trade in services. In addition, the focus will be placed on verifying large-value transactions. Institutions and individuals in China are required to keep all the documents for each foreign exchange receipt and payment transaction for trade in services through financial institutions for five years in case of any ex-post checks by the foreign exchange authorities. Due diligence responsibilities will be clarified for financial institutions in terms of the verification of documents so as to raise their awareness to actively abide by the regulations for foreign exchange administration, making sure that facilitation and risk prevention are fully integrated and mutually supportive. 2013-07-24/en/2013/0724/1083.html
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The SAFE recently released China’s International Investment Position for year-end 2012 as well as the revised data for the end of the four quarters of 2011. The statistics reveal that at the end of 2012, China’s external financial assets totaled USD5174.9 billion, external financial liabilities totaled USD3438.5 billion, and net external financial assets totaled USD1736.4 billion. Among the external financial assets, direct investments abroad totaled USD502.8 billion, portfolio investments totaled USD240.6 billion, other investments totaled USD1043.7 billion, and reserve assets totaled USD3387.9 billion, accounting for 10 percent, 5 percent, 20 percent, and 65 percent respectively of the external financial assets. In terms of external financial liabilities, foreign direct investments totaled USD2159.6 billion, portfolio investments totaled USD336.4 billion, and other investments totaled USD942.6 billion, accounting for 63 percent, 10 percent, and 27 percent respectively of the external financial liabilities. The International Investment Position (hereinafter referred to as the IIP) is a statistical statement which reflects at a specific point the stocks of financial assets and liabilities of one country or region in relation to the other countries or regions in the world, and together with the balance of payments statements (BOP statements) it constitutes the trade flows of the complete international accounts system of the country or region. Compilation Principles and Indexes for the IIP I. Compilation Principles for the IIP In accordance with the standards of the Balance of Payment Manual (Fifth Edition) published by the International Monetary Fund (IMF), the IIP is a statistical statement which reflects at a specific point the stocks of financial assets and liabilities of one country or region to the other countries or regions in the world. Changes in the IIP can be caused by changes in transactions, prices, and exchange rates as well as by other adjustments during specific periods. The IIP is consistent with the BOP statement with regard to the principles of valuation, measurement, and conversion, and together with the BOP statement constitutes a complete international accounts system of the country or region. Chinas IIP is a statistical statement which reflects at a specific point the stocks of China’s financial assets and liabilities (excluding Hong Kong SAR, Macao SAR, and Taiwan Province) to the other countries or regions in the world. II. Major IIP Indexes According to IMF standards, the items on the IIP are categorized according to assets and liabilities. The assets are divided into direct investments abroad, portfolio investments, other investments, and reserve assets, and the liabilities are divided into foreign direct investments, portfolio investments, and other investments. The net position refers to the external assets minus the external liabilities. The items are specifically defined as follows: 1. Direct investments refer to external investments in which an investor in one country operates an enterprise located in another country with the aim of acquiring effective control over the enterprise. They consist of direct investments abroad and foreign direct investments. Direct investments abroad include stocks of direct investments abroad conducted by China’s non-financial sectors, stocks of the capital fund and working capital appropriated by domestic banks to set up branches overseas, as well as stocks of loans between parent companies and subsidiaries both in China and abroad and stocks of other receivables and payables. Foreign direct investments include stocks of foreign direct investments absorbed by China’s non-financial sectors, stocks of direct investments overseas absorbed by the financial sectors (including foreign investments attracted by branches of foreign financial sectors and Chinese-funded financial sectors, and investments by the foreign party in joint financial sectors), as well as stocks of loans between parent companies and subsidiaries both in China and abroad and stocks of other receivables and payables. 2. Portfolio investments include types of investments such as shares, long- and medium-term bonds, and money-market instruments. Portfolio investment assets refer to holdings of negotiable securities, such as shares, bonds, money-market instruments, and derivative financial instruments, which are held by Chinese residents but issued by non-resident enterprises. Portfolio investment liabilities refer to shares and bonds held by non-resident enterprises but issued by Chinese residents. 2.1 Equity securities mainly comprise securities in the form of stocks. 2.2 Debt securities include long-term and medium-term bonds, short-term (one year or less) bonds, and money-market instruments or transferable debt instruments, such as short-term treasury notes, commercial papers, and large-sum short-term negotiable certificates of deposits. 3. Other investments refer to all financial assets and liabilities, including trade credits, loans, currency, and deposits, as well as other assets and liabilities, but excluding direct investments, portfolio investments, and reserve assets. Long term means that the contract period of the relevant financial assets/liabilities is longer than one year, and short term means that the contract period is one year or less. 3.1 Trade credits refer to direct business credits arising from the import and export of goods between China and other countries. Assets refer to the receivables of China’s exporters and the advance payments by China’s importers, whereas liabilities refer to the payables of China’s importers and the advance receipts of China’s exporters. 3.2 Loan assets refer to the external assets held by domestic institutions by providing loans to overseas institutions; and loan liabilities refer to loans borrowed by domestic institutions, such as loans from foreign governments, loans from international institutions, loans from foreign banks, and sellers’ credits. 3.3 Currency and deposit assets refer to funds deposited abroad and foreign cash in stock by China’s financial institutions; and currency and deposit liabilities refer to overseas private deposits and short-term funds from foreign banks attracted by China’s financial institutions, as well as other short-term funds, for instance loans from foreign exporters and individuals. 3.4 Other assets/liabilities refer to investments other than trade credits, loans, currency, and deposits, for example, capital paid by non-currency international institutions and other receivables and payables. 4. Reserves assets refer to external assets that can be used at any time and are controlled effectively by the PBOC, consisting of monetary gold, special drawing rights (SDRs), the reserve position in the Fund, and foreign exchange. 4.1 Monetary gold refers to the gold held by the PBOC as reserve. 4.2 SDR is a kind of ledger assets, which is allocated by the IMF according to the capital share of its members; it can be used to repay debt to the IMF and to make up for the deficit in the balance of payments between the governments of member countries. 4.3 Reserve positions in the Fund refer to assets that are held in the ordinary accounts of the IMF and that can be freely used. 4.4 Foreign exchange refers to current assets and liabilities that are retained by the PBOC and that can be used as a means of international compensation. (End). 2013-04-22/en/2013/0422/1080.html
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Based on the work arrangements of the CPC Central Committee and the State Council for current economic conditions and the coming period, as well as in the spirit of the Seminar for Presidents from Branches and Sub-branches of the People’s Bank of China, the 2013 Mid-year Branch Directors’ Meeting that was recently convened by the State Administration of Foreign Exchange (SAFE) summarized the progress achieved in foreign exchange administration since the beginning of this year, studied and analyzed regarding the financial foreign exchange situation, and mapped out the priorities for foreign exchange administration for the second half of the year. Safe administrator Yi Gang delivered a work report, and deputy administrators, heads of the discipline inspection teams, chief economists, chief accountants, and heads of the SAFE branches (foreign exchange administration departments) and SAFE departments were all present. The conference pointed out, led by the party committee of the People’s Bank of China, that the foreign exchange administration bureaus have followed the uniform arrangements of the CPC Central Committee and the State Council and the spirit of the 18th CPC National Congress and the Central Economic Work Conference, have accelerated the five transformations in the concepts and approaches to foreign exchange administration since the beginning of this year, significantly improving their capability to work for the real economy and to improve the quality of services. Specifically their achievements are as follows: First, they have done whatever it takes to control risks and they have introduced a package of measures to enhance foreign exchange administration, which has produced significant results. Second, the reform of foreign exchange administration for trade has been advanced, thus enhancing trade facilitation. The institutional reform of foreign exchange administration for trade in goods has proved fruitful, the reform of foreign exchange administration for trade in services has been accelerated, and foreign exchange administration for areas under special customs surveillance has been improved. Third, the reforms have been deepened, with the convertibility of the RMB capital accounts steadily enhanced. The IT basis for capital account management has been strengthened, administration of foreign debts and capital markets has been streamlined and power has been delegated to lower levels, institutions for QFII, RQFII, and QDII have been implemented, and foreign exchange administration for cross-border guarantees has been improved. Fourth, transformation of the approaches to foreign exchange administration has been advanced to support the transformation and upgrading of the real economy. The pilot program for centralized use of foreign exchange by multinationals has been advanced, foreign bonds and external guarantee indicators have been optimized, development of cross-border e-commerce has been supported, and infrastructure construction for the foreign exchange market has been advanced. Fifth, the operation and management of foreign exchange reserves have been improved to ensure the security of foreign exchange reserve assets. Sixth, with a focus on improving regional foreign exchange situation, advances in basic tasks like systematic research and statistics for foreign exchange administration have made further progress. Seventh, administration streamlining and power delegation as well as the streamlining of regulations have been carried out more rigorously to further increase the transparency of foreign exchange administration. Eighth, the CPC Central Committee eight-point code has been implemented to further build a clean and honest government and CPC teams. The conference also studied and determined the priorities for foreign exchange administration for the coming period. First, the five transformations in the concepts and approaches to foreign exchange administration need to be accelerated to prevent any risks associated with cross-border capital flows. Monitoring and analysis of the foreign exchange situation should be strengthened, with the building of a platform for monitoring and analysis of cross-border capital flows further advanced and contingency plans and policies further fleshed out. Second, the transformation of government functions needs to be accelerated, with trade and investment facilitation enhanced. The benefits from the institutional reform of foreign exchange administration for trade in goods need to be consolidated and the reform of foreign exchange administration for trade in services needs to be advanced. Third, the convertibility of capital accounts should be steadily advanced. The capital market should continue to be liberalized in an orderly way and more conveniences should be provided for management of the capital account. Fourth, the CPC’s mass line campaign should be rigorously implemented. Closely following these themes, the campaign must be advanced vigorously and the work styles of officials must be transformed to make sure concrete benefits are achieved through this campaign. The conference stressed that since the tasks for foreign exchange administration for the coming period are arduous, the foreign exchange administration bureaus at all levels must follow completely the spirit of the 18th CPC National Congress and align their thoughts and actions with the central government’s analysis and judgment regarding China’s economic condition and related decisions and arrangements by making steady progress, deepening the reforms, streamlining administration, delegating power, and preventing risks, to fully strengthen support for the economic restructuring, transformation, and upgrading. 2013-08-05/en/2013/0805/1084.html
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Q: The State Administration of Foreign Exchange (SAFE) recently released China’s International Investment Position. Could you please say something about China’s external financial assets and liabilities? A: The statistics reveal that due to the fact that the domestic and international economies have entered a stage of deep transformation, the increase in China’s external financial assets and liabilities has decelerated to some extent. As of the end of 2012, China’s external financial assets and liabilities totaled USD5.1749 trillion and USD3.4385 trillion respectively, an increase of 9 percent and 13 percent year on year, a decline of 6 and 12 percentage points compared with the same period in 2011. Net external financial assets amounted to USD1.7364 trillion, a rise of 3 percent year on year. The structure of external financial assets was optimized. As of the end of 2012, China’s foreign direct investments, securities investments, other investments. and reserve assets amounted to USD502.8 billion, USD240.6 billion, USD1.0437 trillion, and USD3.3879 trillion respectively, accounting for 10 percent, 5 percent, 20 percent, and 65 percent respectively of the external financial assets. The share of reserve assets fell to the lowest level since the beginning of 2008. Among the new external financial assets in 2012, the contribution of reserve assets declined to 30 percent, which is far below the average annual contribution of 65 percent since the beginning of 2004. The structure of external financial liabilities remained stable. Foreign direct investments, securities investments, and other investments amounted to USD2.1596 trillion, USD336.4 billion, and USD942.6 billion respectively, accounting for 63 percent, 10 percent, and 27 percent of external financial liabilities, which is basically unchanged from the 2011 level. Foreign direct investments still contribute primarily to China’s external financial liabilities. New foreign direct investments and re-investments of foreign profits contributed 64 percent of China’s new external financial liabilities in 2012, an indication of the confidence of foreign capital in the growth potential of the Chinese economy. The large proportion of direct investments in liabilities is conducive to alleviating the impact of short-term cross-border capital flows and to promoting the development of the real economy, while it is also a manifestation of China’s high costs of foreign capital utilization which primarily contribute to the structural problems of the deficit in investment income. From a global perspective, China’s structure of external assets and liabilities is similar to that of most emerging economies. In terms of external assets, securities investments and direct investment assets constitute a larger portion of total liabilities in the developed countries in Europe and North America. Meanwhile the emerging economies have a higher proportion of reserve assets among their total liabilities. For instance, the proportion of reserve assets in the total liabilities of the emerging economies, such as South Korea, Russia and Brazil, are in excess of 40 percent; in India the figure has even reached 73 percent. In terms of external financial liabilities, most countries in the developed world have a higher proportion of securities investments in liabilities, in excess of 50 percent, whereas in the BRIC countries such as Russia, Brazil and India, direct investments account for over 30 percent of total liabilities. Q: We’ve noticed that the SAFE has made revisions to China’s International Investment Position in 2011. How do we properly use the revised data? A: Both the Balance of Payments and the International Investment Position are subject to regular revisions. The SAFE makes revisions to the BOP data for various periods in the previous year after releasing the BOP data at the end of the year. This time we made revisions to China’s International Investment Position at the end of each quarter of 2011 based on the latest acquired and compiled data for China’s International Investment Position at the end of 2012. Meanwhile, the data for the previous three quarters of 2012 have not been revised. So the data for the previous three quarters of 2012 are temporarily not comparable to the revised data in 2011 and the end of 2012 data. We will release the revised data at the end of each quarter of 2012 in parallel with the release of China’s International Investment Position at the end of 2013. Using foreign direct investment as an example, when revising China’s International Investment Position at the end of 2011 and compiling China’s International Investment Position at the end of 2012, we updated the data on stocks of foreign direct investment based on the annual inspection of FDI that was completed in 2012. After the revision, the stock of foreign direct investment in 2011 amounted to USD1.9069 trillion, an increase of USD102.7 billion from the pre-revision level. The data on stocks of foreign direct investment at the end of 2012 are the sum of the data on flows of foreign direct investments in 2012 and the revised data on stocks at the end of 2011. The data on stocks of foreign direct investment at the end of the previous three quarters of 2012 have not been revised; they will be revised in China’s International Investment Position at the end of 2013 which will be released at the beginning of 2014. 2013-04-22/en/2013/0422/1081.html
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To implement the relevant requirements of the State Council that the financial community should support the growth of the real economy, provide more conveniences for trade and investment, and promote the development of trade in services, the State Administration of Foreign Exchange (SAFE) recently issued the Circular on Printing and Distributing the Regulations of Foreign Exchange Administration for Trade in Services (Hui Fa [2013] No. 30, or the Circular), stating that a nationwide reform of foreign exchange administration will kick off on September 1, 2013. This reform will mainly focus on the following: First, advancing the streamlining of administration and instituting decentralization. Purchases/sales of foreign exchange for trade in services will be handled by financial institutions without being verified. The foreign exchange regulatory bodies are expected to strengthen the due diligence requirements for financial institutions, urge them to improve their internal controls and operating processes, and monitor and inspect their implementation. Second, canceling the verification of documents for small-value foreign exchange transactions. Small-value foreign exchange receipts and payments for trade in services will be handled directly with the financial institutions. In theory, a foreign exchange receipt or payment transaction in the amount of USD 50,000 or less (or the equivalent in other foreign currencies) can be made without document verification. However, institutions and individuals in China are required to retain all the documents related to each foreign exchange receipt and payment transaction for trade in services for five years in the case of any future checks. Third, streamlining the verification of documents. The requirements for document verification for some foreign exchange transactions will be simplified, including simplifying and integrating the existing rules of verification for dozens of documents, eliminating the verification for most approval and filing documents by the relevant authorities, and eliminating the tax certificates for external foreign exchange payments. Fourth, simplifying and integrating the regulations. The Guidelines on Foreign Exchange Administration for Trade in Services and their rules for implementation will be introduced, and more than 50 regulatory documents will be rescinded, to provide a systematic, clear, and transparent regulatory basis for foreign-related bodies to handle foreign exchange transactions for trade in services. Fifth, relaxing the requirements for depositing foreign exchange abroad. Conditions for overseas deposits of foreign exchange income from trade in services by domestic organizations will be relaxed, with corporate groups allowed to deposit abroad their foreign exchange income from trade in services. Sixth, strengthening balanced follow-up management. The monitoring of inflows and outflows of foreign exchange from trade in services will be intensified, with the establishment of an off-site regulatory system integrating macro analysis, intermediate monitoring, and micro checks, coupled with the necessary on-site inspections and examinations to enhance risk prevention and control. The reform, reflecting the transformation of the concepts and approaches to foreign exchange administration, will help develop a new management approach that is convenient and risk-resistant and adapted to the trends in the development of trade in services and to promote the healthy growth of trade in services in China. (The end.) 2013-07-24/en/2013/0724/1082.html
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In 2012, the SAFE received and handled a total of 45 suggestions and proposals for the “Two Sessions,” the content of which involved facilitation of trade and investment, support for enterprises to “go global,” cross-border RMB settlement, operations and management of foreign exchange reserves, and so forth. At present, this work has been smoothly completed. During the period of handling the suggestions and proposals for the “Two Sessions,” the SAFE attached high priority to the work, carefully planned organization, and paid close attention to implementation. First, sound systems were established and handling procedures were regulated. Special measures were developed to guarantee that the work of handling such proposals and suggestions be institutionalized and standardized. Second, leaders attached importance to this task and made careful arrangements. The CPC Leading Group at the SAFE placed high priority on the work of handling the suggestions and proposals, and the leaders of the SAFE convened special conferences to make arrangements and to put forward the requirements for the handling of the suggestions and proposals. Third, training was enhanced and supervision was strictly enforced. Collective training was organized for the staff responsible for handling the suggestions and proposals, and more efforts were made to supervise the handling of the work so as to effectively guarantee that each suggestion or proposal receive a reply. Fourth, the work of coordination and communication was carried out well so as to improve performance. Communication with representatives and members was enhanced through various methods, and the comments and suggestions of the representatives and members were taken into consideration so as to ensure the quality of the work of handling the suggestions and proposals. Fifth, experiences were summarized and excellence was commended. After completing the handling of the suggestions and proposals, the experiences and good practices were summarized and units and individuals with notable contributions were recognized. Because the 2013 “Two Sessions” are about to convene, the SAFE will further improve its work style, engage in solid work, and effectively handle the suggestions and proposals for the 2013 “Two Sessions.” 2013-02-27/en/2013/0227/1079.html
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Since the beginning of 2013 the SAFE has further intensified efforts to simplify administrative procedures, institute decentralization and sort out the laws and regulations, and thereafter it updated the directory of major laws and regulations in effect on foreign exchange administration. The updated Directory of Major Laws and Regulations in Effect on Foreign Exchange Administration (as of July 31, 2013, hereinafter referred to as the “Directory”) has been posted on the official website of the SAFE. Including 315 policies, laws, and regulations with respect to foreign exchange administration, the Directory consists of eight categories, namely, Comprehensive Foreign Exchange Administration, Foreign Exchange Administration under the Current Account, Foreign Exchange Administration under the Capital Account, Supervision of the Foreign Exchange Business of Financial Institutions, the RMB Exchange Rate and Foreign Exchange Market, the BOP and Foreign Exchange Statistics, Foreign Exchange Inspections and the Applicable the Laws and Regulations, and Technical Management of Foreign Exchange, and, to facilitate use by the public, these are classified into several sub-items based on the category of the specific business. The SAFE will devise and improve long-term mechanisms to sort out the laws and regulations and to straighten out and update the Directory on a regular basis to further facilitate efforts by banks, enterprises, and individuals to understand and use the foreign exchange administration laws and regulations, and to advance law-based foreign exchange administration. 2013-08-12/en/2013/0812/1086.html
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In order to improve the transparency of the release of foreign exchange administration data and further facilitate the public's access to and use of the balance of payments and the relevant data, the Schedule for the Release of the Balance of Payments and Relevant Data (see the Annex) is hereby published. FILE: Schedule for the Release of the Balance of Payments and Rele 2012-07-13/en/2012/0713/1056.html
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[Moderator]: Good morning, friends from the press. Welcome to the Policy Press Conference of the State Administration of Foreign Exchange (SAFE) for the first quarter of 2015. The theme of today's press conference is Foreign Exchange Administration Policies for 2015 Q1. [10:16] [Moderator]: I am Wang Yungui, director-general of the General Affairs Department of the SAFE. Today my three colleagues are present at the conference as well. They are Du Peng, director-general of Current Account Management Department, Guo Song, director-general of Capital Account Management Department, and Zhang Shenghui, director-general of Supervision and Inspection Department. [10:17] [Moderator]: First, I’d like to share with you the recent foreign exchange administration policies. Since the beginning of 2015, the SAFE has actively adapted to the new normal of economic development, accelerated "five shifts" in foreign exchange administration, stepped up efforts to streamline administration and delegate power, taken reform and making breakthroughs as its work priorities and promoted the convertibility of capital accounts in a good order, while combining delegation and regulation, and stressing risk prevention and control, thus driving the stable and healthy development of the economy. Below are the reform measures introduced in the quarter: [10:17] [Moderator]: First, deepening the foreign exchange administration reform for cross-border e-commerce [10:18] [Moderator]: The SAFE kicked off a pilot program for foreign exchange payment for cross-border e-commerce in Shanghai, Beijing, Chongqing, Zhejiang and Shenzhen in 2013, allowing payment institutions to handle receipt, payment, settlement and sales of foreign exchange funds under small-sum purchases and cross-border activities including booking air tickets, staying in hotels and studying abroad, which have been widely applauded by the public. Based on this, the SAFE further advanced the pilot program and rolled it out nationwide in January 2015. It simplified the foreign exchange payment process and relaxed the quota on a single online transaction from the equivalent of USD 10,000 to the equivalent of USD 50,000. Meanwhile, the principles of real name and transaction-by-transaction data collection were followed to prevent the risks arising from abnormal transactions. [10:28] [Moderator]: The pilot program has taken shape so far, providing convenient payment support for cross-border online shopping such as overseas purchases by companies and individuals. Payment institutions processed USD 1.7 billion in foreign exchange receipts and payments through the pilot program in 2014, and USD 610 million in foreign exchange receipts and payments between January and February 2015. [10:28] [Moderator]: Second, removing or delegating to lower-level authorities the administrative approval for foreign exchange insurance business [10:29] [Moderator]: The SAFE released the Guidelines for Foreign Exchange Administration for Insurance Business in January 2015 and nullified eight relevant foreign exchange administration rules together with the China Insurance Regulatory Commission (CIRC), including the Interim Regulations on Foreign Exchange Administration for Insurance Business. The Guidelines made it clear that all the qualification approval for domestic insurance companies to run foreign exchange insurance business would be delegated to the SAFE branches, and that the approval for opening or closing foreign exchange accounts by insurance companies would be canceled, except for registration for opening an account for the first time, and that an insurance company's foreign exchange funds can be collected or paid in a centralized way. [10:29] [Moderator]: Third, carrying out a pilot program to reform macro-prudential management of external debts [10:31] [Moderator]: In recent years, the SAFE has stepped up efforts to streamline administration and delegate power, actively explored the replicable and promotable experience in the capital account reform, and combined motivating the market dynamics and accelerating transformation of management models to facilitate cross-border financing and investment by companies, which have delivered progress in capital account convertibility. Overall, the reforms in the Twelfth Five-Year Plan period have effectively promoted the convertibility process. Latest statistics show that of the 40 capital account transaction items, 34 items have been partially convertible or beyond, accounting for 85%. [10:31] [Moderator]: Following the gist of the Decision from the Third Plenum of the 18th CPC Central Committee, the SAFE has taken a crucial step in building and improving the external debts system under the macro-prudential management framework since the beginning of this year. In February 2015, the SAFE approved that a pilot program of macro-prudential management adopting the external debts proportional self-discipline model should be conducted in the Core Area of Beijing Zhongguancun National Self-dependent Innovation Demonstration Area, Jiangsu Zhangjiagang Free Trade Zone, and Shenzhen Qianhai Shenzhen-Hong Kong Modern Service Industry Cooperation Area. To be specific, the outstanding external debts of a non-financial enterprise in the pilot zone should not exceed twice the net assets of the enterprise for the previous year, and the total debts of a Chinese non-financial enterprise should not surpass 75% of its total assets. This reform has helped balance the treatment of Chinese and foreign-funded companies, and better satisfied companies' demand for cross-border financing, and thus can somewhat ease companies’ difficulties of raising funds and reducing the cost of financing. This policy has attracted strong interest from companies immediately after its introduction. In one week, more than ten companies in the pilot zones raised funds from abroad at a low cost through this policy. These companies are generally Chinese companies with demand for overseas financing and this policy helped them reduce the cost of financing by 2-3 percentage points. [10:31] [Moderator]: Fourth, removing the administrative approval for foreign exchange administration for FDI and ODI [10:31] [Moderator]: The SAFE released in February 2015 the Circular on Further Simplifying and Improving the Policies for Foreign Exchange Administration of Direct Investments and launched many facilitation measures for direct investments, including four reform measures, i.e.: removing the verification for registration of foreign exchange under direct investment, simplifying the management of confirmation and registration of capital contributed by foreign investors under the domestic direct investment, removing filing of foreign exchange for overseas reinvestment, and canceling annual check of foreign exchange under direct investment. Since the launch of the reform, the absolute majority of the businesses under direct investment can be processed directly at banks, and companies need not go to a foreign exchange authority for registration or verification. This indicates that the administrative approval for administration of foreign exchange under direct investment has been basically removed and foreign exchange under direct investment is generally convertible. [10:32] [Moderator]: Fifth, enhancing management of franchised institutions for domestic and foreign currency exchange for individuals and of their business [10:32] [Moderator]: The SAFE issued the Circular on Relevant Issues Concerning Standardizing Domestic and Foreign Currency Exchange Franchise Business for Individuals and Foreign Currency Exchange Business,requiring that the SAFE branches should enhance the market access management for domestic and foreign currency exchange franchise business for individuals and foreign currency exchange business, rigorously review applicants' qualifications, intensify day-to-day supervision and management, and stressing that the SAFE branches must suspend or revoke the business of any franchised institution if it runs the business without permission or beyond its business scope or is suspected of getting involved in online foreign currency speculation, to better maintain the market order. [10:32] [Moderator]: Sixth, cracking down on foreign exchange-related legal and regulatory offences [10:32] [Moderator]: The SAFE has continued to aggressively crack down on abnormal foreign exchange flows since the beginning of 2015 to guard against the risks arising from cross-border capital flows. First, inspecting banks as the main target. At the end of 2014, the SAFE organized special nationwide inspections of banks that operate the foreign exchange business, and emphasized internal control and external regulation of banks. It identifies serious problems and hidden risks associated with the foreign exchange business in banks to clamp down on operation violations. Moreover, it identifies the weak points of banks in implementing the foreign exchange administration policies and regulations to enhance banks' compliance in operating foreign exchange business and curb regulatory and legal offences regarding the foreign exchange business. The special inspection is underway now and expected to be completed by the end of May. Second, continuing with subsequent handling of cases carried forward from the 2014 special inspections such as of entrepot trade and forward foreign exchange settlement, and foreign exchange regulatory offences. The SAFE investigated and dealt with 1903 cases throughout 2014, with an administrative fine of RMB 445 million. In particular, the SAFE cooperated with the public security authorities to uncover 32 cases of foreign exchange legal offences such as underground money shops and confiscated RMB 222.4 billion from these cases, thus effectively intimidating regulatory and legal violators regarding foreign exchange. [10:32] [Moderator]: Overall, the SAFE, based on market demand, has actively promoted the capital account convertibility and steadily implemented a series of foreign exchange administration reforms and measures, which have played significant roles in satisfying domestic individuals' demand for holding and using foreign exchange, facilitating market players like companies to conduct cross-border financing and investment and guarding against abnormal cross-border capital flows. [10:33] [Moderator]: Now please ask your questions on these foreign exchange administration policies and remember to tell us where you are from before raising your questions. [10:33] [Journalist]: I have two questions and the first is about the RMB account convertibility policy. Zhou Xiaochuan, PBC governor, said last weekend that the PBC is expecting to basically realize capital account convertibility by the end of this year, and I am wondering what steps the SAFE would take to achieve this target. In face of the challenges from the global market, including the differentiation of European and American policies and the pressure from capital flight on the emerging capital market, how will the SAFE respond to the risks arising from the implementation of these steps? [10:48] [Journalist]: The second question is about foreign exchange settlement and sales. What other non-banking financial institutions besides Harvest Fund and Guotai Junan will be qualified for running this business? [10:48] [Guo Song]: Capital account convertibility is a significant issue that is to be addressed during the 12th Five-Year Plan period while this year is the last year in the period. Zhou Xiaochuan, PBC governor, has proposed the necessary work to be done, including modifying the foreign exchange administration regulations, further opening the capital market and facilitating individuals' investment or transfer. We have been pursuing capital account convertibility for years from all aspects. As was said earlier, about 85% of the 40 capital account transaction items we assessed are partially convertible now. [10:49] [Guo Song]: How to advance this process? It can be done in multiple ways. What we should do is to streamline administration and delegate power, lessen interference into the transactions and cut approval items. We have done a lot over the past five years, reducing administrative approval items concerning capital account from more than 50 to 17, or by 71%. [10:49] [Guo Song]: What's more, what was prohibited in the past is being opened and done, where we also have done a lot. Given that the capital account convertibility requires coordination and cooperation among multiple departments, the SAFE has introduced within the compass of its power many measures to pursue the capital account convertibility. For example, the centralized management of MNCs' funds enables conglomerates to operate capital within the company more easily. The QDLP pilot program currently in force in three regions aims to identify more channels for going global or bringing in. Moreover, the pilot reform of macro-prudential management of external debts is now carried out in three regions for proportional self-discipline of external debts. All these measures are advancing the process of capital account convertibility. [10:49] [Guo Song]: As for your second question, I would like to say that we did grant the qualifications to two securities firms for foreign exchange settlement and sales. But what they can do after obtaining the qualification is still in question. Will more institutions obtain the qualification in the future? Definitely, provided that the two institutions deliver a good performance. But if the two institutions find nothing could be done, I guess other institutions will not be interested in this in the future. [10:49] [Financial channel of CCTV]: I noticed that China witnessed a trade surplus of more than USD 120 billion, while a deficit of foreign exchange settled and sold of more than USD 120 billion in the first two months of this year. Are the two figures contradicting with each other? Does this indicate massive outflows of cross-border capital? How will the SAFE respond to this? [11:16] [Wang Yungui]: I'd like to use figures to make a clarification. This contains three aspects: first, as is monitored, there is still a net inflow of cross-border receipts and payments. From August to December 2014, there were net outflows of cross-border receipts and payments, or the outflows exceeded the inflows of cross-border receipts and payments by enterprises and individuals via banks, but this situation reversed in January and February 2015. Data show that after deducting cross-border payments from cross-border receipts, there was a net inflow of USD 55.1 billion, representing a year-on-year increase of 38%. Specifically, the net inflow under trade in goods stood at USD44.9 billion, which was 5.6 times that of the same period last year. Therefore, the monitoring data indicate that there is still a considerable net inflow of cross-border receipts and payments. [11:16] [Wang Yungui]: The second figure is about foreign exchange settlement and sales via banks. There was a deficit of USD 25.4 billion in foreign exchange settlement and sales in January through February. What's your idea of this deficit? It should be viewed from two perspectives. First, plenty of export revenue has not been settled but been deposited as foreign exchange. From January to February, the proportion of export revenue translated into the RMB was down by 10 percentage points while the foreign exchange deposit of enterprises and individuals rose by USD 63.9 billion, indicating the surplus or deficit in foreign exchange settlement and sales is a structural adjustment between the central bank's foreign exchange reserves and private foreign exchange savings. In others words, enterprises and individuals are optimizing the currency structure of their balance sheets by holding more USD assets, which doesn't mean capital outflows however. [11:17] [Wang Yungui]: The third figure is about the basic items of the balance of payments. Generally there are two basic items of the balance of payments, namely, trade and direct investment. Customs statistics show that China witnessed a surplus of trade in goods of USD 120.6 billion in January to February 2015, up by 11.8 times year-on-year, and used USD 22.5 billion in foreign capital, up by 17%. The sum of the two figures surpassed USD 140 billion. These basic figures of the balance of payments also show there is no capital outflow. [11:17] [Wang Yungui]: Given these figures, China's GDP is rapidly increasing, compared with its international counterparties, and the investment, consumption and export remain robust, with great potential for growth. China kept adjusting itself over the past few years, with enforced strengths in structural optimization and self-motivation for economic development. Overall, no data is supporting the assertion that China 's economy is on the decline and capital is flowing out of the country. [11:17] [Journalist]: What was your consideration to conduct macro-prudential management of external debts starting from last year? What's the effect? [11:22] [Guo Song]: The macro-prudential management of external debts has been written into the resolution document of the Third Plenum of the 18th CPC Central Committee to build a management system for external debts and capital flows under the macro-prudential framework. To implement the resolution document of the Third Plenum of the 18th CPC Central Committee, the SAFE adopts the proportional self-discipline management of external debts. Proportional self-discipline is a simple concept with the same meaning of a buzzword, macro prudence. Macro prudence takes many factors into consideration, such as the level of a country's total liabilities and the level of corporate liabilities. The proportional self-discipline is being explored on a small scale, aiming to implement the resolution of the Third Plenum of the 18th CPC Central Committee and create a fair market environment. It used to be easy for foreign-funded enterprises to borrow external debts but hard for Chinese companies to do so since the overseas market was not opened and posed many restrictions. The data we released show that almost none of the Chinese enterprises had external debts. The second aim is to create a fair market environment that enables both Chinese and foreign-funded enterprises to have equal treatment in this area. The third aim is to address the difficulties and reduce the cost of financing by enterprises. Overseas financing is surely cheaper than domestic financing, which, just as Mr. Wang Yungui said earlier, is about 1-2 percentage points lower. That's why overseas financing is considered a way to ease the difficulties of and cut the cost of financing. But as the proportional self-discipline measure was just launched and signing a loan contract takes time, there are not many transactions yet. We do not expect many transactions, but do hope that this can satisfy some companies' demand to win fair market competition. In the past, borrowing external debts required approval from the SAFE, which is now replaced by proportional self-discipline, that is, all the companies can borrow money without prior approval from the SAFE, provided that these companies' external debts do not exceed a certain proportion of the approved assets as of the end of the previous year. [11:23] [Journalist]: Can QFII and RQFII access the inter-bank market, according to the foreign exchange policy? [11:28] [Guo Song]: Definitely. QFIIs must make sure that less than 50% of its assets will access the inter-bank market. But there is no similar limit on RQFIIs. All of the assets of RQFIIs can access the market. But they can also choose not to enter the market. [11:28] [Journalist]: It was recently reported that the QFII and RQFII systems may require registration? What would you say about this? [11:29] [Guo Song]: We have been considering reforming the QFII and RQFII systems. It is relatively convenient for RQFIIs to make investments as we carried out some reforms in this regard. We are also considering making some changes to the QFII system. For example, removing the upper limit of USD 1 billion, which I believe will be completed in a couple of days. We are considering facilitating capital inflows and outflows too. [11:29] [Journalist]: The data released by the Bank for International Settlement at the end of last year show that the Chinese companies had overseas debts of USD 1.1 trillion. What about the data that have been monitored by the SAFE? The overseas media have been recently saying that as the US dollar appreciates, these debts would be at stake, putting heavy pressure of capital outflow on China 's economy. [11:54] [Guo Song]: As of last September, China reported a balance of USD 894.8 billion in foreign currency debts, which is quite different from USD 1.1 trillion you just said. The data I said refers to the balance of foreign currency debts the Chinese institutions including the Chinese government owe to overseas counterparties, which exclude the domestic currency. The two figures are different in statistical standards. Some institutions with overseas debts or liabilities might be registered overseas, so in theory they are not Chinese institutions and excluded from our statistics and management. The problem is whether these debts will increase the liabilities of domestic players if transferred into China . We have also noticed that the corporate liability ratio is overly high now. In carrying out the pilot program of proportional self-discipline of external debts in three regions as I said earlier, we attach a restrictive term that the total liability ratio should not exceed 75%. We don't expect to see over-indebted companies, either. But it is likely. Will over-indebted companies affect the country's overall liability risk? This is another question. Currently, China's overall external debts are at a rational level, say, a little more than USD 890 billion, which can match our foreign exchange reserve of USD 3.95 trillion, indicating that China is fully solvent at the country level. A company's solvency is an individual case. Generally speaking, the risk is within control. [11:54] [Journalist]: The IMF will review currencies in the SDR basket in the second half of this year. My question is how likely the RMB will be included in the SDR basket this time? What new actions will be taken or what has been done to promote the inclusion of the RMB in the SDR basket? [11:57] [Wang Yungui]: Mr. Zhou and Mr. Yi answered your questions in detail during the National People's Congress and Chinese People's Political Consultative Conference. We should be objective in having the RMB included in the SDR basket. We would do our best to make it happen, but also assess the situation objectively. [11:57] [Wang Yungui]: While driving the inclusion of the RMB in the SDR basket, we should focus on the domestic reforms, promoting the two-way opening-up of the capital market, further boosting the convertibility of the RMB under the capital account, and enhancing the free use of the RMB in international exchange. With all these efforts, inclusion of the RMB in the SDR basket would become a natural result. [11:57] [Economic Daily]: Mr. Zhou said we might realize capital account convertibility this year, but some scholars are concerned about capital flight given the changes in the domestic and international environment. What would you say about this? What approach is or will be adopted to control the possible capital flight as we are striving to realize capital account convertibility or after capital account convertibility has been realized? [12:09] [Wang Yungui]: It was required by the Third Plenum of the 18th CPC Central Committee that we should realize capital account convertibility. To this end, the PBC and the SAFE have done a lot. As I said earlier, 85% of capital account is convertible now. This means there is only the last mile left on the path to capital account convertibility. In the process, we devoted ourselves to promoting reforms while preventing risks, and fully assessed the possible impact of the capital account convertibility on cross-border capital inflows and outflows. According to the domestic and international authoritative literature, it is very hard to make certain whether a country will witness capital inflows or outflows after the full convertibility of capital account is realized. Persistent efforts should be made to explore and improve the reform schemes as the reforms proceed. Under the leadership of the CPC Central Committee, the State Council and the PBC, the SAFE has always combined the process of convertibility with administration streamlining and power delegation. Meanwhile, by building relevant statistical information system and management information system, the SAFE has closely monitored and analyzed the cross-border capital flows, and collected statistical data. So far, our schemes and reform steps have proved feasible. [12:09] [Wang Yungui]: Whether it is capital inflow or outflow depends more on the macro economic conditions in the domestic and global market. The current domestic economic conditions prove that our efforts in promoting reforms and adjusting structure are effective. We also believe that the absolute majority of domestic and international market players will calmly and objectively assess capital inflows and outflows. I said just now that China witnessed a trade surplus of roughly USD 120 billion and received USD 22.5 billion of FDI in January through February, which indicates that there are net cross-border capital inflows. Therefore, it is viable to stably realize capital account convertibility amid the current reformative environment. In this process, our top priority is to control risks and capital outflows, so as to guard against the systematic and regional financial risks, which is our bottom line. The roles and responsibilities of individual players who fail to put risk prevention measures in place as we pursue capital account convertibility should be defined by the market by clearly defining the ownership, while we are committed to guarding against systematic and regional financial risks. [12:10] [South China Morning Post]: I want to confirm what Mr. Guo said just now. Is it true that we will see the upper limit on QFII exceeding USD 1 billion in a couple of days? [12:10] [Guo Song]: It's true. We will release the data soon, and you will see that. [12:11] [South China Morning Post]: Is it a natural breakthrough, instead of an institutional change? [12:11] [Guo Song]: Institutional change takes time. [12:11] [South China Morning Post]: My second question is what the SAFE would say about the overstatement of the RMB, as said by Asian Development Bank? Both the OECD and Asian Development Bank expect China to improve the RMB exchange rate formation mechanism. What are the new considerations in the RMB exchange rate reform this year? Will the trade-weighted exchange rate be adopted to make the RMB exchange rate more reflective of the market demand? [12:27] [Wang Yungui]: The RMB exchange rate formation mechanism reform has always been a key issue in the exchange rate reform, not merely about the level. We have been stressing that the exchange rate reform should focus on the building and improvement of the mechanism. Specifically, the RMB exchange rate formation mechanism aims to give the market a decisive role in the formation of the RMB exchange rate. As you can see, the central bank phased out the normal interference in the market in the past year, with the bilateral exchange rate between the RMB and US dollar fluctuating by 2% or -2% every day while the exchange rate of RMB against other currencies fluctuating in a broader range, which indicates that the exchange rate is decided by the market is playing a larger role. When studying the exchange rate of RMB against foreign currencies, we should look at the exchange rate of RMB against a basket of currencies, including euro and Japanese yen, not just the US dollar. While the exchange rate of RMB against the US dollar depreciates, it is likely that the exchange rate of RMB against many other currencies appreciates. The RMB has been appreciating all the time, including in the first two months of this year, according to the two exchange rate indexes of the Bank for International Settlements, namely, the nominal effective exchange rate and the real effective exchange rate. In monitoring the exchange rate, other countries focus on the exchange rate against a basket of currencies. The US dollar index, for example, is an index for the USD exchange rate against a basket of currencies. This holds true for China . As the RMB exchange rate formation mechanism reform kicked off in 2005, it was made clear that a managed RMB exchange rate mechanism would be adopted and adjusted with reference to a basket of currencies. Relevant regime design should be conducted under the existing policy framework. [12:28] [Journalist]: A source said yesterday that a foreign-funded company in Shanghai violated laws by having its foreign exchange settled to buy housing, but failed in the lawsuit against a foreign exchange authority. I wonder why a company will be fined after its foreign exchange has been settled, and what's the cause of such a case? [12:35] [Zhang Shenghui]: It is normal that the administrative enforcement authority and the administrative counterpart have conflicts or disputes with each other on some issues. It is everyone's legitimate right to request hearing and administrative reconsideration, or even to file a lawsuit, and we respect such rights. Since every case has its unique features, it is hard to generalize them. Of the more than 1,900 cases we handled in 2014, only 6 cases requested reconsideration, which was low. But it should be noted that people's awareness to protect rights and the state's requirements on law-based administration are increasing, which I believe will ensure that the law enforcement team stringently abide by laws and will protect the rights of administrative counterparts. [12:36] [Moderator]: This is the end of today's press conference. Thank you for your attention to foreign exchange administration and for coming to this conference. A press conference on foreign exchange situation will be held at the Information Office of the State Council by late April. We are looking forward to your attendance to pay more attention to foreign exchange administration in China . Thank you. [12:36] (The original text is available at www.people.com.cn) 2015-06-05/en/2015/0605/1159.html