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According to statistics released by the SAFE, in the first quarter of 2012 inflows and outflows of direct investments by overseas investors in domestic financial institutions amounted to USD660 million and USD40 million respectively, resulting in a net inflow of USD620 million. Outflows and inflows of overseas direct investments by domestic financial institutions amounted to USD1.55 billion and zero respectively, resulting in a net outflow of USD1.55 billion (see table 1). As of the end of 2011, the stock of direct investments by overseas investors in domestic financial institutions amounted to USD68.43 billion, while the stock of overseas direct investments by domestic financial institutions amounted to USD52.66 billion (see table 2). To further increase the transparency of exchange statistical data, from the beginning of 2012 the SAFE will release the flow amount of direct investment by financial institutions on a quarterly basis, and the stock amount of direct investments by financial institutions on a yearly basis. Table 1: Direct Investment Flows by Financial Institutions (Quarterly) Unit: USD (100 mn) Item Q1, 2012 Net inflows of direct investments by overseas institutions 6.2 Inflows 6.6 Outflows 0.4 Net outflows of overseas direct investments 15.5 Inflows 0 Outflows 15.5 Table 2: Stock of Direct Investments by Financial Institutions (Annually) Unit: USD (100 mn) Item End 2011 Direct investments by overseas institutions 684.3 Direct investments by domestic institutions 526.6 Appendix: Glossary Financial institutions refer to the headquarters, branches, and sub-branches of institutions engaging in banking, securities, insurance, and other financial businesses which are established within the territory of China according to the law. Direct investments by financial institutions refer to equity investments by overseas investors in China’s domestic financial institutions or equity investments by China’s domestic financial institutions in overseas enterprises, which enable direct investors to have voting rights of 10 percent or more in the invested enterprises. The table of direct investment flows by financial institutions exhibits the amounts of capital flows of overseas direct investments by China’s domestic financial institutions and direct investments in China absorbed from overseas institutions. Specifically, inflows of direct investments by overseas institutions refer to the investment capital or increased investments by overseas investors in China’s domestic financial institutions, outflows refer to the investment capital decreased or withdrawn by overseas investors from China’s domestic financial institutions; capital outflows of foreign direct investments refer to capital investments or increased investments by China’s domestic financial institutions in overseas enterprises, inflows refers to decreased or withdrawn capital investments by China’s domestic financial institutions from overseas enterprises. The table of the stock of direct investments by financial institutions exhibits the stock amount of Chinese owners’ equity arising from foreign direct investments by domestic financial institutions and that of foreign owners’ equity arising from direct investments absorbed in China, including paid-up capital, undistributed profits, and so forth. 2012-07-13/en/2012/0713/1058.html
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The System for External Financial Assets, Liabilities, and Statistics on Transactions (Huifa No.43 [2013], hereinafter referred to as “the System”) was recently promulgated by the State Administration of Foreign Exchange (SAFE). With adoption of the newest international statistical standards the System represents a complete revision of the Operating Procedures of Financial Institutions for the Declaration of Overseas Assets, Liabilities, and Profits and Losses promulgated in 1996, and shall be implemented as of September 1, 2014. The System makes significant improvements to the entities, contents, and frequency of the declarations. According to the System, the entities for the declarations include corporate entities in the banking sector, the securities sector, the insurance sector, and other corporate entities engaging in financial intermediary businesses, the leading reporting branches/sub-branches of overseas financial institutions within the territory of China, and other designated institutions. The content of the declarations is extended from the stock of external financial assets and liabilities to the stock and flow of external financial assets and liabilities and other related balance-of-payments transactions. The frequency of the declarations is adjusted from a quarterly to a monthly basis. With implementation of the System on September 1, 2014, China will be able to meet the newest statistical standards of the IMF’s Balance of Payments and International Investment Position Manual in terms of data acquisition. In addition, it will meet the requirements for monitoring and statistics on cross-border capital flows, thus laying a foundation for supervision and risk-monitoring of foreign-related economic entities and satisfying the growing demand for macro-economic analysis and decision-making both at home and abroad. 2013-12-05/en/2013/1205/1093.html
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In order to promote facilitation of foreign exchange receipts and payments for trade in services, Yi Gang, administrator of the State Administration of Foreign Exchange (SAFE) and his entourage visited the Beijing Foreign Exchange Administrative Department and held a discussion with representatives from some banks, enterprises, and branches of the SAFE to investigate the relevant situation with regard to foreign exchange administration for trade in services. Yi Gang pointed out that during recent years the SAFE has made vigorous efforts to promote trade and investment facilitation in compliance with the general requirements of the CPC Central Committee and the State Council for accelerating the reform and opening-up, and has persisted in pursuing administration according to the law by streamlining administration and power delegation to serve the development of the real economy. In 2012, reform of the foreign exchange administration system for trade in goods was implemented on a nationwide basis; foreign exchange administration for direct investments was substantially streamlined, resulting in a significant improvement in trade and investment facilitation. Yi Gang said that the SAFE will further follow the relevant guidelines of the CPC Central Committee and the State Council to develop the service sector, proactively push forward the reform of foreign exchange administration for trade in services, vigorously promote facilitation of the services trade, strengthen communications and coordination with the relevant authorities, and provide policy support for the development of trade in services so as to enhance the role of foreign exchange administration in boosting the “going-global” process of the service sector. 2013-01-15/en/2013/0115/1077.html
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Since 2012, in order to further promote reform and development of the domestic capital market, the foreign exchange authorities have accelerated the pace of approval of the investment quota for Qualified Foreign Institutional Investors (QFIIs). From January 1 to September 19 of 2012, the foreign exchange authorities approved a total investment quota of USD 9.178 billion (including additional investment quotas) for 72 QFIIs. As of September 19, 2012, the foreign exchange authorities approved a total investment quota of USD 30.818 billion for 157 QFIIs. During the next step, in light of the balance of payments situation, the foreign exchange authorities will continue to promote improvement in the QFII system and to support the reform and development of the domestic capital market. 2012-09-21/en/2012/0921/1071.html
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Editors notes: Our administration has published questions and answers about popular topics regarding foreign exchange management policies in periodicals and has analyzed and interpreted ideas and concepts relating to foreign exchange management in response to questions of public concern about foreign exchange management and foreign exchange reserves. This move has been widely acknowledged and welcomed by the media and the general public. With the deepening of the reform and opening up, the general public is becoming more closely involved in foreign exchange business. Therefore, we will continue to popularize knowledge about foreign exchange management and interpret the relevant policies, so that the general public will understand foreign exchange management in plain language. As for the recent de-listing of Fannie Mae and Freddie Mac (hereinafter referred to as Fannie and Freddie) from the New York Stock Exchange (NYSE), we have clearly stated in early remarks that our foreign exchange reserves did not invest in Fannie and Freddie stocks. The bond prices for Fannie and Freddie are stable and repayments for the investment and interest are being made according to schedule. Some readers hope to know more about Fannie and Freddie as well as to learn about the stocks and bonds of the two companies. Therefore, our administration has compiled some questions and answers about relevant information for your reference. Q1: What kinds of enterprises are Fannie and Freddie? How are they positioned in the American financial system? A: Fannie and Freddie are the two biggest mortgage lenders in the United States, i.e., the Federal National Mortgage Association (Fannie Mae) and the Federal Home Mortgage Corporation (Freddie Mac). Fannie and Freddie are government-sponsored enterprises established through legislation by the U.S. Congress. The legislation is aimed at providing stable and constant support to the housing mortgage loan markets and improving the accessibility of home mortgage loans. The businesses operated by the two companies play an important role in American housing policy. U.S. housing policy is public. After the Federal Home Loan Bank System was established in 1932, a secondary market of housing mortgages came into being, with Fannie and Freddie as the primary players and private mortgage finance agencies as supplementary players, to provide financial security for housing construction by combining government intervention and market-oriented operations. Fannie and Freddie are the pillars of the American real estate market. Real estate loans underwritten or purchased by the two companies account for 50 percent of the American real estate market; this figure reached over 80 percent after the outbreak of the sub-prime lending crisis. Fannie and Freddie are not only important to the American real estate market, but also are crucial to the stability of the financial market. The assets owned or guaranteed by the two companies total about USD 5.5 trillion. Over 70 percent of the bond investors in Fannie and Freddie are American investors, such as pension funds, mutual funds, commercial banks, and insurance companies, which are of overriding importance to the U.S. financial system. At the initial stage after the outbreak of the sub-prime lending crisis, the U.S. Government still relied on these two companies to alleviate the crisis and it adopted such measures as lowering their capital requirements and expanding the maximum single loan limit to enhance their role in resolving the crisis. With the deepening of the crisis, the American real estate market experienced dramatic changes; furthermore, due to poor management, the two companies encountered problems. Therefore, the U.S. Government took over Fannie and Freddie, indicative of its support for the companies. At present, in addition to the injection of USD 145 billion in the preferred stocks of Fannie and Freddie by the Treasury, the U.S. Government has promised limitless injections for the two companies by 2012 to offset net losses. Thereafter, the two firms may still apply to the Treasury for injections within the limit of USD 200 billion respectively. In addition, the Federal Reserve and the Treasury purchased a total of over USD 1.4 trillion of Fannie and Freddie bonds, accounting for 25 percent of the total assets owned and guaranteed by the two companies, thus making them the biggest bond holders of Fannie and Freddie. The U.S. Government has promised on several occasions that the capacity of Fannie and Freddie to repay relevant debts in the face of any future reforms will be guaranteed. During the recent second round of the Sino-U.S. Strategic and Economic Dialogue, the U.S. Government stated it will continue to enhance supervision over government- sponsored enterprises so as to ensure that they have adequate capital and a capacity to carry out their financial liabilities. The U.S. Government will listen to all stakeholders and adopt proper measures to further reform so as to ensure that government- sponsored enterprises have the capacity to fulfill their liabilities. Q2: What about the stocks issued by Fannie and Freddie? Why were they de-listed? A: Fannie and Freddie were listed on the New York Stock Exchange in 1970 and 1989 respectively and Fannie Mae was also listed on the Chicago Stock Exchange. In addition to preferred stock, the amount of Fannie and Freddie common stocks totals about 1.14 billion and 0.65 billion respectively. During the ten years before the 2007 sub-prime lending crisis, the share price of the two companies remained at USD 50-70 per share and the dividends were distributed regularly; therefore, the stocks were popular with investors. After the outbreak of the sub-prime lending crisis, Fannie and Freddie suffered heavy losses due to the continuous slowdown in the American real estate market and their share prices declined dramatically. With the deepening of the crisis, the U.S. Government took over the two companies and their share prices fell to lower than USD 1. Thereafter, their share prices fluctuated around USD 1 for a long time. Since this mid-May, the average closing price of Fannie Mae has been lower than USD 1 for thirty consecutive trading days. According to the regulations of the New York Stock Exchange, under such circumstances the company may choose to de-list or to adopt measures such as a reverse split so as to restore the share price to over USD 1. The U.S. Government, the biggest shareholder of Fannie and Freddie, held 80 percent of the total shares, whereas the market value of the shares held by other shareholders was no more than USD 1 billion. Actually, Fannie and Freddie were no longer operated under a common business model. Under these circumstances, the regulatory authority of Fannie and Freddiethe Federal Housing Finance Agencydeclared that the stocks of the two companies would be de-listed on July 7, 2010. The shares of the two companies would continue to be traded on the OTC market after the de-listing. Q3: What agency bonds are issued by Fannie and Freddie? What about their market performance? A: The common agency bonds issued by Fannie and Freddie refer to the preferred unsecured debentures issued by the two companies. Fannie and Freddie raise funds by issuing this kind of bonds, investing in home mortgage loans and other securitization products. The two firms have always been considered to be U.S. Government agencies. Legal contracts signed with the U.S. Government to inject funds and increase their capital were not affected after Fannie and Freddie were de-listed from the NYSE. Fannie and Freddie bonds still maintain a top credit ratingAAA. Bonds issued by Fannie and Freddie still have a large market capacity and good liquidity, so they are important targets of bond investments on the international market. At the end of 2008, the Federal Reserve announced it would buy USD 200 billion of agency bonds issued by Fannie and Freddie, which further improved the safety and liquidity of the bonds and safeguarded steady market operations. The repayment of capital and interest for old bonds and the issuance of new bonds are both very normal. Take Fannie Mae for example. Fannie Mae issued USD 70.5 billion of agency bonds in 2009, 2.2 times the amount issued in 2007. In terms of the locations of the investors, about 73 percent of the investors were from the U.S.; in terms of the types of investors, institutional investors such as mutual funds, insurance funds, and pension funds accounted for about 63 percent and central banks accounted for about 19 percent. The earnings from Fannie and Freddie agency bonds are quite stable. As revealed by the Market Index, which is mainly comprised of agency bonds issued by Fannie and Freddie, the cumulative rate of return stood at 10.7 percent in 2008 and 2009 when the crisis was at its peak and since 2010 the rate of return has remained at 3.9 percent Q4: What are the mortgage-backed securities guaranteed by Fannie and Freddie? What about their performance in the market? A: Mortgage Backed Securities (MBS) refer to securities collateralized by home mortgage loans issued by financial institutions. Government-sponsored enterprises such as Fannie and Freddie provide guarantees to MBS that meet all their standards and secured MBS are called agency MBS. Compared with Fannie and Freddie agency bonds, the MBS guaranteed by Fannie and Freddie are not only secured by Fannie and Freddie credit, but they are also backed by the mortgage pool for repayment, so they have a double assurance. At the end of 2008, the Federal Reserve announced it would buy USD 1.25 trillion of MBS guaranteed by Fannie and Freddie, which further improved market liquidity. This purchase plan has now been completed. The market responded positively to the move. The repayment of capital and interest of old bonds and the issuance of new bonds are both very normal. The earnings from MBS guaranteed by Fannie and Freddie are stable. The cumulative rate of return of the U.S. Agency MBS Market Index, which is mainly comprised of MBS guaranteed by Fannie and Freddie, was 14.9 percent from 2008 to 2009, and since 2010 the rate of return has remained at 4.6 percent. Q5: What about the performance of Fannie and Freddie bonds after the de-listing of their stocks from the NYSE? A: The stocks of Fannie and Freddie are different from their bonds. Generally, the stock represents the ownership of the company, whereas the bond represents the debt of the company. The two are traded on different markets. The bond price of Fannie and Freddie was not affected by the de-listing of Fannie and Freddie stocks after the de-listing was announced on June 16, 2010 As for market performance, the de-listing does not have a negative influence on their bonds; in fact, the spreads between agency bonds and the MBS in different terms and U.S.Treasuries have been narrowed and the bond price has gone up. Taking the 30-year agency MBS market index, for example, the market quotation was up about 0.8 percent on July 13 from when the de-listing was first announced. In addition, new bond financing activities were not affected after the de-listing of Fannie and Freddie stocks was announced. For example, Fannie issued USD 6 billion of 3-year maturity agency bonds on July 8, and since July Fannie and Freddie have guaranteed USD 36.6 billion of MBS. In general, the new bonds issued by Fannie and Freddie sell well. Trading is active on the secondary market and liquidity is adequate. 2010-07-16/en/2010/0716/941.html
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To ensure the economic and financial security of the state, crack down strongly on the cross-border flow of hot money, and maintain order in the foreign exchange market, on November 1, 2010 the State Administration of Foreign Exchange (hereinafter referred to as the SAFE) announced a first batch of cases involving some enterprises and individuals that carried out illegal foreign exchange transactions and were subjected to penalty. Now a second batch of such cases, based on the progress in the relevant inspections, is announced as follows: From early 2009 to March 2010, Xinya Electronic Technology Co., Ltd. in Dongguan city, Guangdong province, collected 65 advance payments worth USD4.8313 million but the verification and writing-off formalities were six months overdue, which violated the relevant provisions on the administration of the verification and writing-off of export proceeds in foreign exchange. In light of this, the SAFE rendered a decision to impose a fine as an administrative penalty upon said company pursuant to the Regulations on the Administration of the Foreign Exchange System of the Peoples Republic of China (hereinafter referred to as the Regulations). In September 2009, Dading Handbags Co., Ltd. in Zengcheng city, Guangdong province, was found holding 2 payments totaling USD1.05 million in foreign exchange for the processing of imported materials, but the verification and writing-off formalities were six months overdue, which violated the relevant provisions on administration of the verification and writing-off of export proceeds in foreign exchange. In addition, the said company overcharged in foreign currency for the processing of imported materials and used some amounts of Renminbi settled thereof for stocks and securities investments. In light of this, the SAFE rendered a decision to impose a fine as an administrative penalty upon said company pursuant to the Regulations. In May 2009, Feihua Textiles Co., Ltd. in Haimen city, Jiangsu province, due to a fake purchase and sales contract signed with Meidan Construction Materials Trading Co., Ltd. in Haimen city, had USD3.0679 million-worth of foreign exchange from foreign investors settled through 11 transactions, and Meidan Construction Materials Trading Co., Ltd. in Haimen city transferred the settled capital in the amount of RMB20.9103 million via online banking to the account of a personal debit card. This case was deemed to be in violation of the relevant provisions on the administration of settlement of foreign exchange, and the SAFE thereby rendered a decision to impose a fine as an administrative penalty upon said company pursuant to the Regulations. From February to May 2008, Wanrong (Liaocheng) Gardening Engineering Co., Ltd. in Shandong province handled the settlement of USD63.32 million-worth of foreign exchange from foreign investors in payment for a construction project. Of the Renminbi resulting therefrom, the said company transferred RMB147.89 million to the account of its wholly-owned property subsidiary through different channels, used RMB15 million to purchase real estate outside of Shandong province, and lent RMB279.5 million to other domestic enterprises. Such behavior was deemed to be in violation of the relevant regulations on the administration of settlement of foreign exchange, and the SAFE thereby rendered a decision to impose a fine as an administrative penalty upon said company pursuant to the Regulations. From September to December, 2009, Qian An VV Lan Shan Building Materials Company in Tangshan city, Hebei province, settled EUR614,400-worth of foreign investment capital based on invalid documents, and then transferred the RMB6 million resulting therefrom to the Renminbi account of Qian An Lanshan Cement Co., Ltd., a shareholder in the Chinese party thereof. Such behavior was deemed to be in violation of the relevant provisions on administration of the settlement of foreign exchange capital, and the SAFE thereby rendered a decision to impose a fine as an administrative penalty upon said company pursuant to the Regulations. From November to December 2008, a person surnamed Huang, a local citizen of Jinhua city, Zhejiang province, based on 18 cargo declarations for export, for which the verification and writing-off of the export proceeds in foreign exchange had been completed, handled a settlement of USD1.7485 million through a personal foreign exchange account thereof. Such behavior was deemed to be in violation of the Regulations. According to the Regulations, the SAFE rendered a decision to impose a fine on Huang as an administrative penalty. In December 2006, after having had USD7.5 million worth of capital settled through two transactions, Guangdong Credit Orienwise Guarantee Ltd. used RMB58.6365 million resulting therefrom to purchase funds. Such behavior was deemed to be in violation of the relevant provisions on the administration of settlement of foreign exchange, and the SAFE thereby rendered a decision to impose a fine as an administrative penalty upon said company pursuant to the Regulations. In June, 2010, Tianming (Shenyang) Alcohol Co., Ltd. in Liaoning province owed overseas institution(s) SGD37.6 million resulting from the performance of an external guarantee under the item of a domestic loan, but failed to register the foreign debt with the foreign exchange authorities within the prescribed time limit. Such behavior was deemed to be violation of the relevant provisions on the administration of foreign debts, and the SAFE thereby rendered a decision to impose a fine as an administrative penalty upon said company pursuant to the Regulations. From February to June 2007, Yestock Technology (Shenzhen) Co., Ltd., based on a fake purchase and sales contract for GPS terminals signed with Shenzhen Chuangtou Electronic Information Technology Co., Ltd., settled HKD10.6495 million through three transactions and injected RMB9.9 million resulting therefrom into the stock market. The companys behavior was deemed to be in violation of the relevant provisions on the administration of settlement of foreign exchange, and the SAFE thereby rendered a decision to impose a fine as an administrative penalty upon said company pursuant to the Regulations. On August 13, 2007, Qingmao Paper Industry Co., Ltd. in Shaxian county, Fujian province, settled HKD14.075 million based on a purchase and sales contract for machinery and equipment signed with Fujian Changfa Trading Co., Ltd. Thereafter, the said company required Fujian Changfa Trading Co., Ltd. to remit RMB13.6 million resulting therefrom to Fuzhou Huicheng Real Estate Co., Ltd. under the pretext that it was unable to start up the project immediately. The said companys behavior was deemed to be in violation of the relevant provisions on the administration of settlement of foreign exchange, and the SAFE thereby rendered a decision to impose a fine as an administrative penalty upon said company pursuant to the Regulations. When conducting economic activities, all market entities shall foster an awareness of their social responsibilities and develop their business in a sound and scientific manner in strict compliance with all policies concerning the administration of foreign exchange. The penalized enterprises and individuals shall regard this as a warning and shall firmly establish an awareness of law-abiding operations. All other enterprises and individuals shall also draw lessons from the above-mentioned cases to strengthen their self-discipline, and to operate their businesses in strict accordance with the law. The SAFE shall step up efforts to facilitate the process of trade and investment and to enhance a service-oriented awareness so as to meet the legitimate demands of enterprises and individuals for foreign exchange; meanwhile, it shall strengthen supervision and inspection of the compliance of the foreign exchange business conducted by market entities and continue to crack down on hot moneywith intensified efforts, thereby effectively maintaining the safety of China's foreign-related economy and finance. December 10, 2010 2010-12-10/en/2010/1210/970.html
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To maintain national economic and financial security and to crack down strongly on cross-border flows of hot money, since February 2010, the SAFE has launched special campaign to combat hot money. Careful inspections have been carried out of foreign exchange receipts and payments in foreign trade and settlement of foreign exchange by enterprises as well as foreign exchange settlement and sales by individuals. The inspections show that most enterprises and individuals have handled businesses such as foreign exchange receipts and payments and settlement and sales of foreign exchange in strict compliance with the relevant regulations for the administration of foreign exchange. However, some enterprises and individuals still carried out fake transactions or adopted deceptive means in violation of the regulations. They collected advances on sales based on fake transactions, conducted false settlements of foreign exchange for foreign investments, and some individuals carried out settlement and sales of foreign exchange by splitting large sums of money into smaller parts. Such violations have resulted in the inflow of hot money.Cases of the relevant violations and penalties on enterprises and individuals are hereby announced as follows: In 2009, China Best Food Limited in Qingdao of Shandong province failed to declare its trading activities by classifying relevant activities into categories, such as processing with imported materials, transit trade, and general trade, when handling foreign exchange collections and payments for trade, resulting in 13 deals with incorrect declaration data involving a total of USD13.86 million. Such behavior was in violation of the relevant regulations on statistics and declaration of the balance of payments. In light of this, the SAFE rendered a decision to impose a fine as an administrative penalty upon said company pursuant to the Regulations. During the period from January to September, 2008, Adani Industrial Co., Ltd. in Yingkou city of Liaoning province collected advances on sales totaling USD11.06 million. To date, the company has not carried out the verification and writing-off of the collection of foreign exchange from exports. An inspection revealed that the inflow of capital was based on fake transactions, which violated the relevant regulations on administration of the verification and writing-off of foreign exchange collections from exports. In light of this, the SAFE rendered a decision to impose a fine as an administrative penalty upon said company pursuant to the Regulations. In December 2009, Wuzhou Property Development Limited in Huaian city of Jiangsu province handled settlement of foreign exchange in the amount of HKD155 million for foreign investment, with the declared purpose of payment for land use. However, an inspection revealed that RMB80 million of the funds was used to grant loans within the territory of China, which violated the relevant regulations on the administration of foreign exchange settlement for capital funds. In light of this, the SAFE rendered a decision to impose a fine as an administrative penalty upon said company pursuant to the Regulations. During the period from February 2007 to December 2009, a company located outside the territory of China remitted 164 deals of funds into the personal saving accounts of 95 staff members of Unitera Garment Co., Ltd. in Yingkou city of Liaoning province, amounting to a total of USD5.89 million. The staff members settled the relevant exchange and then returned the funds in RMB to the company. The splitting of large sums of funds into small parts for foreign exchange settlement and sales by this company violated the relevant regulations on the administration of foreign exchange for individuals. In light of this, the SAFE rendered a decision to impose a fine as an administrative penalty upon said company pursuant to the Regulations. During the period from January 2009 to April 2010, Ma, an individual within the territory of China, collected USD8.29 million from outside China in the name of his relatives and staff members of the company where he worked (146 people in total) and settled the exchange. Mas splitting the large sums of funds into small parts for settlement and sales violated the relevant regulations on the administration of foreign exchange for individuals. According to the Regulations, the SAFE rendered a decision to impose a fine on Ma as an administrative penalty. In April and June 2009, Yuantian Investment Management Consulting Co., Ltd. in Dalian city of Liaoning province settled foreign exchange of RMB102 million for foreign investment by using a false contract, which violated the relevant regulations on the administration of foreign exchange settlement for capital funds. In light of this, the SAFE rendered a decision to impose a fine as an administrative penalty upon said company pursuant to the Regulations. In July 2009, Hanshi Infrastructure Construction Co., Ltd. in Nantong city of Jiangsu province settled exchange for foreign investment for payment for construction. The settled funds of RMB27.8 million were transferred to the personal accounts of persons surnamed Ye, Chen, and others in Putian city of Fujian province. Such behavior violated the relevant regulations on the administration of foreign exchange settlement for capital funds. An inspection revealed that the above funds were actually remitted from an underground money shop outside of China. The company hoped to obtain qualifications as a foreign-invested entity based on the fake capital fund and then to return the settled funds to the underground money shop. In light of this, the SAFE rendered a decision to impose a fine as an administrative penalty upon said company pursuant to the Regulations. In November 2009, Xiehe Wind Power Equipment Manufacture & Technical Service Co., Ltd. in Fuxin city of Liaoning province used RMB3.1 million acquired from the settlement of foreign investment capital for a subscription of new shares instead of normal production and operations. Such behavior violated the relevant regulations on the administration of foreign exchange settlement for capital funds. In light of this, the SAFE rendered a decision to impose a fine as an administrative penalty upon said company pursuant to the Regulations. During the period from December 2009 to March 2010, Zhanfeng Trading Company in Changzhou city of Jiangsu province handled the settlement of foreign investment capital in the amount of USD9.85 million for payment for demolition compensation and for funds for land transfers. However, the company did not obtain the corresponding land-use rights. The settled funds in the amount of RMB57.18 million were transferred to the account of Yingkai Steel Trading Co., Ltd. in Suzhou of Jiangsu province. Such behavior violated the relevant regulations on the administration of foreign exchange settlement for capital funds. In light of this, the SAFE rendered a decision to impose a fine as an administrative penalty upon said company pursuant to the Regulations. All market entities shall conscientiously establish an awareness of their social responsibility and operate in a prudent and scientific manner in strict compliance with the policies on foreign exchange administration. The penalized enterprises and individuals shall regard this as a warning and firmly establish an awareness of law-abiding operations. All other enterprises and individuals shall also draw lessons from the above-mentioned cases to strengthen their self-discipline and to operate their business in strict accordance with the law. The SAFE shall vigorously facilitate trade and investment and enhance a service-oriented awareness so as to meet the reasonable foreign exchange demands of enterprises and individuals. Furthermore, there will be strengthened efforts to supervise and inspect the foreign exchange business of market entities with respect to regulatory compliance and to crack down on the flow of hot money,thus safeguarding the foreign-related economic and financial security of the state. November 1, 2010 2010-11-01/en/2010/1101/963.html
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To ensure the economic and financial security of the state, safeguard normal order in the foreign exchange market, and block the major channels for cross-border flows of hot money,the State Administration of Foreign Exchange (SAFE) is collaborating closely with the public security organs to intensify efforts to crack down on illegal foreign exchange transactions, including underground money shops and online foreign exchange speculation. A number of cases involving underground money shops and online foreign exchange speculation have been discovered. The cases that have been investigated and resolved as follows: On June 16, 2009, the Shenzhen Branch of the State Administration of Foreign Exchange collaborated with the public security organs in ferreting out an underground money shop operated by the Wu brothers under the fraudulent name of the Wuji Dongcheng Shop.A total amount of RMB1.1 million in cash was seized on site, and 370 bank accounts in an amount of over RMB30 million were frozen. On August 3, 2010, the Wu brothers were sentenced to fixed prison terms and fined by the local Peoples Court for the crime of illegal operations. AFG Investment Management (Shanghai) Co., Ltd., established by Lü, carried out financial business such as foreign exchange transactions, the taking of deposits, loan extensions, and credit card agency without approval from the relevant authorities, involving a combined transaction value of RMB11.1 billion. On May 12, 2010, the local Peoples Court imposed fines on the company for the crime of illegal operations, and Lü was sentenced to a fix prison term and fined for the crime of illegal operations and illegal cross-border transactions. Lüs illegal income of more than RMB50 million was confiscated. On March 18, 2009, a case of illegal foreign exchange transactions was ferreted out in Zhuhai city, involving the criminals Chen and Lin and their associates. The amount of HKD1.3 million and RMB30,000 in illegal transactions was seized, and a total of RMB2.29 million of illegal foreign exchange transactions in bank accounts was frozen. On June 8, 2010, Chen was sentenced to a fixed prison term and fined by the local Peoples Court for the crime of illegal operations. The cash seized on site and the funds deposited in the frozen accounts were confiscated and turned over to the national treasury. During the period from January to May 2009, Wu carried out illegal foreign exchange transactions in a teahouse located in Dongcheng District of Dongguan city, and collected service charges from his customers. On May 21, 2009, the den was discovered out and destroyed. The police captured 19 passbooks, 36 bankcards, laptops, and other tools for illegal foreign exchange transactions. In July 2010, Wu was condemned to a fixed prison term and fined by the local Peoples Court for the crime of illegal operations. On April 23, 2010, the Foreign Exchange Administration in Jiangmen city, in collaboration with the public security organs, cracked down on an underground money shop operated by Huang from Enping city. A total of USD110,000 was seized on site. In September 2010, the Foreign Exchange Administration in Jiangmen city imposed administrative penalties on Huang and Zhou in the form of fines in accordance with the Regulations of the Peoples Republic of China on Foreign Exchange Administration. In March 2009, Liu and his associate investors collaborated in registering and establishing UBS International Holdings Co., Ltd. in Hong Kong through Hong Kong United Accounting & Secretarial Limited. They rented a place on West Zhongshan Road in Shanghai and engaged in illegal gold business including foreign exchange and gold transactions. On January 15, 2010, Liu and the other two associated were sentenced to fixed prison terms and fined by the local Peoples Court for the crime of illegal operations. In June 2007, Li cooperated with his associate sin establishing the Shanghai Mobijet Enterprise Investment Management Co., Ltd. and engaged in illegal gold business including foreign exchange and gold transactions. On May 31, 2010, the local Peoples Court imposed fines on Shanghai Mobijet Enterprise Investment Management Co., Ltd. for the crime of illegal operations, and Li and the other two associates were sentenced to fixed prison terms and fined for the crime of illegal operations. Kunming Xinghui Economic Information Consulting Co., Ltd. illegally introduced clients to become involved in the online foreign exchange margin trading operated by the overseas GFX Capital Markets Ltd. In 2008, the Foreign Exchange Administration of Yunnan province, collaborating with the public security organs, captured 41 pieces of computer equipment used for criminal purposes and relevant evidence, and arrested 28 suspects. On February 9, 2010, Xu and nine other major suspects were sentenced to fixed prison terms and fined by the local Peoples Court for the crime of illegal operations. The equipment and illegal gains involved in the crime were confiscated as required by law. During the period from December 2007 to October 2008, Xiamen Baochangxing Investment Consulting Co., Ltd. and its branch in Zhangzhou city engaged in illegal foreign exchange margin trading without a license to engage in related financial business. The case involved a total sum of USD2.44 million from illegal operations and USD390,000 from illegal income. On May 10, 2010, Li and his associates were sentenced to fixed prison terms and fined by the local Peoples Court for the crime of illegal operations. Between May 2007 and 2009, He and Cui used Baijiaxin Investment Consulting Management Co., Ltd. as the agent for Shanghai Baifujin Company in Taizhou city of Zhejiang province and accepted 20 clients and an amount of over RMB5 million to carry out online foreign exchange speculation. By paying and collecting funds in RMB within the territory of China while collecting and paying corresponding foreign exchange funds outside the territory of China, the two received illegal service charges of more than USD40,000. On September 13, 2010, He was sentenced to a fixed prison term and fined for the crime of illegal operations and Cui was detained and fined by the local Peoples Court. All market entities shall firmly establish a sense of legal governance, and earnestly comply with the regulations on foreign exchange administration. Carrying out business at illegal places and through illegal channels for transactions such as underground money shops and online foreign exchange speculation is strictly prohibited. The foreign exchange administration departments shall continue to strengthen cooperation with the public security organs and play an active role in cracking down on underground money shops, online foreign exchange speculation, and other kinds of illegal foreign exchange activities. In addition, intensified efforts shall be made to combat foreign exchange-related criminal activities and stiff penalties shall be imposed on cross-border flows of hot money so as to conscientiously safeguard the foreign-related economic and financial security of the state. November 5, 2010 2010-11-05/en/2010/1105/964.html
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Editor's Note: With the deepening of Chinas reform and opening, foreign exchange is becoming more closely related to the interests of the public. The State Administration of Foreign Exchange (SAFE) proposed that continual efforts should be made to disseminate knowledge about foreign exchange administration and to interpret relevant policies so the public will better understand Chinas foreign exchange administration. In July 2010, the SAFE compiled Q&As about hot issues regarding investment in the U.S.-based Fannie Mae and Freddie Mac that received wide and enthusiastic support from the public. On February 11, 2011, the Treasury Department and the U.S. Housing and Urban Development Department issued a white paper on the reform of Fannie Mae and Freddie Mac, which aroused widespread concern that Chinas foreign exchange reserve investments in the two GSEs may be affected. We responded to this concern and have found that so far no losses have been incurred in Chinas bond investments in the above two companies. To allow readers to better understand the latest developments, we once again have compiled Q&As about related issues for your reference. Q1: Why did the United States issue the white paper on the reform of Fannie Mae and Freddie Mac at this time? A: Since the outbreak of the financial crisis there have been appeals and disputes over the reform of Fannie Mae and Freddie Mac. The Congressional Dodd-Frank Reform Bill, enacted in July 2010, mandated that the government submit a proposal on the reform of Fannie Mae and Freddie Mac. In 2010 the U.S. Treasury Department held a seminar on the reform of housing financing, proposing that the government submit a preliminary reform plan to the Congress in early 2011. The issuance of the white paper is in accordance with this plan. Q2. Are there any new ideas proposed in the white paper about the orientation of the reform? A: We noticed in the white paper that the reform of the U.S. housing financial market is primarily targeted at changing the role of the government in regulating the market. The white paper proposes that the government confine its responsibilities to such areas as strengthening its regulatory efforts, protecting the interests of consumers, giving special support to middle- and low-income homeowners and tenants, maintaining market stability, and combating the financial crisis. The U.S. government will gradually exit from the housing financial market and will endeavor to create conditions for private capital to play a dominant role. In particular, we noted that there are no changes with regard to the U.S. government commitment to support the two GSEs, which means that the government will guarantee that the two GSEs will have sufficient capital to exit from the market. The reform plan primarily proposes that the government will bring into play the functions of the private sector to bolster the housing financial market, maintain the equity and effectiveness of the housing market, and build up a well-organized system for supporting housing loans and promoting the reform in a responsible and prudent manner. The reform relates directly to whittling away the functions of the two GSEs in the housing financial market and proposes three alternatives to the current model of housing financing for the two GSEs. It will take quite a long time from the issuance of the white paper to implementation, which will entail a series of procedures set forth by the U.S Congress and the U.S. government. It is for this reason that thus far no detailed timetable for the reform has been worked out by the government. Analysis indicates that implementation may begin after 2012 provided that everything proceeds smoothly. Q3: What was the response of the financial market after issuance of the white paper? A: As of February 11, the financial market actively responded to the issuance of the white paper. By the time of closing in New York, there was a widespread increase in the price of bonds issued by the two GSEs. The increase surpassed that of Treasuries, with the highest reaching up to 0.5%. Q4: There are some concerns that after issuance of the white paper Chinas bond investments in the two GSEs with its foreign exchange reserves will suffer losses. What do you think about the security of these investments? A: As government-sponsored enterprises incorporated by congressional legislation, Fannie Mae and Freddie Mac have always been the principal instruments of U.S. housing financial policies. Even after being taken over by the U.S. government due to the financial crisis, the two companies have remained the primary channels of Americas housing financing, through which the overwhelming bulk of newly-supplemented mortgage loans are provided. In addition to its position as a colossal investor injecting hundreds of billions of dollars into the two GSEs, the U.S. government is also the largest holder of bonds issued by the two companies, with total bond investment topping USD1.6 trillion. In view of the crucial role of Fannie Mae and Freddie Mac in bolstering the American housing market, accelerating the economic restoration, and maintaining financial stability, the white paper underscores that prudential measures will be taken in the reform to ensure the capital sufficiency of the two GSEs to completely fulfill their guaranty obligations and debt repayments. The government will not pursue any policies or measures that may impair the capability of the two companies to carry out their obligations. In determining a timetable for the reform, the U.S. government will take into account many factors, such as the process of economic restoration and the conditions in the financial market. As for China, our country has always complied with the principle of security, liquidity, value maintenance, and appreciationin handling its foreign exchange reserves. Prudent efforts have been made to implement multiple investment strategies as a way to guard against potential risks. As a result, the main potential risks to the bond investments in the two GSEs have been effectively defused. 2011-02-12/en/2011/0212/984.html
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Recently, a meeting was held in Beijing by the State Administration of Foreign Exchange (SAFE) to circulate information about the situation regarding inspections of the foreign exchange businesses operated by banks. Deng Xianhong, deputy administrator of the SAFE, attended the meeting and delivered a speech. Representatives from 21 Chinese-funded banks and 7 foreign-funded banks attended the meeting. It was stressed at the meeting that due to the drastic changes in the domestic and international economic and financial environments, the SAFE has taken active steps to prevent risks from abnormal cross-border fund flows and to crack down strongly on various types of violations of the foreign exchange laws and regulations. During the past two years, the SAFE carried out in succession a series of special inspections throughout the country of the foreign exchange businesses operated by banks. The results show that the designated foreign exchange banks have enhanced their awareness of regulatory compliance and risk prevention and have made improvements to comply with the regulations. But it was also discovered that some banks are still operating in breach of the foreign exchange regulations. The meeting circulated information about the banks violations of the regulations with respect to the operation of foreign exchange businesses. Typical examples of violations include: failure to fulfill the obligation to examine authenticity when handling agent businesses, violating the regulations for the administration of foreign exchange accounts, declaration of the balance of payments, capital fund and settlement and sales of exchange by individuals; violations of the regulations with regard to external debt, the comprehensive position of exchange settlement and sales, capital conversions of home and foreign currencies, and so forth, when handling foreign exchange businesses. Meanwhile, there are some specific phenomena in bank operations that require attention. These are: the constant low-level of operations of the comprehensive position by some banks, the hyper-normal increase in foreign exchange loans by some banks, and the increase in the number of interest arbitrage trade financing products by some banks. These violations can be attributed to three factors: the first is that some banks are weak in their awareness of regulatory compliance and driven by profit-making motives, some banks have deliberately lowered standards to examine authenticity; the second is that the internal control mechanisms of some banks are still imperfect, and their capability to execute their management system is weak; the third is that since the outbreak of the global financial crisis, some banks, driven by profit-making motives, have increasingly focused on business expansion and have overlooked regulatory compliance in their business operations. Some representatives of the banks spoke at the meeting. They introduced their operations of foreign exchange business and some specific measures for enhancing the construction of internal control systems, optimizing foreign exchange business procedures, upgrading relevant techniques, and so on. They also made some suggestions about further refining foreign exchange administration policies, promoting policy dissemination and training, strengthening communications between the SAFE and banks, as well as other foreign-related economic entities. The meeting established the requirement that all banks shall conscientiously follow the concept of operating prudently and developing in a scientific manner. Banks are required to actively undertake their social responsibilities and to operate in strict compliance with the policies on foreign exchange administration. Looking into the future, on the one hand the SAFE will continue to uphold a people-oriented philosophy, strive to improve the quality of services, achieve the Five Transformations, and take practical measures to facilitate the operations of banks, enterprises, and individuals. On the other hand, efforts will be made to constantly refine foreign exchange administration policies, to enhance statistics, monitoring, and analysis, to strengthen foreign exchange inspections, to adopt a combination of inspections both on a regular and irregular basis, to constantly expand the scope of inspections, to increase the frequency of inspections, to further intensify efforts to punish violations of the foreign exchange laws and regulations, to effectively check illegal foreign exchange transactions, such as the inflow of hot money, and to promote the healthy and stable development of the foreign-related economy and finance. 2010-07-29/en/2010/0729/942.html