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Since the July 2005 reform of the mechanism for setting the Renminbi exchange rate in July 2005, there have been increasing varieties of trading products on the Chinese foreign exchange market. The country has witnessed steady development of Renminbi-against-forex forwards and foreign exchange swaps on the market where banks provide services to their clients and on the inter-bank foreign exchange market. In August 2007, Renminbi-against-forex currency swaps were introduced into the inter-bank foreign exchange market. In order to further satisfy the requirements of market entities for hedging exchange-rate risks and to promote the development of the foreign exchange market, the State Administration of Foreign Exchange recently promulgated the Circular on Issues Concerning Foreign Exchange Administration for Renminbi-Against-Forex Currency Swaps Provided by Designated Foreign Exchange Banks to Their Clients (hereinafter referred to as the Circular), indicating the introduction of Renminbi-against-forex currency swaps into the market where banks provide services to their clients. The Circular will enter into force as of March 1, 2011. The Circular mainly covers three issues: (1) simplifying administration of market admittance. Banks that have acquired one-year qualifications for handling Renminbi-against-forex swaps for clients are allowed to provide currency swaps to their clients without having to receive approval from the SAFE; (2) facilitating market transactions. Transaction elements such as currencies and terms in the currency swaps provided by the banks to their clients will be determined at the discretion of the banks; (3) interest rates in currency swaps will be determined by both parties to the contract through negotiations, and shall comply with the regulations of the Peoples Bank of China on the administration of deposit and lending rates. Promulgation of the Circular will provide more opportunities for enterprises to select instruments to hedge risks caused by exchange rates and interest rates, and will play a positive role in promoting the development of Chinas foreign exchange market and enhancing the risk-hedging awareness and capability of enterprises. 2011-01-30/en/2011/0130/981.html
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Recently there has been media coverage indicating that China may suffer huge losses from its investments in bonds issued by the U.S.-based Fannie Mae and Freddie Mac, and the losses may amount to 450 billion U.S. dollars. An interview was conducted on relevant issues by officials of the SAFE. Q: There has been media coverage that China may suffer great losses from its investments in bonds issued by the U.S.-based Fannie Mae and Freddie Mac, and the amount may reach up to USD450 billion. Is this true? If so, what is the actual amount? A: The white paper concerning the reform of Fannie Mae and Freddie Mac soon to be issued by the U.S. Treasury Department has aroused widespread concern that China may suffer losses in its foreign exchange reserves. There has been media coverage indicating that the lossesmay amount to 450 billion U.S. dollars. These reports are utterly groundless. Up to now there have been smooth capital repayments with interest from Chinas bond investments in Fannie Mae and Freddie Mac by capitalizing on the foreign exchange reserves. No losses have been incurred. Based on the relevant indices that are widely used by the market, during the three years from 2008 to 2010, Chinas annual average rate of return on its bond investments in Fannie Mae and Freddie Mac hovered around 6%. The country has never allocated its foreign exchange reserves for stock investment in Fannie Mae and Freddie Mac. So the decline in the stock price and the delisting of the stocks of the two companies have no effect on Chinas foreign exchange reserves. We conscientiously manage our reserve assets and invest responsibly in the international market. Security is our top priority for any investment with our foreign exchange reserves. We have taken effective measures to guard against any possible risks, and potential risks have been defused risks defused effectively. The SAFE will continue to operate the foreign exchange reserves in compliance with the established principles and will take active steps to implement prudent investment strategies so as to ensure the security of our reserve assets and to achieve reasonable returns on our investments. 2011-02-11/en/2011/0211/983.html
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In order to further direct and standardize the verification of indirect declarations of statistics on the balance of payments which is conducted by the foreign exchange authorities at all levels, the State Administration of Foreign Exchange recently issued the newly-revised System for the Verification of the Indirect Declaration of Statistics on the Balance of Payments (hereinafter referred to as the Verification System), which will come into force as of February 1, 2011. The revision mainly covers the following five issues: (1) improvements to the 2003 version of the Verification System and based on the existing system for indirect declarations of statistics on the balance of payments and the functions of its application system, the previous verification system was nullified; (2) the key tasks for verification of large-amount transactions and major transaction items were incorporated into the Verification System, with the previous provisions on the relevant verification incorporated into the Verification System, and the previous verification system for large-amount transactions is nullified; (3) the relevant quantitative indices involved in the verification are adjusted based on current circumstances; (4) the process for on-site verifications and the key tasks for the verifications of large-amount transactions are standardized; (5) the measures taken by the Departments of the Balance of Payments of the SAFE to impose penalties on acts in breach of the regulations on the declaration of statistics on the balance of payments and the operational procedures for transferring relevant cases to the authorities for foreign exchange inspections are specified. The revision of the Verification System will better reflect operations of the existing declaration of statistics on the balance of payments and its supporting system. Furthermore, the revision will improve the standards for verification of data declaration and clarify the operational procedures for the verification, which will play an active role in standardizing the law-based administration of statistics on the balance of payments, increasing the efficiency of the verification and improving the quality of the data declaration. 2011-01-20/en/2011/0120/979.html
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In order to properly direct the flow of cross-border funds, to prevent the inflow of illegal funds, and to maintain the security of the foreign-related economy and finance, the State Administration of Foreign Exchange recently promulgated the Circular of the State Administration of Foreign Exchange on Relevant Issues Concerning Further Strengthening the Administration of Foreign Exchange Business (Hui Fa [2011] No.11, hereinafter referred to as the Circular). The Circular mainly covers four areas: (1) further strengthening administration of the bankscomprehensive positions for foreign exchange settlement and sales and reducing the lower limit of the negative positions of the bankssettlement and sales of foreign exchange on a cash basis based on the various circumstances; (2) strengthening administration of foreign exchange for transit trade, and incorporating the proceeds from transit trade into the administration of the to-be-verified accounts; (3) appropriately reducing the basic proportions of enterprise quotas for foreign exchange receipts and payments in terms of advances on sales under trade in goods and deferred payments for a term of over 90 days; (4) further reducing the aggregate quota for short-term external debts of domestic financial institutions, and appropriately reducing the quotas for the outstanding short-term external debts of banks with relatively large amounts of inter-bank deposits and lending. Promulgation of the Circular will play an active role in further regulating cross-border fund flows as well as checking the inflows and exchange settlement of illegal funds. 2011-03-30/en/2011/0330/988.html
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According to statistical data released by the State Administration of Foreign Exchange (SAFE), in January 2011 the amount of foreign exchange settlement and sales by banks on behalf of clients amounted to USD150.3 billion and USD81.9 billion respectively. The surplus of foreign exchange settlement and sales by banks on behalf of clients amounted to USD68.4 billion. During the month, foreign-related receipts and payments by domestic banks on behalf of clients amounted to USD186.7 billion and USD150.7 billion respectively, and the surplus of foreign-related receipts and payments reached USD36 billion. 2011-03-04/en/2011/0304/986.html
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Special Topic III In recent years, the overall scale of China ’s foreign trade and overseas investment has been expanding. While strictly examining the authenticity of the trade and investment and firmly cracking down on irregular cross-border capital flows, the foreign exchange authorities continuously improved the management methods and simplified the formalities and procedures for handling foreign exchange business, making them the starting point and the goal of the work to actively promote the facilitation of trade and investment and striving to create a comfortable and convenient environment for the utilization of foreign exchange by enterprises and individuals. I. Transforming the methods, improving efficiency, and effectively meeting the demands for foreign exchange under the current account Actively promoting the reform of the foreign exchange administration system for trade in goods. In May 2010, the foreign exchange authorities implemented the reform of the verification and writing-off system of foreign exchange payments for imports through such methods as the “Pilot before Promotion”; in December 2011, on the basis of a summary of the experience in the verification and writing-off reform, the foreign exchange authorities carried out a pilot reform on the integration of the verification and writing-off system for imports and exports in 7 provinces (cities), such as Jiangsu and Shandong, established a new management mode for trade in goods with such characteristics as aggregate screening, dynamic monitoring, and classified management, simplified the document examination requirements for foreign exchange payments for imports, cancelled the procedures for the verification and writing-off of foreign exchange collections from exports and the online inspections of foreign exchange collections and settlements from exports, and reduced the number of administrative licensing items under trade in goods from six to two. After the reform, the receipts and payments of foreign exchange for imports and exports of enterprises that operate according to the law are not required to handle the procedures for the online inspections and the verification and writing-off on a case-by-case basis, and these can be directly handled by the banks upon the strength of the commercial documents. The operating costs for the enterprises and banks were significantly reduced. Supervision by the foreign exchange authorities is focused on the few enterprises with suspicious and irregular activities, which significantly improves the level and efficiency of supervision. This is widely welcomed and supported by the local governments and the various circles in society. Permitting overseas deposits of export revenue, and actively supporting enterprises to “Go Out.” The policy of overseas deposits of export revenue was implemented for trial in four provinces (cities) such as Beijing and Guangdong from October 1, 2010. On January 1, 2011, the policy was expanded nationwide. At present, qualified enterprises may, after handling certain procedures, deposit export revenue overseas on the basis of their operating needs, for payment of import costs, for certain expenditures under trade in services, and for approved expenditures under the capital account. Implementation of this policy facilitated cross-border capital operations of Chinese enterprises, improved the efficiency of capital utilization, and played an active role in supporting the enterprises to “Go Out.” Facilitating receipts and payments under trade in services, and actively supporting economic structural adjustments. The foreign exchange authorities actively implemented the strategic policy of the State to transform the economic growth mode and to accelerate the development of the services industry, promoted the facilitation of foreign exchange receipts and payments under trade in services, and provided enterprises engaging in industries such as services outsourcing or tourism with policy benefits in such areas as the opening of foreign exchange accounts and fund exchanges. The foreign exchange authorities further improved management of external payments of foreign exchange, defined the scope of transactions for which tax certificates are not required to be submitted, unified the tax certificate form, and facilitated the handling of the procedures for external payments of foreign exchange by enterprises and banks. The foreign exchange authorities accelerated promotion of the reform of the management methods for trade in service. Cancelling the quota management and improving the independence and enhancing the autonomy and convenience in the use of foreign exchange. In 2007, the foreign exchange authorities cancelled the quota management on foreign exchange accounts under the current account of enterprises so that they may reserve foreign exchange revenue under the current account on the basis of their operating needs. This further improved the autonomy and convenience for enterprise in holding and utilizing foreign exchange and helped the enterprises strengthen fund management and improve capital utilization efficiency. II. Proceeding steadily and step by step, making orderly progress, and effectively supporting cross-border investments and financing activities. Simplifying foreign exchange administration procedures for foreign direct investment, and utilizing scientific and technological means to improve the level of service. The foreign exchange authorities simplified the foreign exchange settlement procedures for foreign exchange capital of foreign-invested micro-credit companies and effectively supported the development of small and micro enterprises and the rural economy. The foreign exchange authorities carried out pilots in some regions and permitted foreign-invested enterprises that conform to the industrial incentive policy to independently make arrangements for foreign exchange settlement of foreign exchange capital. The management mode of capital withdrawal for foreign direct investment was changed from an examination and approval system to a registration system. An information system for the administration of foreign exchange with respect to direct investments was developed to facilitate the handling of the relevant business by enterprises through the Internet. A mode of centralized management and operation of foreign exchange funds was established and improved to facilitate improvements in the efficiency of capital utilization by enterprises, to reduce financing costs, and to accelerate the process for China’s financial service industry to reach international standards. Energetically carrying out the reform of foreign exchange administration for overseas investments, and strengthening the support system for financing by overseas investment enterprises. While facilitating the practice of “Inviting In,” the foreign exchange authorities further deepened the “Going Out” development strategy. In 2009, a simple and clear system to manage registration of foreign exchange overseas investments was established. The foreign exchange authorities permitted qualified domestic enterprises to grant overseas loans within a certain quota, simplified the management procedures for external guarantees, relaxed the qualifications and conditions of debtors, cancelled the approval procedures for the performance of external guarantees by banks, supported domestic institutions to carry out overseas direct investments in RMB, and facilitated the subsequent financing of overseas enterprises. Improving external debt policy and supporting the development of the real economy. While implementing moderately tight control over short-term external debt, the foreign exchange authorities continued to support import trade financing of banks and allowed usance letters of credit with a term of 90 days and below and import advance bills by overseas institutions with a term of 90 days and below not to be included in the short-term external debt quotas. The foreign exchange authorities optimized the quota distribution structure for banking financial institutions, appropriately distributed more quotas to small and medium joint-stock banks and local banks whose trade financing business had developed rapidly in recent years, improved the efficiency of quota utilization, and helped solve the “financing difficulty” problems of enterprises. The foreign exchange authorities formulated measures to facilitate Chinese-funded enterprises to borrow short-term external debt, domestic loans with overseas guarantees, and RMB loans with foreign exchange as pledges, gradually narrowed the difference between the financing policy for Chinese-funded enterprises and that for foreign-funded enterprises, and actively supported the financing demands of Chinese-funded enterprises. III. Relying on technology, improving methods, and continuously optimizing foreign exchange information services The foreign exchange authorities comprehensively integrated the information system and data in terms of foreign exchange administration, for example, by cooperating with the reform of the foreign exchange administration system for trade in goods, developing and applying the Foreign Exchange Monitoring System for Trade in Goods, and integrating the original nine operating systems for foreign exchange management business for trade into one system. Furthermore, the foreign exchange authorities changed the situation whereby different foreign exchange business systems dealt with the enterprises and the banks separately, established three major application portals that deal with the foreign exchange authorities, the banks, and the enterprises, realized conditions whereby “accessing the network through one portal, only one login and authentication was required, and one-stop services,” and significantly facilitated the operations of enterprises and banks. The foreign exchange authorities fully developed and made use of the Internet to improve the transparency of management information, which not only improved the efficiency of foreign exchange business for banks and enterprises, but also was beneficial for foreign exchange-related subjects such enterprises and banks to strengthen internal management. The foreign exchange authorities energetically promoted comprehensive information sharing with the customs and tax authorities, and established a joint supervision and service mechanism, which provided an effective means for strengthening the monitoring and analysis of cross-border capital flows and for improving the capability to precisely crack down on unusual transactions. While continuously promoting the facilitation of trade and investment, the foreign exchange authorities actively created a comfortable and convenient environment for the utilization of foreign exchange by individuals. From 2007, a management method based on an annual quota has been implemented for foreign exchange settlement and purchases by domestic individual residents; foreign exchange settlement and purchases by domestic individual residents within USD 50,000 could be directly handled by the banks upon the strength of their identity certificates, significantly simplifying the procedures for foreign exchange settlement and purchases by individuals. Meanwhile, qualified banks are permitted to carry out individual foreign exchange settlement and sales business through E-banks, thereby enriching the channels for individuals to handle their foreign exchange settlement and sales business. In 2012, the foreign exchange authorities will deeply implement the spirit of the Central Economic Work Conference and the National Financial Work Conference, grasp well the general focus of the work for “Steady Development,” energetically promote the facilitation of trade and investment, and actively improve the level of foreign exchange administration to serve economic development premised on controllable risks. The foreign exchange authorities will choose opportunities to expand nationwide the reform of the foreign exchange administration system for trade in goods; promote the foreign exchange administration reform for trade in services and insurance institutions; rely on technological means, continue to streamline administration, institute decentralization, and optimize procedures under foreign direct investment; gradually integrate and optimize the procedures for handling of the foreign exchange management business for capital accounts, such as investments and external debt; and establish and improve the platform for the monitoring and analysis of cross-border capital flows, while also improving the efficiency of supervision of cross-border capital flows and facilitating trade and investment activities. 2012-03-26/en/2012/0326/1039.html
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Editor’s note: The State Administration of Foreign Exchange (SAFE) recently conscientiously studied and implemented the spirit of the National Financial Work Conference, comprehensively summarized the practice of reform and development of foreign exchange administration during the past five years, and set forth the tasks for foreign exchange administration during the next period. During the last five years, the SAFE, under the strong leadership of the CPC Central Committee and the State Council, adhered to the theme of scientific development, the main line of accelerating the transformation of the pattern of economic development, and the essential financial requirements serving the real economy, closely focusing on the central task of promoting a basic equilibrium in the balance of payments, unswervingly carrying forward the reform of the foreign exchange administration system, energetically promoting the facilitation of trade and investment, sticking to the risk limits, establishing a system and mechanism for protection against the risks of cross-border capital flows, successfully dealing with the impact of the international financial crisis, effectively guarding against economic and financial risks, and effectively promoting the steady and rapid development of the national economy. In order to better implement the spirit of the National Financial Work Conference and to facilitate learning among various social circles about the progress in the reform and development of foreign exchange administrations, we will provide a detailed description of relevant information related to several special topics. Special Topic I An Interview with a Relevant Official of the State Administration of Foreign Exchange on Issues Concerning the Balance-of-Payments Situation Question 1: One of the current main targets of macro-control in China is to promote a basic equilibrium in the balance of payments. How much progress has been achieved in reaching this target? Answer: The CPC Central Committee and the State Council place high priority on the development of an internal and external equilibrium in the economy, treat the promotion of an equilibrium in the balance of payments as an important task to maintain macro-economic stabilization, and is actively “expanding domestic demand, adjusting the structure, reducing the surplus, and promoting a balance of payments.” In recent years, this work has gradually achieved results, and the balance of payments is approaching a basic equilibrium. In 2007, the proportion of the surplus in China ’s current account to GDP reached a historic high of 10.1 percent; in 2008, the proportion fell to about 9 percent; and in 2009 and 2010, the proportion fell to about 5 percent. In 2011 the proportion of China ’s current account surplus to GDP is expected to be about 3 percent, which is well within the internationally accepted reasonable range. Question 2: What is the main reason for the continuous improvement in China ’s balance-of-payments situation? Answer: There are internal reasons as well as external reasons, structural factors as well as cyclical factors, and the effect of the market as well as the influence of policy. First, accelerating the transformation of the pattern of economic development and adjusting the economic structure to substantially promote an improvement in the balance-of-payments situation. In recent years, the harmony and endogeneity of China ’s economic development have been further improved, and the growth of three major demands, investment, consumption, and exports, has become more balanced. In 2011, the contribution rate of domestic demand to China ’s economic growth was 106 percent, of which the contribution rate of final consumption increased from 37 percent in 2010 to 52 percent in 2011. Second, accelerating policy adjustments for the foreign economy, gradually eliminating the structural and institutional obstacles that affect the balance of payments equilibrium. In terms of trade policy, China has given full play to the role of imports in the macro-economic equilibrium and structural adjustment. Beginning from 2008, the import growth rate has exceeded the export growth rate. In 2011 the trade surplus decreased by 48 percent compared with 2008. In terms of foreign investment policy, China continuously accelerated implementation of the development strategy of “Going Out.” During the Eleventh Five-Year Plan period, the annual net outflow of China ’s overseas direct investments has been USD 39.1 billion, 8.7 times the figure during the Tenth Five-Year Plan period. In terms of foreign exchange administration policy, on the one hand, China strengthened monitoring of cross-border capital flows and intensified efforts to crack down on hot money inflows; on the other hand, China actively promoted facilitation of trade and investment and encouraged institutions and individuals to hold and use foreign exchange. Third, changes and developments in international economic and financial situations promoted an improvement in China ’s balance-of-payments situation. Beginning from 2008, world economic growth has been slowing down, the international financial turmoil has been becoming worse, and there has been a continuous trend of global deleveraging. On the one hand, this placed constraints on the growth of foreign demand and resulted in the narrowing of the surplus of trade in goods; on the other hand, this stimulated periodic outflows of arbitrage capital from China and intensified fluctuations in cross-border capital flows. Question 3: Specifically, in terms of promoting a basic equilibrium in the balance of payments, what measures are being taken by the foreign exchange authorities? Answer: In recent years, the foreign exchange authorities have been treating scientific development as the theme, and the acceleration of the transformation in the pattern of economic development as the main line, and have actively cooperated with the macro-control by the state and have taken measures in different areas to control inflows, promote outflows, reduce the surplus, and promote the balance of payments. First, strengthening the monitoring and early warning system for the bidirectional flow of cross-border capital and the balanced management of outflows and inflows of cross-border capital; second, continuously enriching the tools for managing cross-border capital flows, improving the emergency response plan, and effectively guarding against the risks of massive cross-border capital flows; third, intensifying management of unusual capital inflows, emphasizing priorities, and rigorously cracking down on illegal and irregular capital inflows; fourth, promoting reform in key areas and key links of foreign exchange administration, expanding the channel for the utilization of foreign exchange funds, developing the foreign exchange market, and continuously improving the market mechanism and management system for the adjustment of the balance of payments. The above measures have achieved initial results. In 2011 the cross-border receipt and payment surplus and the foreign exchange settlement and sales surplus of the non-bank sector decreased by 9 percent and 8 percent respectively from the last year, and the increment in foreign exchange reserves (setting aside the changes in the exchange rate and asset prices) decreased 18 percent; a unilateral appreciation of the RMB was expected to fail, and there was an initial bidirectional fluctuating pattern in the RMB exchange rate. Question 4: In 2012, how will China ’s balance-of-payments situation develop and change? Answer: At the end of 2011, under the combined influence of domestic and foreign factors, market and policy factors, as well as other factors, fluctuations in China ’s cross-border capital flows intensified and pressures of capital outflows suddenly increased. It is expected that in 2012 China’s balance of payments will still maintain a surplus; however, the surplus will decrease amidst more fluctuations, and the balance of payments will further approach an equilibrium. The main reasons are as follows: First, due to the effects of the European sovereign debt crisis, the recovery of the world economy is very slow, and this will adversely affect China’s export growth; however, China’s structural problem whereby there are more savings than investments will be difficult to resolve in the short term; therefore, China’s current account, including trade in goods, will hopefully continue to maintain a surplus. Second, China accelerated the transformation of the pattern of economic development and actively implemented policies and measures to enlarge domestic consumption demand and promote imports; foreign trade development has become more balanced, and the receipts and payments under the current account are further approaching an equilibrium. Third, external impacts will not change the long-term trend whereby China ’s economy will maintain steady and rapid development, and international capital, in particular long-term capital, will continue to flow into China . Fourth, it will be difficult to resolve the structural problems of the developed countries in the short term, various contradictions will be intertwined with one another, and international economic and financial turmoil will continue; therefore, China may face the risk of frequent flows of cross-border capital, even periodic outflows of arbitrage capital. Question 5: In terms of promoting a basic equilibrium in the balance of payments, what measures will be taken by China in the future? Answer: Despite the fact that at the end of 2011, China ’s foreign exchange reserve growth had slowed down with the emergence of the pressure of capital outflows, the increment for the whole year was still significant. Furthermore, many fundamental factors that resulted in the balance of payments surplus have still not changed, and the external environment will continue to be subject to uncertainties; therefore, efforts to promote a basic equilibrium in the balance of payments cannot be reduced. The Twelfth Five-Year Plan has already established that one of the main targets of economic and social development for the next five years will be that “the balance of payments will approach a basic equilibrium.” From a macro perspective, through structural adjustments China will further enlarge domestic demand, in particular consumption demand, transform the economic growth mode from one mainly depending on investment and exports to one that is driven by consumption, investments, and exports; China will promote more balanced foreign trade, accelerate implementation of the “Going Out” strategy, and take various measures to promote a basic equilibrium in the balance of payments. Meanwhile, the foreign exchange authorities will further strengthen monitoring of unusual cross-border capital flows, establish a system and mechanism for guarding against the impact of bidirectional flows of cross-border capital, deepen the reform in key areas, steadily promote convertibility under the capital account, and cultivate and develop the foreign exchange market. 2012-03-26/en/2012/0326/1037.html
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Special Topic II In recent years the foreign exchange authorities have firmly implemented the requirement put forward at the 17th National Party Congress to “institutionally give better play to the fundamental role of the market in resource allocation” and have accelerated the construction and development of China’s foreign exchange market; consequently, there have been increasing varieties of trade in the foreign exchange market , the group of trade participants has expanded continuously, the trading mechanism has improved, and the foundation and capability of the foreign exchange market to serve the real economy and allocate financial resources have been further improved. Increasing the varieties of trade to meet the diversified demands of market players to hedge against exchange-rate risks. Currency swap transactions were introduced to the inter-bank foreign exchange market and the bank-to-client market in August 2007 and March 2011, respectively, and foreign exchange options trading was introduced to the inter-bank foreign exchange market and the bank-to-client market in April 2011. By that time, China ’s foreign exchange market system already covered the basic products in the international foreign exchange market. Furthermore, in order to reduce currency conversion costs for cross-border trade and investment and to enhance the banks’ risk management capabilities, since 2010 trading of the RMB against the Malaysian Ringgit, Russian Ruble, Australian Dollar, and Canadian Dollar has been gradually introduced and there are now nine tradable currencies from the developed economies and the new emerging market economies. Expanding market entities and building a multi-tiered market structure. While the group of bank market players continuously expanded, qualified non-bank financial institutions and non-financial enterprises were permitted to participate in trade in the inter-bank foreign exchange market to increase the diversity of foreign exchange supply and demand. At present, there are twenty-six finance companies of enterprise groups participating in inter-bank spot trade, and Shanghai Automotive Group Finance Co., Ltd. is the first company to carry out inter-bank forward trade. This plays an active role in supporting the enterprises to “Go Out” and reduces foreign exchange conversion costs. Perfecting market operational mechanisms and increasing the autonomy and flexibility of transactions. In order to give full play to the important role of the market in the selection of market makers and to adapt to the new situation whereby trade product categories on the inter-bank foreign exchange market are increasing and commercial banks’ market positioning is becoming more segmented, the market-maker system was further improved in August 2010; a trial market-maker business was introduced to the inter-bank foreign exchange market, and the access threshold for non-market-makers to engage in market-making competition was lowered. According to the Circular, a system for the grading of market-makers was established, and the liquidity and trading efficiency of derivative markets, including the forward-swap market, was improved. The appraisal mechanism for selecting superior market-makers and eliminating inferior market-makers has been perfected and the initiative of market-makers in participating in market-making has been enhanced. In accordance with voluntary and merit-based principles, as of the end of 2011, 26 spot market-makers and 20 forward swap market-makers had been approved, 8 commercial banks had been approved as spot market-makers, and 10 commercial banks had been approved as forward swap market-makers. As the foreign exchange market developed, in order to further improve its liquidity and trading efficiency, in October 2008 currency brokerage companies were regulated and encouraged to carry out foreign exchange brokerage business in the inter-bank foreign exchange market to save the market participants’ time spent on inquiries, to facilitate anonymous quotes and to introduce new trading means, and to form a favorable supplementary and interactive mechanism among market participants, the China Foreign Exchange Trading System, and the currency brokerage companies. As of the end of 2011, Shanghai CFETS-ICAP International Money Broking Co., Ltd., Tullett Prebon SITICO ( China ) Ltd., and Ping An Tradition International Money Broking Company Ltd provided brokerage services for RMB-against-foreign exchange derivatives trade. Improving market infrastructure and guaranteeing sound development of the foreign exchange market. First, improving the foreign exchange trading system. In accordance with the objective needs for the development of China’s foreign exchange market, and on the basis of the utilization of advanced international experience, in 2007 the foreign exchange authorities provided the China Foreign Exchange Trading System with guidance on research and development and on online operations of a new generation of the foreign exchange trading system which reached then advanced level of mainstream international trading platforms. Second, improving capability to guard against risks. The foreign exchange authorities conformed to the needs for the development of the RMB-against-foreign exchange derivatives market, and in August 2007 promulgated China’s Master Agreement on RMB-against-Foreign Exchange OTC Derivatives, the first in China to put forward innovations such as the single agreement principle, netting settlement, and bilateral agreements, effectively reduced the credit risk of derivatives trading, provided trade participants with an effective guarantee on their market activities to guard against exchange-rate risks, and laid a foundation for the development and promulgation of the China Inter-bank Market Financial Derivative Transactions Master Agreement. Third, improving the foreign exchange trading settlement system. In order to adapt to the demands of the foreign exchange market for a more efficient and safer settlement arrangement, in June 2009 net settlement business was introduced to spot inquiry trade in the inter-bank foreign exchange market, and the domestic foreign exchange market began to implement a central counter-party system that is based on multilateral net settlement, which is beneficial to reduce credit risks and settlement risks of foreign exchange trade, to improve the capability to guard against systematic risks, and to promote the long-term development of the foreign exchange market, in particular, the derivatives market. Fourth, cultivating an honest and energetic environment for the development of the foreign exchange market. Since 2008, the foreign exchange authorities have been providing the China Foreign Exchange Trading System with guidance on selecting excellent market-makers in the inter-bank foreign exchange market, focusing on guiding the market-makers to improve their market-making services and cultivating an honest and energetic market environment. As of the end of 2011, 319 designated foreign exchange banks provide enterprises and individuals with domestic and foreign currency exchange business and 318 financial institutions participate in trade in the inter-bank foreign exchange market. From 2007 to 2011, the volume of trade on China’s foreign exchange market increased annually 40.3 percent, reaching USD 14.2 trillion (with the volume of daily trading at USD 58.1 billion), a fourfold increase from 2006. In 2012, the foreign exchange authorities will deeply implement the spirit of the Central Economic Work Conference and the National Financial Work Conference, grasp well the general emphasis on the work of “Steady Development,” continue to steadily promote the construction and development of the domestic foreign exchange market, and promote the steady and rapid development of the economy. 2012-03-26/en/2012/0326/1038.html
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According to statistical data released by the State Administration of Foreign Exchange (SAFE), in November 2011 the amount of foreign exchange settlement and sales by banks on behalf of clients amounted to USD128.9 billion and USD129.7 billion, respectively. The deficit in foreign exchange settlement and sales by banks on behalf of clients amounted to USD800 million. For the first eleven months of 2011, the cumulative amount of foreign exchange settlement and sales by banks on behalf of clients amounted to USD1455.3 billion and USD1072.2 billion respectively. The surplus of foreign exchange settlement and sales was USD383.1 billion. In November 2011, foreign-related receipts and payments by domestic banks on behalf of clients amounted to USD210.8 billion and USD192.9 billion, respectively, and the surplus of foreign-related receipts and payments reached USD17.9 billion. For the first eleven months of 2011, the cumulative foreign-related receipts and payments by banks on behalf of clients amounted to USD2107.5 billion and USD1830.7 billion respectively; and the surplus of the cumulative foreign-related receipts and payments reached USD276.8 billion. Annex: Glossary and relevant definitions The Balance of Payments refers to all economic transactions occurring between residents and non-residents in China, including all financial transactions and barter transactions resulting in changes in the assets and liabilities of the residents and non-residents. Foreign exchange settlement and sales by banks on behalf of clients refers to the business of foreign exchange settlement and sales conducted by designated foreign exchange banks for their clients, excluding data on foreign exchange settlement and sales conducted by designated foreign exchange banks on their own behalf or data on inter-bank foreign exchange market transactions. The time when the conversion between the Renminbi and the foreign currency occurs is regarded as the time point for the statistics. Specifically, foreign exchange settlement refers to the sale of foreign exchange to designated foreign exchange banks by owners of foreign exchange; foreign exchange sales refer to the sale of foreign exchange by designated foreign exchange banks to users of foreign exchange. The differences between the foreign exchange settlement and sales are regarded as an offset balance, which will be balanced by the banks through transactions on the inter-bank foreign exchange market. This is the major reason for changes in the amount of foreign exchange reserves, which is not equivalent to the net change in foreign exchange reserves during the same period. The principles for transactions between residents and non-residents do not apply to the preparation of statistics on foreign exchange settlement and sales by banks on behalf of clients, and such statistics only cover transactions of RMB and foreign currencies between the banks and their clients, namely, exchange transactions between RMB and foreign currencies that fall outside the category of the balance-of-payments statistics. Foreign-related collections and payments by banks on behalf of their clients refers to the collections and payments between domestic non-bank resident institutions/individuals (collectively called the “non-bank section”) and non-resident institutions/individuals through domestic banks, exclusive of the collections and payments in cash or the foreign-related collections and payments by the banks themselves -- in particular, cross-border receipts and payments between non-bank sectors and non-residents through domestic banks (including RMB and foreign exchange), and domestic receipts and payments between non-bank sectors and non-residents through domestic banks (currently including receipts and payments in foreign exchange and receipts and payments in RMB under the RMB settlement item for cross-border trade). The statistics are collected at the time when the clients conduct the foreign-related receipts and payments at the domestic banks. Specifically, foreign-related receipts of banks on behalf of clients refer to funds collected by non-bank sectors from non-residents via domestic banks; external payments by banks on behalf of clients refers to funds paid by non-bank sectors to non-residents via domestic banks. Although foreign-related receipts and payments of banks on behalf of clients are an integral part of the balance-of-payments statistics, the accounting method for the statistics, different from the accrual basis of the accounting required for the balance-of- payments statistics, is based on a cash basis. In addition, it merely reflects fund flows between the non-bank sectors and non-residents and does not include barter transactions and foreign transactions conducted by the banks themselves. Furthermore, the scope of the statistics on the foreign-related receipts and payments by banks on behalf of clients is smaller than the scope of the balance-of-payments statistics. 2012-03-26/en/2012/0326/1032.html
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TA national foreign exchange administration work conference was recently held in Beijing. The conference conveyed the spirit of the Sixth Plenary Session of the Seventeenth CPC Central Committee, the Central Economic Work Conference, and the Fourth National Financial Work Conference, providing an overall summary of work related to foreign exchange administration in 2011 and, based on an in-depth analysis of the current situation with respect to the economy, finance, and the balance of payments, setting forth the tasks for foreign exchange administration in 2012. At the conference Yi Gang, Vice President of the People’s Bank of China and Administrator of the State Administration of Foreign Exchange, delivered a report on foreign exchange administration work. Deputy Administrators Deng Xianhong, Fang Shangpu, Wang Xiaoyi, and Li Chao, Discipline Inspection Group Leader Yang Guozhong, and relevant responsible comrades in the branches (offices), divisions, and overseas offices of the SAFE attended the conference. It was pointed out at the conference that in 2011 the foreign exchange authorities did a relatively good job in accomplishing the main work objectives and tasks set forth at the beginning of the year, in accordance with the overall arrangements of the CPC Central Committee and the State Council, deeply implementing the scientific outlook on development and accelerating transformation of the concepts and methods of foreign exchange administration, while promoting the facilitation of trade and investment, effectively attaching more priority to slowing down the excessively rapid increase in the surplus of foreign exchange settlement and sales by banks, actively guarding against and cracking down on irregular inflows of hot money, steadily promoting the reform of the verification and writing-off system, and improving the operation and management of foreign exchange reserves. It was stressed that 2012 would be an important year as a connecting link between the 11th and 12th Five-Year Plans. Facing newly emerging situations, features, opportunities, and challenges in the economy both at home and abroad, the foreign exchange authorities should comprehensively implement the spirit of the 17th National Party Congress, the 3rd, 4th, 5th, and 6th Plenary Sessions of the 17th CPC Central Committee, the Central Economic Work Conference, and the 4th National Financial Work Conference, follow the guidance of Deng Xiaoping Theory and the important thought of the Three Represents, and deeply implement the scientific outlook on development; in accordance with the uniform arrangements of the CPC Central Committee and the State Council, they should accelerate the “Five Kinds of Transformations” of the concepts and methods of foreign exchange administration, strengthen the monitoring and management of cross-border capital flows, deepen the reform in key areas, and promote the steady and rapid development of the domestic economy. The conference set forth the key tasks for foreign exchange administration in 2012: first, sticking to the risk limits and constructing a system and mechanism for protection against the impact of cross-border capital flows; second, accelerating promotion of the reform in key areas of foreign exchange administration, doing a solid job in the work related to the pilot reform of the verification and writing-off for imports and exports and in the promotion of the said reform, gradually promoting convertibility under capital account, and accelerating the development of the foreign exchange market; third, further transforming the management methods and promoting the facilitation of trade and investment; fourth, improving the management system and mechanisms, and realizing the security, flow, and maintenance and appreciation of value in foreign exchange reserve assets; fifth, improving the regulatory system and the balance of payments statistical system, strictly adhering to law-based administration, and promoting the basic work of foreign exchange administration to a new level; sixth, further strengthening work related to Party building, clean government, cadre teams, and internal management. 2012-03-26/en/2012/0326/1035.html