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On the morning of August 30, 2016, Pan Gongsheng, Administrator of the State Administration of Foreign Exchange (SAFE), met with a delegation led by Leo Melamed, Chairman Emeritus at the Chicago Mercantile Exchange (CME Group). The two sides exchanged ideas on topics of interest such as enhancing financial infrastructure construction and deepening cooperation. 2016-11-08/en/2016/1108/1215.html
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The national foreign exchange administration work conference was held in Beijing recently. Following the gist of the 18th CPC National Congress, the third, fourth and fifth plenums of the 18th CPC Central Committee and the Central Economic Work Conference, the meeting reviewed foreign exchange administration in 2015, analyzed the current economic, financial and BOP situations and made plans for foreign exchange administration for 2016. Pan Gongsheng, Deputy Governor the People's Bank of China and Secretary of the CPC Leading Group of the State Administration of Foreign Exchange (SAFE), delivered a work report, and deputy administrators, chief accountants, heads of the SAFE branches (foreign exchange administration departments) and departments of the SAFE attended the meeting. The meeting pointed out that, under the leadership of the CPC Central Committee and the State Council and the guidance of the CPC Committee of the People's Bank of China, foreign exchange authorities, following the principle of seeking progress while maintaining stability, focused on making breakthroughs in the reform, accelerating administration streamlining and power delegation and the "five shifts" in foreign exchange administration, and stressing risk prevention and control in 2015, thereby successfully completing the tasks of the year. The upgraded version of the reform of centralized operation and management of foreign exchange funds of MNCs has achieved initial success, the pilot program of the cross-border foreign exchange payment business of payment institutions has been rolled out nationwide, the facilitation of direct investment convertibility has been enhanced, the pilot program of the macro-prudential management of external debt has been carried out steadily, the ongoing and ex-post monitoring management has been improved, the crackdown on foreign exchange irregularities has strong deterring effect, the foreign exchange reserves operation and management system and mechanism have been improved, and therefore, foreign exchange authorities' capabilities to support economic restructuring, transformation and upgrading have been further strengthened. The year 2016 is the first year of the 13th Five-Year Plan period, the meeting stressed. Currently, China's economy and finance run stably, the economic development fundamentals remain optimistic, featuring strong potential and high resilience, the balance of payments is in equilibrium, and foreign exchange reserves are abundant, suggesting China's financial system is robust. In the year, foreign exchange authorities should follow the spirit of the 18th CPC National Congress, and the Third, Fourth and Fifth Plenums of the 18th CPC Central Committee, as well as the plans of the Central Economic Work Conference to serve the new normal of economic development. Following the guidance of the "five shifts" in foreign exchange administration under the principles of seeking progress while maintaining stability and breaking new grounds, foreign exchange authorities should continue to boost administration streamlining and power delegation and law-based administration, promote trade and investment facilitation, push forward the capital account convertibility in an orderly manner, intensify monitoring of the balance of payments, and refine the external debt and capital flows management system under the framework of macro-prudential management to enhance the level of operation and management of foreign exchange reserves and ensure a good start of the 13th Five-Year Plan period. Priorities of foreign exchange administration for 2016 were set at the meeting. First, the reform of the way of foreign exchange monitoring will be pressed ahead with, with ex-ante approval made light of, ongoing and ex-post management improved, and the accuracy and foresight of the monitoring analysis of the balance of payments enhanced to improve the monitoring efficiency. Second, the foreign exchange administration services will be further optimized, with the current account facilitation reform deepened, and foreign exchange administration for cross-border investment and financing enhanced to accelerate the development of the foreign exchange markets. Third, risk prevention and control will be intensified. Foreign exchange authorities are required to guide banks to handle foreign exchange business in line with the three business principles and to strictly perform their responsibilities for authenticity and legitimacy review, crack down on foreign exchange irregularities and maintain the normal order of the foreign exchange markets. Fourth, efforts will be made to ensure sound operation and management of China's foreign exchange reserves, with a focus on coordinating the goals of security, flows and value preservation and growth and further diversifying the use of foreign exchange reserves. Fifth, strict Party conduct will be fully enforced, with the "two responsibilities" performed, and Party building further intensified, with a focus on cleaning up undesirable work styles, upholding integrity, teambuilding and internal management. 2016-03-16/en/2016/0316/1195.html
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On December 31, 2015, governor of the People's Bank of China (PBC), Zhou Xiaochuan, accompanied by Yi Gang and Pan Gongsheng, deputy governors of the PBC, and Yin Yong, assistant governor of the PBC, paid a visit to the SAFE Investment Center to call on officials devoted to administering foreign exchange reserves. On behalf of the PBC's CPC Committee, Zhou Xiaochuan showed his concerns and care for all the officials devoted to administering foreign exchange reserves and confirmed the achievements they made. The year 2015 was the closing year of the 12th Five-Year Plan period, said Zhou Xiaochuan. A review of the past five years shows that profound changes have taken place in China's foreign exchange situation. In face of complex economic and financial environments both at home and abroad, the SAFE Investment Center followed the leadership of the CPC Central Committee and the State Council, and conducted the Mass Line campaign and the special educational campaign of "Three Stricts and Three Earnests", adapted to the new normal, and pushed forward the operational and management work, thus ensuring the security, flows, and value maintenance and increase of foreign exchange reserve assets and making significant contributions to the deepening of the national reforms and the achieving of the development goals. Zhou also pointed out that the SAFE Investment Center made risk prevention its top priority in respect of foreign exchange reserves in 2015. To serve the national development strategy, the SAFE Investment Center overcame the challenge of drastic fluctuations in international financial markets and successfully completed its operational and management tasks, taking a new step toward building a world-class asset management institution and playing active roles in supporting the development of the real economy and the national key strategies. Zhou stressed that the year 2016 is the first year when China enters the crucial period to build a moderately well-off society in an all-round way. While implementing the spirit of the 18th CPC National Congress, the Third, Fourth and Fifth Plenary Sessions of the 18th CPC Central Committee and the Central Economic Work Conference, people engaging in the operation and management of foreign exchange reserves are required to seek progress while maintaining stability, make innovations, improve the bottom line thinking, and deliver a good performance in the operation and management of foreign exchange reserves in a strict and down-to-earth manner, so as to better serve the national development and ensure a good start of the 13th Five-Year Plan period. 2016-01-13/en/2016/0113/1183.html
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The State Administration of Foreign Exchange (SAFE) received and processed 48 NPC motions and CPPCC proposals in 2015, which involved operation and management of foreign exchange reserves, supporting Chinese enterprises to go global, providing financial support for the Belt and Road Initiative and boosting the development of cross-border e-commerce. The SAFE attached great importance to the processing efforts, arranged relevant work, and made great efforts to carry out the related tasks. As a result, the processing of the relevant proposals and motions for 2015 was completed successfully, which can be attributable to the following aspects: first, close attention from the leadership and thoughtful arrangements. With the significance of the proposals and motions processing stressed by the SAFE's Party Leadership Group, the leaders in charge of this processing effort convened a special meeting to make arrangements and raise requirements for the processing. Second, improved systems and standardized processing. A special measure has been developed to make sure the processing is institutionalized and standardized. Third, good coordination and communication to enhance the processing level. The SAFE took various measures to communicate with the delegates and further listened to their opinions and suggestions to ensure the quality of the processing. Fourth, strengthened training and rigorous overseeing. Training was provided for the persons processing the proposals and motions and supervision was improved to make sure every proposal and motion was replied. After the completion of the processing, a wrap-up meeting was held to identify and summarize the experience gained and good practices in this processing effort. The year 2016 was the first year of the Thirteenth Five-year Plan. The SAFE should take the processing effort of 2016 as a touchstone for the implementation of the gist of the 18th CPC National Congress, the Third, Fourth and Fifth Plenums of the 18th CPC Central Committee and the Central Economic Work Conference and continue to improve its work styles, so as to do well in the processing of the proposals and motions from the NPC and CPPCC in 2016. 2016-03-11/en/2016/0311/1189.html
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On February 3, 2016, Pan Gongsheng, deputy governor of the People's Bank of China and administrator of the State Administration of Foreign Exchange (SAFE), met with Andrew Rashbass, chief executive of Euromoney Institutional Investor, and Tony James, president of Blackstone, in Beijing. The current economic conditions in China should be viewed in an all-round and objective way, said Pan Gongsheng. Overall, China's economy is running in a reasonable range. Against the backdrop of the slowing world economy and global trade, and heightened fluctuations in the international financial markets, China maintained a mid-to-high growth rate of 6.9 percent in 2015, which was no easy job as China's economic aggregate had exceeded the basis point of USD 10 trillion and was relatively high compared with other countries. Pan stressed that China's slowing economic growth is attributed to the sluggish global economic growth as well as the Chinese government's active policy adjustment, and will be conducive to China's achievement of more sustainable and higher quality growth and to global economic rebalance. Going forward, China will focus on advancing the structural reform, especially the supply-side structural reform, to better balance economic growth, structural adjustment and risk prevention to achieve sustainable and stable economic development and make great contributions to global economic growth and rebalance. According to Pan, China's balance of payments stays stable, the cross-border capital flow risk is within control, and the RMB exchange rate remains stable against a basket of currencies, indicating there is no ground for sustainable depreciation of the RMB. While vigorously promoting trade and investment facilitation, China focuses on risk prevention, stressing the requirement of reviewing the authenticity and the level of compliance and cracking down on foreign exchange violations, and will not resort to capital controls as it did before. They also exchanged ideas on the current global economic and financial conditions. 2016-03-14/en/2016/0314/1190.html
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To support the implementation of the Measures for the Declaration of Balance of Payments Statistics, and further improve the data quality and efficiency of trade credit survey, the SAFE has recently released the Circular on the Issuance of the Trade Credit Survey System (Huifa No.1 [2016], the “Circular”) to amend the trade credit survey system. The Circular strikes a balance between improvement of statistical data quality and reduction of reporting burden, with the amendment as follows: 1. Simplifying survey indicators. Corporate credit and bank credit, and short and long terms will no longer be differentiated. The statistical and reporting methods and dimensions will be basically consistent with the Accounting System for Business Enterprises (ASBE). 2. Improving the timeliness of surveys. Surveys will be conducted on a monthly rather than quarterly basis, and both monthly and annual surveys will be conducted, but on different companies. Data will be reported on a monthly and annual basis respectively. 3. Focusing on key enterprises. Enterprises above designated size will be the targets of surveys. The total number of companies to be surveyed will be consistent with the number in the past surveys, but most enterprises will participate in the annual survey and limited ones in monthly surveys. The Circular will come into force on August 1, 2016. 2016-02-14/en/2016/0214/1188.html
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On March 22, 2016, Pan Gongsheng, deputy governor of the People's Bank of China and administrator of the State Administration of Foreign Exchange (SAFE), met with Leo Melamed, lifelong chairman emeritus of CME Group in Beijing. Yang Guozhong, deputy administrator of the SAFE, was present at the meeting. Both sides exchanged ideas on issues such as macroeconomic conditions in the US and China, China's balance of payments and the prospects for cooperation between the US and China in foreign exchange markets. 2016-08-30/en/2016/0830/1203.html
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On February 18, 2016, Pan Gongsheng, Deputy Governor of the People's Bank of China and Administrator of the State Administration of Foreign Exchange (SAFE), met with Colm Kelleher, President at Morgan Stanley, in Beijing. The two sides exchanged ideas on various issues, such as the world economy, China's economy, recent fluctuations in the global financial markets and monetary policies of major economies. 2016-03-16/en/2016/0316/1197.html
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On February 28, 2016, Pan Gongsheng, Deputy Governor of the People's Bank of China and Administrator of the State Administration of Foreign Exchange (SAFE), met with Nathan Sheets, Under Secretary of the US Department of the Treasury, in Beijing. The two sides exchanged ideas on various issues, such as macroeconomic conditions, capital flows, and monetary policies in China and the US. 2016-03-16/en/2016/0316/1196.html
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Historical Transformations in the Foreign Exchange Administration Model Yi Gang, PBC Deputy Governor and SAFE Administrator It was made clear at the 18th CPC National Congress and the Third Plenary Session of the 18th CPC Central Committee that the core issue in the economic institutional reform is to handle well government-market relations by allowing the market to play a decisive role in allocating resources, significantly reducing the direct allocation of resources by the government and focusing on addressing the issues of excessive government intervention and weak regulation. In 2009 the State Administration of Foreign Exchange (SAFE) proposed the "five shifts" in foreign exchange administration, including a shift from approval to monitoring and analysis; a shift from ex-ante oversight to ex-post administration; a shift from behavioral management to management of market players; a shift from a presumption of guilt to a presumption of innocence; and a shift from a "positive list" to a "negative list." Over the past five years, under the guidance of the "five shifts," the SAFE has accumulated experience by prompting reform on all fronts, starting out by streamlining administration and delegating powers to lower levels. Further streamlining administration and delegating powers to lower levels. Streamlining administration and delegating powers to lower levels and combining delegation and regulation are the first steps in the self-targeted revolution in government and macro controls. To facilitate trade and investments, the SAFE in recent years has delved deeper to tap the potential, streamline administration, and delegate powers to lower levels, thus providing more opportunities for starting and expanding businesses, easing burdens on enterprises as they develop, helping to increase employment, and creating a new dynamism for social and economic development, and enabling the market players to share the fruits of the reform. Substantially slashing administrative approval items to improve the efficiency of market players in allocating foreign exchange resources. Since 2009, the SAFE has canceled 27 administrative approval items, noticeably reducing ex-ante oversight. In the foreign exchange administration of trade in goods under management of the current account, aggregate verifications have replaced the previous case-by-case cancellations upon verification of the receipts and payments of the foreign exchange for imports and exports, which have reached an annual average of 45 million transactions. Administrative approval items have been reduced to two major items and four sub-items, which are retained primarily to manage class-B and class-C enterprises. Approvals are no longer needed to manage purchases and payments of foreign exchange under trade in services, which now can be handled directly at financial institutions, and examinations of documents for nearly 15 million receipt and payment transactions of foreign exchange under trade in services, with a value of less than USD 50,000 each, have been removed. Cross-border receipts and payments of foreign exchange under trade in goods and trade in services account for 96 percent of the aggregate receipts and payments under the current account, indicating that the absolute majority of current account transactions have enjoyed the dividends of the reform unleashed by the streamlining of administration and the delegation of powers to lower levels. In terms of capital account management, to accelerate the building of a registration-based management framework, unnecessary administrative approval items under direct investments, external debts, and cross-border guarantees have been removed, saving enterprises from going to the SAFE for administrative approvals on some 50,000 occasions. The number of administrative approval items under the capital account has been reduced by nearly 70 percent, from 59 sub-items in 2009 to 20 sub-items this year. These measures have greatly energized the market and have significantly benefited market players, thus they are a great boost to the growth of the Chinese economy and to an increase in the global competitiveness of Chinese businesses. With the reform of foreign exchange administration for trade in goods, the need for enterprises to go to the SAFE for approvals of purchases and payments of foreign exchange has been reduced by about 5,000 times, the average time for each case of receipts and payments of foreign exchange has been cut by 70 percent and 85 percent respectively, human resource inputs by enterprises have been saved by one-third, and annual transportation and labor costs of enterprises have been reduced by nearly RMB 4.8 billion. With the reform of foreign exchange administration for trade in services, the time enterprises spend on processing such businesses has been reduced from more than 20 minutes to five minutes. The measures to streamline administration and to delegate powers to lower levels with respect to direct investments have helped to reduce the time required for foreign exchange registration of foreign-invested enterprises and for registration of the confirmation of the foreign investors' contributions by 16.7 percent and 66.7 percent respectively. The removal of the approvals with respect to external debts, external guarantees, and sub-loans of external debts has increased the independence of enterprises in terms of cross-border investments and financing and has been favorable for enterprises to rationally utilize both domestic and international markets and resources, and therefore has been conducive to overcoming financing difficulties and to lowering the costs of financing. Streamlining regulatory documents on a broad scale to provide transparent and concise market rules for market players. The tedious and complex regulatory documents confuse market players, making it difficult for them to understand and execute the rules, thus they represent yet another obstacle to the development of market players. Therefore the SAFE has regarded the removal of the administrative approval items and the transformation of the management models as an opportunity and in recent years it has accelerated the streamlining and integration of its management regulations with those of its branches and business lines. For example, it annulled 123 regulatory documents regarding the reform of foreign exchange administration for trade in goods and built a regulatory system for the administration of foreign exchange under trade in goods, which consists of guidelines, rules, and regulations. Another example is the recently released Management Measures for Banks Handling Foreign Exchange Sales and Settlements, which establishes a regulatory system for foreign exchange sales and settlements via banks, consisting of one departmental regulation plus five regulatory documents. The SAFE has annulled and declared invalid more than 700 regulatory documents, accounting for 60 percent of the total, and its branches have annulled or declared invalid more than 20,000 regulatory documents, with only over 180 regulatory documents currently remaining in force. Exploring an innovative functional transformation. Streamlining administration, delegating powers to lower levels, and canceling approvals do not indicate a laissez-faire foreign exchange administration but rather a shift to more flexible and more restrictive ongoing and ex-post oversight. Over the past five years, under the guidance of the "five shifts," the SAFE has carried out audacious explorations and has achieved enormous results from the reforms that have stood the test of time. Stressing monitoring and analysis as a foundation for decision making in ongoing and ex-post oversight Enhancing integration between the business system and data to provide a data foundation for monitoring and analysis. Before 2009, there were 31 business systems for foreign exchange administration, including seven systems for banks and companies respectively, but these systems were not compatible with one another and could not share information, resulting in repeated data acquisition and mixed standards. Through years of hard work, the situation of multiple and scattered business systems for foreign exchange administration has changed. The systems have been integrated into multiple applications on three platforms and the number of systems for banks and companies has been reduced to four and three, respectively. With uniform standards established for data acquisition and BOP data, current account and capital account management can now be realized at one time. The integration of the application portals enables companies and banks to access the same portal and enjoy one-stop services, thus dramatically increasing the level of convenience. During the past year, nearly 40 percent of the declarations for corporate and individual foreign-related income and domestic income were completed online, significantly relaxing the burden on the declarers to go to the banks to make a declaration. Meanwhile, the SAFE can quickly identify abnormal transactions through monitoring and analyzing several hundred thousand foreign-related companies using Big Data and cloud computing technology that provide data and clues for on-site verifications and inspections. Improving monitoring and analysis methods to monitor cross-border capital flows in all respects. The SAFE has introduced new monitoring tools, such as the Sensitive Sample Enterprise Library and the Company Financial Data Analysis Method, for trade in goods and has explored an off-site monitoring management system connecting the macro, meso, and micro levels, in order to achieve the results of judging the situation at a macro level, ensuring the structure at the medium level, and focusing on violations at the micro level. The SAFE also optimized monitoring and analysis of foreign exchange administration for the capital account in three respects, i.e. monitoring real transactions, identifying clues of violations and abnormalities, and laying a solid foundation for subsequent off-site verifications or handovers to the inspection departments. To facilitate foreign exchange inspections, the SAFE has established an off-site indicator system for receipts and payments of foreign exchange for banks and MNCs, enabling the inspection departments to conduct cross-regional, cross-subject, and cross-business monitoring via cross analysis and in-depth data mining, thus increasing the precision of crackdowns. Enriching the monitoring and analysis products to make monitoring and analysis regular tasks. While increasing the authority and relevance of the China BOP Report, since 2010 the SAFE has produced a series of monitoring and analysis products, including the Monitoring Report on Cross-border Capital Flows in China, the Operational Report on Regional Receipts and Payments of Foreign Exchange in China, the Monthly Monitoring and Analysis Report on Cross-border Capital Flows, and the Analysis Report on Foreign Exchange Inspections. These products serve the needs of both situational analysis and of monitoring and thus are key tools for the normalization of monitoring and analysis. Exploring macro-prudential regulatory approaches to foreign exchange administration based on monitoring and analysis. By monitoring and analyzing the reasons for and the channels of significant inflows of foreign exchange funds across the board in May 2013, the SAFE introduced a counter-cyclical response measure focused on managing macro-level issues, such as enhancing management of the overall position of foreign exchange settlement and sales via banks. By aligning the position floor with the loan-to-deposit ratio of foreign exchange in banks to adjust the banks' behavior via economic levers, banks are encouraged to seek a new balance between foreign exchange deposits, foreign exchange loans, and their overall positions for foreign exchange settlement and sales and to gradually adjust their operating models to adapt to the macro controls, thus producing positive results. Innovating ongoing and ex-post administration tools to benefit "law-abiding companies." Introducing a company owner conversation system. As part of the reform of foreign exchange administration for trade in goods, the SAFE has built a company owner conversation system for suspected situations, which is favorable for verifying the situation of the companies that it has been watching. This system plays a guiding role, raising company managers' awareness of running their businesses in compliance with the laws. Issuing risk warning letters. For example, the SAFE issues risk warning letters to import and export companies whose goods flows do not match their cash flows and requests an explanation. If the company does not respond or fails to make a convincing explanation within ten days, the SAFE will rate it as a class-B or class-C company in accordance with the laws. This has enhanced the seriousness of compliance with foreign exchange administration, embodying the characteristics of administration by law. Promoting classified management. Based on monitoring and analysis, the SAFE has dynamically adjusted the classification of companies specializing in trade in goods, fundamentally changing the previous undifferentiated management model and shifting the focus of regulation to class-B and class-C companies, which has effectively helped encourage law-abiding companies, and has constrained suspects and punished violators. After the reform for trade in goods, the SAFE has shifted its focus of regulation from the original 500,000-plus import and export companies to 80,000–90,000 companies, particularly the more than 4,000 class-B and class-C companies, and has written off 3,793 shell corporations. Building a rational management "gate." After the reform of foreign exchange administration for trade in services, the SAFE will no longer examine documents on the receipt and payment of foreign exchange below the equivalent of USD 50,000, but will continue to require that the banks keep these documents for five years in case of requiring an inspection, thus setting up a management gate while increasing conveniences. Optimizing and upgrading the cross-departmental regulatory mechanism. With the information exchange mechanism, the SAFE will take into full consideration the company classification by the tax and customs authorities to support its regulation, and vice versa. The increasingly close cooperation among departments with respect to regulation provides an additional tool for the SAFE to conduct ongoing and ex-post administration. Stepping up monitoring and inspection. Based on the changes in the situation, the SAFE has conducted special foreign exchange inspections of key channels and entities, such as entrept trade and banks, cracked down upon underground money shops, online foreign exchange margin trading, and other law- and regulation-violating behaviors. The SAFE dealt with 9,617 criminal cases and issued fines in the amount of RMB 1.35 billion between 2011 and 2013, more than doubling that between 2008 and 2010. The ex-post intimidating effect of foreign exchange inspections and the effectiveness of foreign exchange administration have thus been consolidated and improved. Exploring approaches to regulation to urge market players to reduce costs and improve efficiency. Shifting from behavioral regulation to regulation of market players is a systematic project that involves the adjustment and reengineering of the business and institutional functions, thus a multifaceted approach is required. In terms of business regulation, the SAFE has begun to explore a market players targeted administration reform for the business lines of the current account and the capital account. It takes into full consideration the cross-border receipts and payments, foreign exchange, assets, and liabilities of the market players by integrating business, data, and systems for focused administration. For example, the foreign exchange administration reform for trade in goods breaks through the constraints of separate regulation of imports and exports and builds a new model for market-player regulation. As part of the reform, the SAFE has verified the correspondence between goods flows and capital flows for imports and exports by market players, canceled the trade credit registration system and replaced it with monitoring of the match between trade credits and the volume of imports and exports so as to comprehensively assess and judge the authenticity of a company's trade balance. In the pilots for the centralized operation and management of the foreign exchange of the MNCs, companies are allowed to centrally use current and capital account funds under the same account, thus members of an MNC can share the limits of the external debts and facilitate exchanges for investments and financing. These measures have significantly reduced the costs of trade and financing among members of MNCs, making a growing number of MNCs elevate the position of China from being a global manufacturing and R&D center to being a profit and fortune center. In terms of institutions and functions, many branches and sub-branches of the SAFE have explored position restructuring, process reengineering, and personnel transition. For example, optimizing responsibilities and re-planning institution and position-setting based on the type of market player; conducting full-scale classified management of the current account and the capital account for banks, companies, and individuals; providing one-stop services at the front office, and conducting full-scale monitoring and inspections and comprehensive assessments and classified management in the middle and back offices. These measures have promoted a shift in the focus of regulation from all market players to some players and have helped to build a regulation service model that integrates analysis, regulation, and services. Leading the reform with the "presumption of innocence" and a "negative list" to further facilitate trade and investment. A “negative list" and the "presumption of innocence" require the adoption of a more open and more inclusive administrative model and an adjustment in the regulatory pattern and the legal and regulatory systems. With years of hard work by the SAFE, the "negative list" and the "presumption of innocence" have become concrete policies rather than mere concepts. The design of the reform reflects the concept of the "presumption of innocence." The reform of foreign exchange administration under the current account that has been carried out in recent years basically reflects this concept, as does the liberalized capital account. For example, as part of the foreign exchange administration reform for trade in goods, the SAFE will no longer verify in advance the authenticity of the receipts and payments of foreign exchange under trade in goods of class-A companies and will give adequate ex-ante conveniences to those that have signed the Business Handling Confirmation as a commitment of operational compliance. During the trials of the centralized operation and management of the foreign exchange of MNCs, relevant pilot businesses can be handled after the bank and the company sign a compliance confirmation and the companies will be regulated through ex-post verification, risk warnings, and inspections, which are focused on identifying law breakers and violators of the regulations. Exploring a "negative list" approach to foreign exchange administration. In terms of current account management, the concept of administration based on a "negative list" is reflected in the administration of foreign exchange receipts and payments for class-B and class-C companies engaged in trade in goods and individual spin-offs of foreign exchange settlements and sales. This concept has also been followed in the capital account reform. For example, in terms of direct investment management, the SAFE has implemented a pilot program to reform the management model for the settlement foreign exchange capital of foreign-invested companies in 12 areas, such as the China (Shanghai) Pilot Free Trade Zone, prescribing that foreign exchange capital settlements may be handled directly if the foreign exchange is not used to invest in equities or to extend entrusted loans, and foreign exchange can be settled directly for non–real estate companies if the foreign exchange is not used to buy non-freehold real estate. Foreign exchange under the external debts can be settled with the presentation of valid evidence that it is not used for purposes that are clearly forbidden. Foreign exchange under cross-border guarantees can be directly settled if there is no conflict with the existing regulations during signing of the contract and during its performance. The pilot program for the reform of centralized operations and management of the foreign exchange of MNCs is aimed at achieving willingness settlement of foreign exchange under the capital account by using the "negative list" approach. This approach has further deepened the concept that items not found on the list will be deemed permissible, thus providing valuable experience to continue to upgrade the foreign exchange administration reform. Continue to promote the foreign exchange administration reform to tackle the challenges ahead. Over the past five years, the SAFE has continued to deepen the foreign exchange administration reform based on the "five shifts," which has produced positive results, and therefore has promoted foreign exchange administration to a new high. But we should also be aware that the achievements are not the end of the reform but a new starting point of continuing to deepen the reform, and there are still big challenges that lie ahead for the reform. Continuing to promote the foreign exchange administration reform is a necessary requirement to implement the country's overall reform plan. Since it took office in 2013, the new government has promoted the economic institutional reform on all fronts, driven by the streamlining of administration and the delegation of powers to lower levels. In this new situation, the foreign exchange administration reform is like a boat sailing against the current and we must forge ahead. Take FDI management as an example. Prior approval for industrial and commercial registration has long been one of the foreign exchange administration documents under FDI, based on which the SAFE handles investigations of registered capital verifications, foreign exchange capital settlements, and annual checks of foreign exchange. But as the industrial and commercial registration system was reformed this February, with the registration of paid-in capital changed to registration of subscribed capital, the registration and confirmation by investors in foreign-invested enterprises based on the capital verification system lost ground. Moreover, it will become more difficult to manage foreign exchange settlements for capital payments based on the business scope as administration of the scope of the company business has now liberalized. All these require us to keep up with the times, adapt to the new changes, and accelerate innovations in the foreign exchange administration reform. Continuing to promote the foreign exchange administration reform is a necessary requirement for a BOP equilibrium. The imbalanced situation of the BOP in China has obviously improved in recent years, but the equilibrium is fragile and the institutional and structural problems that have long constrained the BOP equilibrium have not been completely resolved. Moreover, the capability to achieve an active BOP equilibrium is not sufficiently strong and a long-term mechanism that promotes a BOP equilibrium has yet to be established. Meanwhile, there are not many foreign exchange administration tools are marketized, and macro-prudential and administrative management tools alone can no longer satisfy the dual policy objectives of facilitation and risk prevention. All these have raised the need to accelerate innovations in the mechanisms and systems of financial and foreign exchange administration. Continuing to promote the foreign exchange administration reform is a necessary requirement to enhance the global competitiveness of the Chinese economy and of Chinese companies. Deepening the reform as China's reform and opening up expands will be conducive to working out the connections between domestic and overseas markets to guide the rational allocation of capital on a larger scale and to take fuller advantage of both domestic and international markets and resources to improve the efficiency of resource allocations, and to promote the reform and innovation of the financing and investment systems to sharpen the competitive edge of Chinese companies in the global market. We should look at the situation and the environment for foreign exchange administration from a global and holistic perspective and continue to tackle the challenges as the foreign exchange administration reform enters a deep-water zone, while implementing the strategic reform plans of the CPC Central Committee and the State Council. First, we will develop and implement an overall plan and a top-down design with a distinct logic and clearly defined measures, beginning by addressing the deep-seated problems in systems and mechanisms to gradually promote the overall reform while making breakthroughs in key areas based on the BOP situation, thus releasing the dividends of the system. Second, by combining regulation and delegation based on the market, we will enhance statistical monitoring and ongoing and ex-post oversight to improve the effectiveness of foreign exchange administration. Third, we will systematically streamline and summarize the lessons from the previous reforms to identify a reform model that can be reproduced and be promoted. To further deepen the reform in the future, we should work around the "five shifts" to fundamentally change our concepts, working processes, and work methods, as well as the quality and skills of our people. Meanwhile, we should focus on improving our capabilities in foreign exchange administration: building a strong database and information system based on statistical monitoring; improving our analysis capability and strengthening collaboration between business lines involving the current account, the capital account, the BOP, and foreign exchange inspections; improving the early-warning threshold and the kick-off mechanism; and providing regulation-based services to serve the development of the real economy and to safeguard China's foreign-related economic security. First, promoting the reform. Deepening the reform will be the top priority of foreign exchange administration. We will continue to streamline administration and delegate powers to lower levels and streamline items that require administrative approval. We will change our administrative model and make innovations in our administration thinking to improve the systems and mechanisms for ongoing and ex-post administration, to promote regulation of market players across the board, and to break through the constraints of current account and capital account management. We will step up efforts to develop the foreign exchange market and further improve it in terms of both breadth and depth with advances in the reform of the RMB exchange rate formation mechanism. We will also shift the focus of market regulation from approving entry and promoting new products to safeguarding fair play to prevent market failure and systemic management risks. Second, guarding against risks. Preventing the impact from cross-border capital flows will be the primary task of foreign exchange administration. We will build a new early-warning indicator system for monitoring risks associated with the BOP and cross-border capital flows and will make improvement in order to explore new risk emergency-management approaches and policy tools for new situations. We will establish and improve a management system for external debts and cross-border capital flows under the macro-prudential framework. Based on the situation of foreign exchange receipts and payments, we will enhance the relevance and effectiveness of foreign exchange inspections. Efforts will also be made to crack down on illegal trade and transfers of foreign exchange, such as underground banks, to guard against large-scale inflows of international speculative capital and to ensure China's economic and financial security. Third, strengthening the foundation. Data and the system will provide an underpinning for foreign exchange administration. To improve data acquisition, we will integrate and design a rule for interfaces of bank data acquisition and a uniform scheme for bank data acquisition to avoid duplicate and repeated data acquisition. We will enhance system construction, providing quality information services, enabling banks and companies to handle foreign exchange issues in the same system, and providing Internet access interfaces to facilitate information interaction and sharing. We will increase our administrative tools, gradually completing the integration of data on cross-border capital flows and the building of a database and further studying and enriching the monitoring and analysis indicators to effectively assist in oversight. Efforts will also be made to improve data standards by enhancing the building of statistical and coding standards based on the BOP and external debt statistics. Fourth, improving management. Strengthening team and system construction will be the foundation of foreign exchange administration. Administration by law will be practiced by standardizing administrative decision making and administrative enforcement. Administrative transparency will be further promoted by increasing policy and data transparency. Working rules on monitoring and analysis, off-site verifications and on-site inspections will be developed and improved, and the construction of internal controls will be improved to enhance mitigation and control of internal risks. More efforts will be made to strengthen cadres training, including promoting personnel restructuring and raising their service consciousness, thus combining management and service. We will further implement the gist of the eight-point guideline of the CPC Central Committee, clean up our work style, and actively implement a long-term mechanism for independent risk control and to further regulate our exercise of power. (The original text was published in issue no 19 of China Finance in 2014.) 2014-11-26/en/2014/1126/1133.html