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Yi Gang, Secretary of Party Leadership Group and Administrator of the State Administration of Foreign Exchange (SAFE), chaired on January 22 a party leadership group meeting to restudy the gist of the fifth plenary session of the 18th CPC Central Commission for Discipline Inspection (CCDI), study the implementation measures, listen to the work report by the disciplinary inspection team of the party leadership group and make plans for rectifying undesirable work styles, upholding integrity and combating corruption in 2015. The attendees listened to the report delivered by the disciplinary inspection team on rectifying undesirable work styles, upholding integrity and combating corruption. In 2014, the SAFE implemented the gist of the third and fourth plenary sessions of the 18th CPC CCDI and the State Council's second work conference on clean government, performed its principal and supervisory responsibilities, and managed and governed CPC members in accordance with regulations. Following the gist of the CPC Central Committee's eight-point guideline for official conduct, the SAFE improved the anti-corruption and integrity systems and mechanisms, enhanced education and administration of CPC members and officials, and rigorously investigated and dealt with regulatory and disciplinary offenses, while focusing on its main business, dedicating itself to the "three transformations" and strengthening disciplinary inspection and supervision departments' capabilities of fulfilling their responsibilities, thus providing a political guarantee for foreign exchange administration. Under the leadership of the CPC CCDI and the SAFE Party Leadership Group, the disciplinary inspection team conscientiously performed its supervisory responsibilities by enhancing supervision, being strict in disciplinary inspection, rigorously carrying out the accountability system, strengthening its business capabilities and cleaning up the undesirable work styles, whereby successfully completing its tasks. The meeting pointed out that the speech by Xi Jinping, General Secretary of the CPC, at the fifth plenary session of the 18th CPC CCDI provided guidance and an ideological tool for CPC members to fully understand the tough situation in the fight against corruption and to press ahead with rectifying undesirable work styles, upholding integrity and combating corruption. Taking implementation of the gist of Xi's speech and of the requirements of governing the CPC in a strict way as a key political task, the CPC organizations of the SAFE at all levels should convey the pressure level by level and perform the "two responsibilities" to fully implement the decisions and plans of the CPC Central Committee and the CPC CCDI, based on the foreign exchange administration practice and the actual building of CPC members and officials team. The meeting studied the general ideas and work priorities in the SAFE's efforts to rectify undesirable work styles, uphold integrity and combat corruption in 2015. It was decided at the meeting that a work conference on rectifying undesirable work styles and upholding integrity would be convened soon to implement the gist of the fifth plenary session of the 18th CPC CCDI and make plans for the work in 2015. 2015-04-02/en/2015/0402/1153.html
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To further advance administration streamlining and power delegation, and improve foreign exchange administration for the insurance business, the State Administration of Foreign Exchange (SAFE) recently released a Circular on Printing and Issuing Guidelines for Foreign Exchange Administration for Insurance Business (Huifa No. 6 [2015], hereinafter referred to as the “Circular”). The Circular is highlighted as follows: First, streamlining administration and delegating power. The power to examine and approve the entry/exit of an insurance institution into/from foreign exchange insurance market as well as the conversion between domestic currency and foreign currency should be delegated. The ex-ante approval of entry/exit of insurance institutions at the provincial level and lower levels into/from foreign exchange insurance market should be cancelled. The requirement that the qualification of an insurance institution that provides insurance services in foreign exchange shall be reviewed every three years should be cancelled. Second, standardizing management. The business rules for activities including cross-border insurance, utilization and entrusted management of foreign exchange funds should be defined to standardize the use of foreign exchange accounts of an insurance institution. Third, integrating legislations. Eight regulations on foreign exchange administration related to insurance business should be abolished to facilitate the market players in understanding and implementation. Fourth, simplifying procedures. A processing financial institution may, based on the principles of “know your customer”, “understand your business” and “due diligence”, simplify the review documents for insurance business in foreign exchange. The centralized receipt and payment of foreign exchange under insurance business is allowed within the same insurance institution as a legal person. Fifth, improving supervision. Requirements for data submission should be made clear, and ex post monitoring and verification of foreign exchange under insurance business and related foreign exchange receipts and payments. The Circular shall come into force on March 1, 2015. 2015-04-02/en/2015/0402/1154.html
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To actively support the development of cross-border e-commerce, and guard against the risks arising from online foreign exchange payments, the State Administration of Foreign Exchange (SAFE) has since 2013 implemented the pilot program of foreign exchange payment business forcross-border e-commerce through payment institutions in Shanghai, Beijing, Chongqing, Zhejiang and Shenzhen, and the outcome of the pilot program has been satisfactory. On this basis, the SAFE recently issued the Circular on the Implementation of the Pilot Program of Cross-border Foreign Exchange Payment Business through Payment Institutions (Huifa No.7 [2015], the "Circular"), to pilot cross-border foreign exchange payment business through some payment institutions across the country, allowing the payment institutions to provide the parties of cross-border e-commerce transactions with foreign exchange receipts, payments, settlement and sales services. The major contents of the Circular include: first, raising the limit on a single transaction. The limit on a single transaction in online shopping is raised from the equivalent of USD10,000 to the equivalent of USD50,000, and the restriction on the number of foreign exchange reserve accounts opened by a payment institution is relaxed. Second, regulating the processes of the pilot program. Any payment institution shall register with the foreign exchange authority at the place of its incorporation on the List of Enterprises Making Foreign Exchange Receipts and Payments under Trade to be qualified for the pilot program. Third, implement strict risk management. Any payment institution is required to strictly perform the responsibility of verifying the authenticity of transactions, retain relevant information for 5 years for future reference, and promptly and accurately submit relevant business data and information. The foreign exchange authorities will carry out offsite and onsite verifications on the pilot business for prudential regulation. The Circular shall come into effect as of the date of issuance. 2015-03-16/en/2015/0316/1150.html
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To further deepen the reform of foreign exchange administration for direct investment, and boost and facilitate the operations of cross-border investment funds by enterprises, the SAFE has recently issued the Circular on Further Simplifying and Improving Policies for Foreign Exchange Administration for Direct Investment (Hui Fa No. 13 [2015], hereinafter referred to as the “Circular”). The Circular is highlighted as follows: 1. Canceling registration and verification of foreign exchange under direct investment. Domestic and overseas investment entities can go directly to banks for registration for foreign exchange under domestic or overseas direct investment. 2. Simplifying registration management for confirmation of capital contribution by a foreign investor under domestic direct investment. The registration for confirmation of non-monetary capital contribution by a foreign investor under domestic direct investment and registration for confirmation of capital contribution by a foreign investor for acquisition of a Chinese shareholder's equity are cancelled. The registration for confirmation of monetary contribution by a foreign investor is replaced with registration for accounting entry of monetary contribution for domestic direct investment. 3. Canceling filing of foreign exchange for overseas reinvestment. Foreign exchange filing will no longer be required for overseas reinvestment for establishment of or control over another overseas enterprise by an overseas enterprise established or controlled by a domestic investment entity. 4. Canceling annual check of foreign exchange for direct investment and replacing it with registration for accumulated equity in domestic and overseas direct investment. The period for registration will be extended to allow enterprises to report relevant data via multiple channels. 5. Enhancing ongoing and ex post regulation. The foreign exchange authorities increase training and instructions to banks, strengthen ex post verification and inspection, require banks to raise their awareness of compliance, and specify punitive measures on violating banks. The Circular shall come into force on June 1, 2015. 2015-04-29/en/2015/0429/1155.html
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In order to maintain market order, safeguard the interests of the general public, and promote the normal operation of domestic and foreign currency exchange franchise business for individuals and foreign currency exchange business, the Circular of the General Affairs Department of the State Administration of Foreign Exchange on Relevant Issues Concerning Standardizing Domestic and Foreign Currency Exchange Franchise Business for Individuals and Foreign Currency Exchange Business (Huizongfa No. 38 [2015], “the Circular”) was issued by the State Administration of Foreign Exchange (SAFE) recently. The Circular further standardizes and refines administration of domestic and foreign currency exchange franchise business for individuals and foreign currency exchange business, clarifies regulatory contents for market access, daily monitoring and ex-post disposal, and restates the regulatory requirements of forbidding illegal online foreign exchange speculation activities in the name of domestic and foreign currency exchange franchise business for individuals or foreign currency exchange business. The Circular shall take effect as of the date of promulgation. 2015-06-05/en/2015/0605/1158.html
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To further increase the transparency of the balance of payments data and make better use of the social benefits of statistics, the State Administration of Foreign Exchange (SAFE) will release the data under the two subitems of foreign-related receipts and payments by banks on behalf of customers, namely trade in goods (by the Customs statistical standard) and other investments, monthly data on trade in goods under China's balance of payments, and monthly data on the overview of transactions in the Chinese foreign exchange market, based on the standards and types of data released every month, and stop releasing the quarterly data on non-residents' RMB deposits starting from 2015. To facilitate the use of the time series data, the SAFE will update the historical data on foreign-related receipts and payments by banks on behalf of customers since 2010. 2015-03-31/en/2015/0331/1152.html
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The year 2015 marks the first year to promote rule of law in China in an all-round way.The SAFE has abolished and nullified more than 700 documents on foreign exchange administration since 2009, and recently released the Circular of the State Administration of Foreign Exchange on Abolishing and Nullifying 50 Regulatory Documents on Foreign Exchange Administration (Huifa No. 17 [2015]) to step up efforts to streamline laws and regulations. To be specific, 27 documents are to be abolished and 23, nullified. These 50 documents chiefly include: first, those that are not in conformity with the foreign exchange administration philosophies and to be streamlined or changed to show the fruits of the reforms in key areas of foreign exchange administration such as capital account. In recent years, the SAFE has streamlined administration and delegated power to lower-level authorities by vigorously promoting the foreign exchange administration reform in direct investment, external debts, external guarantee, capital market and sales and settlement of foreign exchange by banks, to release the dividends of the reform and serve the development of the real economy.Of the 50 documents to be abolished and nullified this time, 50% are those to be abolished or declared invalid after the foreign exchange administration reform for capital account or financial institutions.Second, those that are not inconformity with the new requirements for acquiring foreign exchange administration statistical data and to be streamlined to show the continued improvement of statistical monitoring of cross-border capital flows.In recent years, the SAFE has built unified data acquisition regulations by building or improving the statistical monitoring of cross-border capital flows and accelerating the integration and upgrading of the IT system for foreign exchange administration, to enhance the efficiency and offer more convenience. Of the 50 documents to be abolished and nullified this time, 50% are those to be abolished or declared invalid after the reconstruction of the IT system and adjustment of data acquisition rules. Next, the SAFE will continue with the law-based administration, enhance the top-down design of the laws and regulations on foreign exchange administration, and implement the long-term mechanism for streamlining the laws and regulations to facilitate understanding and application by banks, companies, and individuals of the laws and regulations on foreign exchange administration, and to promote trade and investment facilitation. 2015-05-18/en/2015/0518/1157.html
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To make the release of foreign exchange administration data more transparent and facilitate the general public to obtain and use the balance of payments data and related data, the Timetable for the Release of Major Statistical Data 2015 is hereby published (see the appendix for details). FILE: Timetable of the SAFE for the Release of Major Statistical Data, 2015 2015-03-31/en/2015/0331/1151.html
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The State Administration of Foreign Exchange (SAFE) has recently issued the Circular of the State Administration of Foreign Exchange on Further Advancing Foreign Exchange Administration Reform to Enhance Authenticity and Compliance Reviews (Huifa No. 3 [2017]) (hereinafter referred to as Circular). The official of the SAFE has answered press questions on relevant issues. I. What are the background and logic behind introducing the Circular? A: For a long time, the SAFE has closely followed the work plans of the CPC Central Committee and the State Council, with a focus on accelerating administration streamlining and power delegation, transforming government functions, breaking new grounds in the reform, reducing institutional transaction costs and promoting trade and investment facilitation. Meanwhile, it has been committed to monitoring and early warning of cross-border capital flows, imposing stringent requirements on authenticity and compliance reviews, maintaining a tough stance on foreign exchange irregularities, and safeguarding the healthy and orderly foreign exchange markets to serve the development of the real economy. The Circular will continue with this logic: first, efforts will be made to systematically advance the reform in key areas, especially the liberalization of the domestic foreign exchange markets, in a bid to promote trade and investment facilitation; second, the capital flow management system will be built and refined under the macro-prudential management framework. Banks and enterprises will be required to observe the existing provisions on foreign exchange administration and make sure transactions are authentic and comply with relevant regulations. The bottom line against risks must be adhered to under the overall principle of reform and opening up to safeguard the order of the foreign exchange markets and guard against cross-border capital flow risks. The cross-border receipts, payments and exchanges that have authentic backgrounds and comply with relevant regulations will not be affected. II. How will the market benefit from foreign exchange settlements for domestic foreign exchange loans for exports under trade in goods? What attention should be paid? A: Allowing foreign exchange settlements for domestic foreign exchange loans for exports under trade in goods on the premise of controllable risks will be favorable for addressing difficult and costly financing facing some small and medium-sized importers and exporters and for the development of the real economy. Foreign exchange funds that could be settled include outward documentary bills and export bill discounts under L/C and collection, export commercial invoice discounts, export factoring, forfeiting, order financing, agreed financing, overseas agency payments for exports, packing loans and other domestic foreign exchange loans for exports under trade in goods. To avoid currency mismatches between enterprises and banks, and reduce the impact on the monetary policy from foreign exchange settlements of domestic foreign exchange loans, domestic institutions will be required to use foreign exchange proceeds from exports of goods to repay the domestic foreign exchange loans under which foreign exchange has been settled into RMB. In principle, they are not allowed to make payments through buying foreign exchange, in order to maintain an equilibrium between aggregate supply and demand in the foreign exchange markets. III. What are the major considerations for allowing funds for overseas loans under domestic guarantees to be transferred back for domestic use? A: Since the macro-prudential management policy for full-scale cross-border financing was implemented in 2016, Chinese enterprises have been allowed to borrow external debt in proportion to their net assets. Allowing funds for overseas loans under domestic guarantees to be transferred back as external debt for domestic use under the macro-prudential management framework will be favorable for facilitating cross-border investment and financing by enterprises and enable them to ease the difficulties to raise funds, reduce the heavy cost of financing and serve the real economy by using the resources of both domestic and foreign markets. In practice, the enterprises should simply handle the external debt registration in accordance with the existing regulations on external debt management. Moreover, funds for overseas loans under domestic guarantees could also be transferred back for domestic use through equity participation according to relevant regulations. IV. What new progress has been achieved in supporting centralized operation and management of foreign exchange of multinationals? A: According to the Regulations on the Centralized Operation and Management of the Foreign Exchange Funds of MNCs (Huifa No. 36 [2015]) issued in 2015, "the deposits attracted by domestic banks through the international foreign exchange master account can be used in China within 50% of the balance of the daily average deposits for the previous six months; over 50% of the deposits attracted through the international foreign exchange master account can be used domestically provided that the quota for outstanding short-term external debt have been used." In practice, the models and paths of domestic use of deposits are based on banks' own operations. The adjustment of the proportion of 50% into 100% this time and the provision that funds for domestic use are not included in the quota for outstanding short-term external debt of banks are for the purposes of motivating banks' initiatives to optimize the functions of the international foreign exchange master account and diversify the channels to use funds. V. What are the major considerations for allowing overseas institutions in pilot free trade zones to go through the procedures of foreign exchange settlements through the non-resident account? A: Building pilot free trade zones is a significant move adopted by the CPC Central Committee and the State Council to deepen reform and opening up under new circumstances. The SAFE has been active in supporting and implementing the measure. According to the Circular of the State Administration of Foreign Exchange on Management of Non-resident Accounts of Overseas Institutions (Huifa No. 29 [2009]), without approval from the SAFE branch and foreign exchange administration department in places of registration, overseas institutions are forbidden from going through foreign exchange settlements of funds in their non-resident accounts directly or in disguise. To seek the experience in monitoring offshore accounts and make further use of the pilot free trade zones in deepening reform and opening up, the Circular allows settlements of foreign exchange funds in the non-resident account (NRA) opened with the banks in the pilot free trade zones. Where the funds are remitted for domestic use after the foreign exchange settlement, the valid commercial documents and vouchers of domestic institutions and individuals concerned will first be reviewed in accordance with the regulations with regard to cross-border transactions and the balance of payments declaration will be made as required. Moreover, the SAFE made clear in 2015 that overseas institutions could engage in spot foreign exchange settlement and sales in accordance with relevant regulations, and the banks registered in the pilot free trade zones could handle RMB and foreign exchange derivatives transactions for them, while allowing foreign exchange settlements in the non-resident account of an overseas institution in the free trade zones could boost the above innovative measures to play their roles. VI. Why does the Circular stress again that "enterprises shall go through the procedures of foreign exchange receipts and payments under trade in the principle that 'whoever exports shall receive foreign exchange, and whoever imports shall make payments", and are required to undergo the procedures for foreign exchange receipts in time? A: In accordance with Article 14 of the Guidance on Foreign Exchange Administration under Trade in Goods and Article 2 of the Detailed Rules on the Implementation of the Guidance on Foreign Exchange Administration under Trade in Goods, enterprises shall go through the procedures of foreign exchange receipts and payments under trade in the principle that 'whoever exports shall receive foreign exchange, and whoever imports shall make payments", and collect payments on time and in full as agreed upon in the contracts in export business. In the case of foreign trade agency, the agent shall be responsible for foreign exchange receipts and payments. Where the entity that handles foreign exchange receipts and payments in line with regulations is inconsistent with the importer/exporter, the subject alteration procedures shall be gone through with the local foreign exchange authority. Recently, the SAFE has found from its monitoring and verification that a few enterprises do not collect foreign exchange or collect less foreign exchange than they should, and the foreign trade declarer is inconsistent with the subject engaged in foreign exchange receipts and payments, which have interrupted the order of foreign exchange receipts and payments. Given this, the Circular reiterates the above requirements, warns risks and stresses foreign exchange business should be authentic and comply with regulations, in a bid to further regulate the order in the foreign exchange markets and serve the sustained and healthy economic development. VII. Why are domestic institutions required to report information on the overseas deposits of the foreign exchange receipts under the current account? A: According to the Circular of the SAFE on Printing and Distributing the Regulations on Foreign Exchange Administration for Trade in Goods (Huifa No. 38 [2012]), and the Circular of the SAFE on Printing and Distributing the Regulations on Foreign Exchange Administration for Trade in Services (Huifa No. 30 [2013]), domestic institutions are required to go through the opening registration or verification procedures for the overseas foreign exchange account with the foreign exchange authority in advance if they want to deposit overseas the foreign exchange receipts generated by trade in goods and trade in services, and timely report the information on the receipts and payments in the overseas foreign exchange account for the foreign exchange authority to conduct off-site monitoring. But the monitoring and verification revealed that individual institutions have failed to go through relevant registration and filing procedures or report information as required for various reasons. To understand and obtain the information on foreign exchange receipts under the current account, collect the data on foreign exchange receipts deposited overseas, standardize data reporting, and refine the management of foreign exchange receipts deposited overseas, the Circular requires that any domestic institution who fails to timely report their overseas accounts and the receipts and payments in the account should actively report the accurate and complete information to the local foreign exchange authority, or have them recorded into the system within one month after the Circular is released, so that relevant information could be obtained in an all-round way. Any domestic institution who fails to go through registration procedures or report information will be punished by the foreign exchange authority in accordance with the Regulations of the People's Republic of China on Foreign Exchange Administration. VIII. What refinements have been made in the Circular to the management of outward remittances of the profits of domestic institutions? A: Outward remittances of the profits from direct investments should be recorded under the current account. Since the current account is convertible in China, a domestic institution only needs to follow procedures to present evidencing materials and can complete the procedures of outward remittances directly with the bank without any constraints, provided that the profits are authentic and in compliance with regulations. Pursuant to the Company Law, the Circular further clarifies that domestic institutions should make up for the losses incurred in previous years before remitting the profits overseas, and reiterates the requirement on document reviews for remitting outward the profits in the amount above the equivalent of USD 50,000 (exclusive), and does not require additional new review materials to be submitted. For the outward remittances of the profits in the amount below the equivalent of USD 50,000 (inclusive), the Circular of the SAFE on Printing and Distributing the Regulations on Foreign Exchange Administration for Trade in Services (Huifa No. 30 [2013]) shall continue to be followed, and banks may skip reviewing transaction documents in principle, but shall require domestic institutions and individuals to present transaction documents for reviews in case that the nature of funds is uncertain. Banks shall continue to refine the authenticity and compliance reviews with regard to the outward remittances of the profits of domestic institutions in accordance with the three business operation principles, which is in line with international practices. IX. What policy adjustments have been made with regard to ODI management? A: The SAFE has always been supportive to ODI that is authentic and rational. It has been committed to administration streamlining and power delegation with regard to ODI policies in recent years, shifting frequent reviews and verification to registration and filing, and adopted consistent and stable foreign exchange administration policies for ODI. Without changing the regulatory orientation for ODI, the Circular requires domestic institutions to explain to banks the sources and purposes (use plan) of the investment funds, and present to banks the resolutions of the board of directors (or of the partners), contracts and other authenticity evidencing materials, for the purposes of promoting sustained and healthy development of China's ODI to seek mutual benefits and common development through enhancing authenticity and compliance reviews. The authenticity materials could be the resolutions of the board of directors (or of the partners), contracts, or financial statements (with the sources of funds explained), and the fund use plan (with the purposes of funds described). X. What are the major considerations for managing full-scale overseas loans in domestic and foreign currencies? A: As the impact of the cross-border flows of RMB and foreign currencies on the balance of payments are the same in nature, the People's Bank of China (PBC) and the SAFE have long been committed to refining the integrated management of cross-border capital in domestic and foreign currencies. In April 2016, the PBC issued the Circular on Implementing Nationwide the Macro-prudential Management of Full-scale Cross-border Financing (Yinfa No. 132 [2016]) to roll out the pilot program of integrated management of full-scale cross-border financing in domestic and foreign currencies to financial institutions and enterprises across the country, in a bid to diversify the financing channels of domestic market players, help reduce financing cost and serve and support the development of the real economy. According to the Circular, the integrated macro-prudential management will be adopted for overseas loans in domestic and foreign currencies of domestic enterprises, which is for the purposes of building and refining the capital flow management system under the macro-prudential management framework, promoting the two-way balance of cross-border capital flows in domestic and foreign currencies, and strengthening and intensifying macro control. This Circular shall prevail in case of inconsistency between other existing provisions on foreign exchange administration and this Circular in the proportion of the owner's equity. 2017-01-26/en/2017/0126/1248.html
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The State Administration of Foreign Exchange (SAFE) has recently released the Circular of the State Administration of Foreign Exchange on Foreign Exchange Risk Management for Foreign Institutional Investors in the Interbank Bond Market (Huifa No. 5 [2017], "Circular"). An official from the SAFE answered media questions on relevant issues. 1. What is the main background of promulgation of the Circular? A: As the domestic bond market is liberalized, foreign institutions' participation in the domestic bond market is rising. As at the end of 2016, the foreign investors in the interbank bond market held bonds worth RMB 870 billion in total, up by RMB 83.4 billion year on year. As the two-way floating elasticity of RMB exchange rate is being strengthened, foreign investors holding RMB bonds will have the requirements for foreign exchange risk management. The foreign investors surely could manage foreign exchange risks in offshore RMB markets, but as China's foreign exchange market goes deeper, the condition will be ripe to support foreign investors to participate in China's foreign exchange market and to manage them in the bond and foreign exchange market. This Circular is released to help foreign institutional investors manage foreign exchange risks in the interbank bond market, and to boost the opening up of the bond and foreign exchange market. 2. Could you tell us what foreign institutional investors in the domestic foreign exchange market mean? Are foreign central banks and similar institutions the foreign institutional investors? A: By definition by this Circular, foreign institutional investors in the domestic foreign exchange market are the foreign investors that meet the provisions under the Announcement No. 3 of the People's Bank of China [2016], which is consistent with the scope of opening up of the interbank bond market. But foreign central banks and similar institutions are not foreign institutional investors, because they can participate in China's foreign exchange market through various channels and conveniently manage the foreign exchange risk exposure arising from the investments in interbank bond market, according to the Announcement No. 31 of the People's Bank of China [2015]. 3. What kind of foreign exchange derivatives business are foreign institutional investors allowed to engage in? A: To hedge against the foreign exchange risk exposure in the interbank bond market, foreign institutional investors could choose the RMB-foreign exchange derivatives laid out in the Detailed Rules for the Implementation of the Administration Measures for Foreign Exchange Settlement and Sales by Banks (Huifa No. 53 [2014]), including forward derivatives, foreign exchange swaps, currency swaps and options, and are subject to no restrictions on the trading categories within the existing types of derivatives in China's foreign exchange market. 4. How to understand the principle of transaction for actual requirements on foreign institutional investors in trading foreign exchange derivatives? A: This principle means that foreign institutional investors trade foreign exchange derivatives to hedge against the foreign exchange risk exposure arising from the investment in the interbank bond market with remittances from abroad. In other words, the foreign exchange risk exposure under bond investment is the basis for trading foreign exchange derivatives. Under this principle, foreign institutional investors may flexibly choose foreign exchange derivative tools and use transaction mechanisms including reverse position closing, balance settlement or gross settlement, based on the foreign exchange risk exposure of a single bond or a bond portfolio that they face. This principle is a basic requirement in the domestic foreign exchange derivatives market, inherently aligned with the prudential trading principle of the market participants. This helps maintain the order of the foreign exchange market and provides guarantees for the trading flexibility of market participants. 5. What are the policy considerations of requiring settlement agents to provide foreign exchange risk management services to foreign institutional investors? A: Settlement agents are required to provide bond investment-related services such as trading and settlement to foreign institutional investors, in accordance with the existing policy arrangements for the interbank bond market. As a result, settlement agents could provide one-stop services covering bond investment and foreign exchange trading to foreign institutional investors in handling foreign exchange derivatives business, so as to better satisfy the investment demand of foreign institutional investors. Going forward, the SAFE will diversify the trading models for foreign institutional investors to participate in China's foreign exchange market, based on the policy arrangements for the interbank bond market. 6. Could foreign institutional investors participate in China's interbank foreign exchange market? A: China's foreign change markets include the interbank market or wholesaling market, and the over-the-counter market, or retailing market or banking foreign exchange sales and settlement market. In the former market, financial institutions are responsible for providing market liquidity. Given that foreign institutional investors participate in China's foreign exchange market for the purpose of hedging against the foreign exchange risk exposure arising from investment in the interbank bond market, and are not the major providers of market liquidity at present, participating in the over-the-counter market as a client could fully satisfy their demand. Foreign institutions participating in the interbank foreign exchange market shall still follow the Announcement No. 40 of the People's Bank of China and the State Administration of Foreign Exchange [2015]. 7. What are the provisions on foreign exchange receipts and payments involved in the foreign exchange derivatives business handled by foreign institutional investors? A: Where a foreign institutional investor, when handling the foreign exchange receipts and payments involved in the derivatives business under the interbank bond market investment in accordance with the Circular of the State Administration of Foreign Exchange on Foreign Exchange Administration for the Investments of Foreign Institutional Investors in the Interbank Bond Market (Huifa No. 12 [2016]), goes through the procedures for outward/inward fund remittances or foreign exchange settlement or purchases through the special account for domestic and foreign currencies directly with a settlement agent, and the currencies for inward and outward remittances are the same, the SAFE will not conduct ex-ante verification or approval. 8. Is it necessary for a foreign institutional investor to sign a master agreement with the counterparty in foreign exchange derivatives trading? A: It is a universal practice in both domestic and foreign financial markets to sign a master agreement. The foreign institutional investor shall handle foreign exchange derivatives business with a settlement agent, and the two parties may select and sign a master agreement through consultation. 9. What are the considerations of the SAFE on the future development of China's foreign exchange market? A: Looking ahead, the SAFE will continue to deepen the foreign exchange market, diversify trading instruments, increase the number of participants, expand opening up and refine infrastructure to better satisfy the demands for foreign exchange risk management from market participants, domestic or overseas, including the foreign institutional investors in the interbank bond market, serve the development of the real economy and support the liberalization of the financial market. 2017-02-27/en/2017/0227/1252.html