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To bring into better play the vital role of the market in selecting the best market makers and to respond to the increasing varieties of trading products on the inter-bank foreign exchange market as well as the increasingly segmented market positioning of commercial banks, in August 2010 the State Administration of Foreign Exchange issued the Circular on the Printing and Distribution of Guidelines for Market Makers on the Inter-Bank Foreign Exchange Market (Hui Fa [2010] No.46), in which a trial market-making business was introduced into the inter-bank foreign exchange market, with more accessibility granted to non-market-makers to become involved in market-making competition. 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, were increased. The appraisal mechanism for selecting the superior market makers and eliminating the inferior market makers was perfected, and the initiative for market makers to participate in market making was enhanced. The Circular represents another important move on the part of the SAFE to speed up the development of the foreign exchange market as well as to gradually improve the market mechanism since the introduction of the market-maker system into the inter-bank foreign exchange market in January 2006. So far, by adhering to the principles of willingness and selecting the best, the SAFE has given the go-ahead to 26 spot market markers and 18 forward-swap market makers. Qualifications for a trial spot market marker and a trial forward-swap market maker were granted to 7 and 12 commercial banks respectively. For details thereof, please refer to the Namelist of Inter-bank Foreign Exchange Market Makers. FILE: Guidelines for Inter-bank Foreign Exchange Market Makers 2010-12-30/en/2010/1230/974.html
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To effectively control the cross-border flow of funds, to crack down on the inflow of hot moneyin violation of the relevant regulations, and to maintain the security of the foreign-related economy and finance, the State Administration of Foreign Exchange (SAFE) recently promulgated the Circular on Relevant Issues Concerning Strengthening the Administration of Foreign Exchange Operations (Hui Fa [2010] No. 59) (hereinafter referred to as the Circular). The Circular deals with seven issues: (i) strengthening administration of the banks comprehensive positions in the settlement and sales of foreign exchange, and implementing a minimum level of management of the banks balance of positions calculated on a cash basis; (ii) making adjustments to the policies on the administration of online inspections of foreign exchange collections and settlement for exports, reducing the proportion of foreign exchange collection from the processing of imported materials for the online inspections of foreign exchange collections and settlement for export, and strictly handling the procedures for the settlement or transfer of foreign exchange funds in accounts to be verified; (iii) strengthening administration of the quotas on the short-term external debts and the balance of external guarantees of financial institutions, and imposing tight restrictions on banks operations in excess of the quotas; (iv) strengthening administration of capital contributions by foreign-funded enterprises in overseas countries and regions, and further clarifying the requirements for the examination and verification of foreign exchange under circumstances when the actual payer is inconsistent with the overseas investor; (v) strengthening examination of the authenticity of the settlement of funds which are repatriated as capital raised from overseas listings in accordance with the requirements for tightening foreign exchange settlement for payments; (vi) regularizing administration of overseas incorporation of companies with special purposes by domestic institutions and individuals, and imposing penalties on enterprises and individuals operating in violation of the regulations in accordance with the law; (vii) increasing penalties on banks operating in violation of the regulations in the form of imposing fines, terminating relevant operations, circulating notices of criticism, and so forth, and investigating the responsibilities of the senior management staff who are directly liable for the violations. The promulgation of the Circular will further regularize cross-border flows of funds through such channels as trade, foreign direct investment, round-tripping investment, overseas listings, and so on, particularly administration of the bankscomprehensive positions for foreign exchange settlement and sales and short-term external debts. Promulgation of the Circular will strengthen the banks obligation to carry out examinations of authenticity in the handling of foreign exchange business, which will be conducive to further cracking down on the inflow and settlement of foreign exchange funds in violation of the laws and regulations, preventing financial risks caused by cross-border inflows of hot money,and thereby promoting the healthy and orderly development of Chinas economy and finance. 2010-11-09/en/2010/1109/965.html
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To deepen the reform of the foreign exchange administration system, boost the sustainable development of the foreign-related economy, and further promote the facilitation of trade, the SAFE recently promulgated the Circular on Issues Concerning Implementation of the Reform of the Verification and Writing-off System for Foreign Exchange Payments for Imports (hereinafter referred to as the Circular). It has been decided that the reform will be carried out as of December 1, 2010. The reform covers four areas: first, enterprises will no longer be subject to on-site verification procedures for the operation of routine business, greatly facilitating external payments for trade; second, the on-line verification procedures processed by the banks for foreign exchange payments by enterprises for imports have been lifted, lessening the burden on the banks and facilitating the routine business operations of the banks; third, the SAFE will make use of the directory for the administration of enterprises; the directory of enterprises that have a need for foreign exchange payments for imports will be shared nationwide, and foreign exchange remittances by enterprises in different regions will no longer be subject to recording in advance with the foreign exchange authorities; fourth, the SAFE will carry out off-site inspections, monitoring, and early warnings on enterprises via the Verification System for the Collection and Payment of Foreign Exchange under Trade, implement on-site verification of abnormal trading entities, identify the categories for the classified evaluation of enterprises, and implement classified administration. The reform of the verification and writing-off system for foreign exchange payments for imports represents a fundamental change to the current model of verification administration, and a constructive innovation in the foreign exchange administration system and trade mechanism. Implementation will: first, promote conceptual and practical innovation in foreign exchange administration, thereby realizing the transformation from case-by-case verification to aggregate verification, from on-site verification to off-site verification, and from behavioral supervision to subject supervision; second, lubricate the process of trade, streamline the procedures for foreign exchange payments for imports, reduce costs for enterprises, facilitate enterprise operations, and promote the smooth implementation of business activities by legitimate enterprises; third, play a positive role in guarding against risks; when there are any changes in the foreign exchange circumstances or any misbehavior by the trading entities, the foreign exchange authorities will be able to take effective measures to enhance on-site inspections of Class-B and Class-C enterprises, carry out strict measures for classified supervision, and impose penalties on enterprises that do not comply. 2010-10-27/en/2010/1027/961.html
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Initial estimates reveal that in Q3 of 2010 the current account and the capital and financial account (including net errors and omissions) continued to post a surplus and international reserves maintained a growing momentum. In Q3, the surplus under the current account totaled USD102.3 billion, a year-on-year increase of 103 percent as calculated on a comparable basis (the same below). Specifically, the surpluses in goods, income, and current transfers reached USD81.4 billion, USD14.5 billion, and USD10.8 billion, respectively, whereas the deficit in trade in services amounted to USD4.4 billion Meanwhile, China's surplus under the capital and financial account (including net errors and omissions) totaled USD5.7 billion. In particular, net inflows of direct investments amounted to USD23 billion. International reserve assets posted an increase of USD108 billion, a rise of 31 percent. Specifically, transactions in foreign exchange reserve assets registered an increase of USD107.3 billion (exclusive of the influence of non-transaction changes in value such as exchange rates and prices) and the reserve position in the IMF registered an increase of USD700 million. In the first three quarters of 2010, China's surplus under the current account totaled USD204 billion, an increase of 30 percent year on year; the surplus under the capital and financial account (including net errors and omissions) totaled USD82.1 billion; and international reserve assets posted an increase of USD286 billion, a rise of 7 percent year on year. 2010-11-25/en/2010/1125/968.html
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In recent years, in order to adapt to the new situation and new requirements of China’s opening up, the foreign exchange authorities, in light of the changes in the balance of payments situation, has actively carried out policy adjustments and systemic innovations, with a focus on expanding capital outflow channels, and has introduced a series of policies and measures on foreign exchange administration reform, thus, significantly improving the capital account convertibility level. The convertibility for direct investment is basically realized, and the level of investment facilitation is significantly improved In recent years, the foreign exchange authorities, by deepening the reform, streamlining administration and instituting decentralization, and optimizing processes, have created a favorable policy environment for attracting foreign investors to make direct investments in China, and have effectively supported the “going global” efforts of various types of domestic institutions to participate in international competition and cooperation. In terms of overseas direct investments, since 2006 the foreign exchange authorities have gradually lifted limits on the amount of foreign exchange purchases for overseas investments, and, at present, have realized the “supply of foreign exchange on the basis of needs” for overseas direct investments throughout the country. In 2009, the foreign exchange authorities further deepened the foreign exchange administration reform of overseas investments, changed the two procedures for administrative examination and approval, i.e., that for the examination of the source of the foreign exchange funds for overseas direct investments and that for approval for outward remittances of capital, into the procedure of ex-post registration, expanded the source of foreign exchange funds for overseas direct investments by domestic institutions, and began to allow domestic institutions to remit early stage expenses during the preparatory stage before formal establishment of their overseas projects. After the above reforms, in terms of foreign exchange administration of overseas direct investments, there are no prior approval procedures and convertibility is basically realized, which significantly facilitates enterprise participation in international economic and technological cooperation and competition. In terms of direct investments in China , the main procedures are registration administration and authenticity examination. In recent years, the foreign exchange authorities have defined and regulated foreign exchange administration in such areas as settlement of the foreign exchange capital of foreign-invested enterprises, foreign capital utilization in the real estate industry, and return investments, and have promoted the reasonable and effective utilization of foreign capital. The international investment position statistical data from the foreign exchange authorities indicate that as of the end of September 2011, the asset balance for direct investments in China by foreign investors was USD 1625.6 billion, and the asset balance for overseas direct investments was USD 345.5 billion, an increase by 1.65 times and 2.81 times respectively compared with the end of 2006. The level of convertibility for securities investments has improved significantly, and cross-border securities investments have become active In 2002 and 2006, China introduced the Qualified Foreign Institutional Investor (QFII) system and the Qualified Domestic Institutional Investor (QDII) system respectively; the former allows qualified foreign institutional investors to make investments in the domestic securities market, and the latter allows qualified domestic institutions to make investments in overseas securities markets. In 2007, the total QFII investment quota was increased from USD 10 billion to USD 30 billion upon the approval of the State Council. Thereafter, the foreign exchange authorities issued a series of normative documents and further improved foreign exchange administration of cross-border securities investments. As of March 9, 2012, the foreign exchange authorities had approved a total of USD 24.55 billion in investment quotas to 129 QFIIs (excluding the 2 QFIIs whose quotas were cancelled), and a total of USD 75.247 billion in investment quotas to 96 QDIIs. The foreign exchange authorities actively promoted work related to the pilot program of domestic securities investments by RMB Qualified Foreign Institutional Investors (RQFII). In December 2011, on the basis of the formulation of the pilot measures related to the RQFII together with the relevant departments, the foreign exchange authorities timely issued supporting provisions on foreign exchange administration and allocated the RQFII investment quota in accordance with such principles as appropriately considering the level of operations and the type of product risks. As of January 2, 2012, the foreign exchange authorities had allocated the first batch of the RQFII investment quota, a total of RMB 20 billion. The steady implementation of the above system has preliminarily established a bidirectional flow mechanism for capital under securities investments, promoted the opening up and development of the domestic capital market, expanded the overseas investment channels for domestic institutions and individuals, and better met the objective requirements of domestic and overseas market players to make cross-border securities investments. Bidirectionally developing the cross-border claim and debt business, steadily promoting the convertibility of other investments In order to increase policy support for subsequent financing of enterprises established overseas, and to support those enterprises that have “gone global” to develop better and faster, in 2009 the foreign exchange authorities began to allow qualified enterprises of various types, upon approval, to use, within a certain limit, their self-owned foreign exchange, foreign exchange purchased with RMB and other permitted foreign exchange to grant overseas loans, and such matters as the opening of special foreign exchange accounts for overseas loans, the domestic transfer of funds, and foreign exchange purchases began to be directly handled by designated foreign exchange banks. In 2009, in order to support post-disaster reconstruction in Sichuan and to support Guangdong to continue to give play a forefront role in the reform, the foreign exchange authorities allowed Chinese-funded enterprises in Sichuan and Guangdong to borrow short-term external debt within a certain limit, and in 2010 promoted this policy nationwide on the basis of a summary of the pilot experience. In 2010, the foreign exchange authorities further simplified the management procedures for external guarantees, cancelled the approval procedures for the banks’ external guarantee performance, relaxed the qualification requirements for the debtor and the restrictions on financial indicators, and expanded the business scope of external guarantees. Implementation of the above policies relieved the problems of overseas investment enterprises, such as financing difficulties and insufficient working capital, and also steadily promoted improvement in the convertibility level of other investments. Streamlining administration and instituting decentralization, and further improving the level of convertibility under the capital account The foreign exchange authorities actively simplified the procedures for administrative examination and approval, and each year introduced multiple measures to simplify the business examination procedures. First, they adjusted the management methods of some businesses from examination on a case-by-case basis to aggregate control. For instance, in 2010 the policy for management of external guarantees was reformed, the previous management method of case-by-case approval was adjusted to annual balance control, and the enterprises may handle the business themselves without the approval of the foreign exchange authorities. Second, they granted more authority to the branches and sub-branches of the SAFE, and integrating the overlapping administrative functions. In recent years, the foreign exchange authorities simplified dozens of business examination procedures, such as those for opening capital accounts in other localities, transferring the property of individuals overseas, and partial market withdrawal under the securities investments, and simplified the materials required for business examinations. Third, some businesses which were originally examined by the foreign exchange authorities were authorized to be handled by the banks. For example, with respect to such businesses as those related to foreign exchange purchases or payments for the profits of foreign investors in some financial institutions with foreign capital participation, the foreign exchange to be used for payment of overseas listing expenses from China by the overseas listed domestic companies, and the record of the transfer of the foreign exchange capital gained through the reduction in state-owned shares in overseas listed companies to the National Social Security Fund are currently directly handled by the banks. These measures help reduce the costs to the enterprises and the burden on society, improve operating efficiency, and also further improve the level of convertibility under the capital account. The foreign exchange authorities will steadily and orderly promote capital account convertibility for the Renminbi in accordance with the relevant requirements of the Twelfth Five-Year Plan and the National Financial Working Conference. On the basis of the specifications, the foreign exchange authorities will expand the use of RMB in cross-border trade and investment. The foreign exchange authorities will gradually expand capital outflow channels, encourage qualified institutions in China to “go global,” and relax the restrictions on overseas investments by domestic residents. The foreign exchange authorities will gradually expand the opening up of the domestic financial market and establish a system and mechanism for guarding against the impact of bidirectional flows of cross-border capital. As an important content of the reform of China ’s foreign exchange administration system, capital account convertibility for the Renminbi is not the ultimate goal. The realization of capital account convertibility for the Renminbi is a gradual process and a systematic project involving many departments, and relevant reforms are required to promote coordination and an improved capability to cope with external impacts. During the process of promoting convertibility under the capital account, the foreign exchange authorities will keep a close eye on economic development at home and abroad and will take measures for promoting convertibility that are consistent with China’s stage of economic development, the level of market development, the tolerance of enterprises, the level of financial supervision, and the international financial environment. While relaxing some controls, the foreign exchange authorities will continuously improve and strengthen macro and prudential supervision, further improve statistics, monitoring, and early warnings of cross-border capital flows, effectively guard against the impact of capital flows, and safeguard the economic and financial security of China . 2012-06-07/en/2012/0607/1055.html
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To implement the State Council's requirements that the financial community support the growth of the real economy, provide more conveniences for trade and investment and promote the development of trade in services, the State Administration of Foreign Exchange (SAFE) recently issued the Circular on Printing and Forwarding the Regulations on Foreign Exchange Administration for Trade in Services (Hui Fa [2013] No.30, or the “Circular”), stating that a nationwide reform of foreign exchange administration will kick off on September 1, 2013. To further clarify this reform, the relevant person-in-charge at the SAFE was interview by a journalist. Q: What is the background of this reform? A: During the 12th Five-Year Plan period, a critical period in building China into a moderately prosperous society and in promoting the development of the service sector, an acceleration of the development of the service sector is very important to advance the economic restructuring and the upgrading and optimization of the industrial structure. As stated in the 12th Five-Year Plan for the Development of the Service Sector by the State Council, in order to further expand the opening-up of the service sector efforts should be stepped up to rigorously develop trade in services by establishing a promotion system, enhanced laws and improved regulations, and offering more conveniences. The Guidelines of the General Office of the State Council on the Financial Community's Support for Economic Restructuring, Transformation, and Upgrading also state that the foreign exchange administration system for trade in goods and services must be improved by advancing, streamlining, and deregulating foreign exchange administration, with a focus on delivering more conveniences for trade and investment. The SAFE is seizing this opportunity to initiate a reform of foreign exchange administration in support of trade in services based on in-depth investigations and extensive solicitation of comments and suggestions, with the aim of creating a better policy environment for foreign exchange administration so as to facilitate the healthy development of trade in services. Q: What are the guidelines for this reform? A: This reform, as an important part of the reform of institutions and mechanisms for foreign exchange administration, reflects the country's overall requirements for the transformation of the concepts and approaches to foreign exchange administration. First, we will provide more conveniences for foreign exchange transactions via such measures as removing the administrative approvals and streamlining the verification of documents; second, we will transform the administrative model from stressing outflows rather than inflows to balanced administration of outflows and inflows; third, we will replace ex-ante administration focusing on approvals and verifications by ex-post administration stressing monitoring and analysis; fourth, we will replace monitoring each transaction with integrated monitoring focusing on the participants in the foreign exchange transactions. The above measures aim to build a more convenient, regulated, transparent, and efficient system of foreign exchange administration in support of trade in services. Q: How will this reform benefit institutions and individuals in China? A: Focusing on promoting the facilitation of foreign exchange administration, this reform will bring greater conveniences to institutions and individuals in terms of foreign exchange transactions for trade in services. Specifically, the benefits are as follows: First, purchases of and payments in foreign exchange for trade in services will be handled by financial institutions without verification. Second, in theory small amounts of foreign exchange receipts and payments for trade in services (equivalent to USD 50,000 or less per transaction) can be handled by the financial institutions without the need for document verification. This will facilitate most trade in services, but it is not applicable if the amount of the foreign exchange receipts and payments for trade in services for each transaction exceeds USD 50,000 or the equivalent in other foreign currencies. Third, the requirements for document verification for some foreign exchange transactions will be simplified, including simplifying and integrating the existing verification rules for dozens of documents, eliminating the verification of most approval and filing documents by the relevant authorities and eliminating the tax certificate requirement for external payments in foreign exchange. Fourth, conditions for overseas deposits of foreign exchange income from trade in services by organizations in China will be loosened, with corporate groups allowed to deposit abroad their foreign exchange from trade in services. Q: What changes will this reform make to the tax policy for external payments in foreign exchange? A: The SAFE and the State Administration of Taxation (SAT) jointly issued on July 9 the Announcement of Issues regarding Tax Record Filings for External Payments in Foreign Exchange for Trade in Services (SAT and SAFE Announcement No.40, 2013), jointly determining the program to reform the tax policy for external payments in foreign exchange. According to the announcement, the tax certificates will be replaced by record filings for external payments in foreign exchange, meaning that foreign exchange payers only need to register their payments with the tax authorities before making any payments. The record filing is applicable to payments in excess of USD 50,000 or the equivalent in other foreign currencies. Q: The new policy canceled the verification of documents for foreign exchange receipts and payments for trade in services in the amount equivalent to USD 50,000 or less per transaction, thereby providing more conveniences for enterprises. What is the basis for introducing this reform measure? A: This policy is based on the fact that China’s trade in services features frequent and small-value transactions, and USD 50,000 as the cutoff point is set according to the statistics and analysis of foreign exchange receipts and payments for trade in services during recent years. Based on the 2012 statistics, 88 percent of the foreign exchange transactions for trade in services totaled no more than USD 50,000 (or the equivalent in other foreign currencies) per transaction; thus the removal of the document verification for each of these transactions will benefit the majority of enterprises involved in trade in services in China. The remaining 12 percent of transactions associated with trade in services that are subject to document verification by financial institutions account for about 92 percent of the total value of enterprise transactions for trade in services. This approach, focusing on controlling the majority, will help further enhance the efficiency of foreign exchange administration and reduce social costs. Q: How will this reform influence financial institutions in terms of handling the relevant foreign exchange transactions? A: Integrating the regulations for foreign exchange administration in support of trade in services will provide a clearer and simpler basis and more conveniences for financial institutions. Streamlining the document verification will help financial institutions reduce their operating costs and improve their operating efficiency. Furthermore, the reform further clarifies the authority and responsibilities of the financial institutions in terms of the verification of their business, strengthens their due diligence responsibilities, and encourages them to improve internal controls and related business processes to prevent abnormal cross-border flows of capital via trade in services. Q: How will “facilitation” and “risk prevention” be balanced in this reform? A: Integrating “facilitation” and “risk prevention” is a crucial principle in this reform. While introducing measures to promote facilitation of trade in services, the foreign exchange authorities will strengthen balanced ex-post management, and intensify the monitoring of the inflows and outflows of foreign exchange based on an off-site regulatory system integrating macro analysis, intermediate monitoring, and micro checks established to enhance the ability to identify, predict, and prevent the risks entailed in foreign exchange transactions associated with trade in services. In addition, the focus will be placed on verifying large-value transactions. Institutions and individuals in China are required to keep all the documents for each foreign exchange receipt and payment transaction for trade in services through financial institutions for five years in case of any ex-post checks by the foreign exchange authorities. Due diligence responsibilities will be clarified for financial institutions in terms of the verification of documents so as to raise their awareness to actively abide by the regulations for foreign exchange administration, making sure that facilitation and risk prevention are fully integrated and mutually supportive. 2013-07-24/en/2013/0724/1083.html
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The SAFE recently released China’s International Investment Position for year-end 2012 as well as the revised data for the end of the four quarters of 2011. The statistics reveal that at the end of 2012, China’s external financial assets totaled USD5174.9 billion, external financial liabilities totaled USD3438.5 billion, and net external financial assets totaled USD1736.4 billion. Among the external financial assets, direct investments abroad totaled USD502.8 billion, portfolio investments totaled USD240.6 billion, other investments totaled USD1043.7 billion, and reserve assets totaled USD3387.9 billion, accounting for 10 percent, 5 percent, 20 percent, and 65 percent respectively of the external financial assets. In terms of external financial liabilities, foreign direct investments totaled USD2159.6 billion, portfolio investments totaled USD336.4 billion, and other investments totaled USD942.6 billion, accounting for 63 percent, 10 percent, and 27 percent respectively of the external financial liabilities. The International Investment Position (hereinafter referred to as the IIP) is a statistical statement which reflects at a specific point the stocks of financial assets and liabilities of one country or region in relation to the other countries or regions in the world, and together with the balance of payments statements (BOP statements) it constitutes the trade flows of the complete international accounts system of the country or region. Compilation Principles and Indexes for the IIP I. Compilation Principles for the IIP In accordance with the standards of the Balance of Payment Manual (Fifth Edition) published by the International Monetary Fund (IMF), the IIP is a statistical statement which reflects at a specific point the stocks of financial assets and liabilities of one country or region to the other countries or regions in the world. Changes in the IIP can be caused by changes in transactions, prices, and exchange rates as well as by other adjustments during specific periods. The IIP is consistent with the BOP statement with regard to the principles of valuation, measurement, and conversion, and together with the BOP statement constitutes a complete international accounts system of the country or region. Chinas IIP is a statistical statement which reflects at a specific point the stocks of China’s financial assets and liabilities (excluding Hong Kong SAR, Macao SAR, and Taiwan Province) to the other countries or regions in the world. II. Major IIP Indexes According to IMF standards, the items on the IIP are categorized according to assets and liabilities. The assets are divided into direct investments abroad, portfolio investments, other investments, and reserve assets, and the liabilities are divided into foreign direct investments, portfolio investments, and other investments. The net position refers to the external assets minus the external liabilities. The items are specifically defined as follows: 1. Direct investments refer to external investments in which an investor in one country operates an enterprise located in another country with the aim of acquiring effective control over the enterprise. They consist of direct investments abroad and foreign direct investments. Direct investments abroad include stocks of direct investments abroad conducted by China’s non-financial sectors, stocks of the capital fund and working capital appropriated by domestic banks to set up branches overseas, as well as stocks of loans between parent companies and subsidiaries both in China and abroad and stocks of other receivables and payables. Foreign direct investments include stocks of foreign direct investments absorbed by China’s non-financial sectors, stocks of direct investments overseas absorbed by the financial sectors (including foreign investments attracted by branches of foreign financial sectors and Chinese-funded financial sectors, and investments by the foreign party in joint financial sectors), as well as stocks of loans between parent companies and subsidiaries both in China and abroad and stocks of other receivables and payables. 2. Portfolio investments include types of investments such as shares, long- and medium-term bonds, and money-market instruments. Portfolio investment assets refer to holdings of negotiable securities, such as shares, bonds, money-market instruments, and derivative financial instruments, which are held by Chinese residents but issued by non-resident enterprises. Portfolio investment liabilities refer to shares and bonds held by non-resident enterprises but issued by Chinese residents. 2.1 Equity securities mainly comprise securities in the form of stocks. 2.2 Debt securities include long-term and medium-term bonds, short-term (one year or less) bonds, and money-market instruments or transferable debt instruments, such as short-term treasury notes, commercial papers, and large-sum short-term negotiable certificates of deposits. 3. Other investments refer to all financial assets and liabilities, including trade credits, loans, currency, and deposits, as well as other assets and liabilities, but excluding direct investments, portfolio investments, and reserve assets. Long term means that the contract period of the relevant financial assets/liabilities is longer than one year, and short term means that the contract period is one year or less. 3.1 Trade credits refer to direct business credits arising from the import and export of goods between China and other countries. Assets refer to the receivables of China’s exporters and the advance payments by China’s importers, whereas liabilities refer to the payables of China’s importers and the advance receipts of China’s exporters. 3.2 Loan assets refer to the external assets held by domestic institutions by providing loans to overseas institutions; and loan liabilities refer to loans borrowed by domestic institutions, such as loans from foreign governments, loans from international institutions, loans from foreign banks, and sellers’ credits. 3.3 Currency and deposit assets refer to funds deposited abroad and foreign cash in stock by China’s financial institutions; and currency and deposit liabilities refer to overseas private deposits and short-term funds from foreign banks attracted by China’s financial institutions, as well as other short-term funds, for instance loans from foreign exporters and individuals. 3.4 Other assets/liabilities refer to investments other than trade credits, loans, currency, and deposits, for example, capital paid by non-currency international institutions and other receivables and payables. 4. Reserves assets refer to external assets that can be used at any time and are controlled effectively by the PBOC, consisting of monetary gold, special drawing rights (SDRs), the reserve position in the Fund, and foreign exchange. 4.1 Monetary gold refers to the gold held by the PBOC as reserve. 4.2 SDR is a kind of ledger assets, which is allocated by the IMF according to the capital share of its members; it can be used to repay debt to the IMF and to make up for the deficit in the balance of payments between the governments of member countries. 4.3 Reserve positions in the Fund refer to assets that are held in the ordinary accounts of the IMF and that can be freely used. 4.4 Foreign exchange refers to current assets and liabilities that are retained by the PBOC and that can be used as a means of international compensation. (End). 2013-04-22/en/2013/0422/1080.html
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Based on the work arrangements of the CPC Central Committee and the State Council for current economic conditions and the coming period, as well as in the spirit of the Seminar for Presidents from Branches and Sub-branches of the People’s Bank of China, the 2013 Mid-year Branch Directors’ Meeting that was recently convened by the State Administration of Foreign Exchange (SAFE) summarized the progress achieved in foreign exchange administration since the beginning of this year, studied and analyzed regarding the financial foreign exchange situation, and mapped out the priorities for foreign exchange administration for the second half of the year. Safe administrator Yi Gang delivered a work report, and deputy administrators, heads of the discipline inspection teams, chief economists, chief accountants, and heads of the SAFE branches (foreign exchange administration departments) and SAFE departments were all present. The conference pointed out, led by the party committee of the People’s Bank of China, that the foreign exchange administration bureaus have followed the uniform arrangements of the CPC Central Committee and the State Council and the spirit of the 18th CPC National Congress and the Central Economic Work Conference, have accelerated the five transformations in the concepts and approaches to foreign exchange administration since the beginning of this year, significantly improving their capability to work for the real economy and to improve the quality of services. Specifically their achievements are as follows: First, they have done whatever it takes to control risks and they have introduced a package of measures to enhance foreign exchange administration, which has produced significant results. Second, the reform of foreign exchange administration for trade has been advanced, thus enhancing trade facilitation. The institutional reform of foreign exchange administration for trade in goods has proved fruitful, the reform of foreign exchange administration for trade in services has been accelerated, and foreign exchange administration for areas under special customs surveillance has been improved. Third, the reforms have been deepened, with the convertibility of the RMB capital accounts steadily enhanced. The IT basis for capital account management has been strengthened, administration of foreign debts and capital markets has been streamlined and power has been delegated to lower levels, institutions for QFII, RQFII, and QDII have been implemented, and foreign exchange administration for cross-border guarantees has been improved. Fourth, transformation of the approaches to foreign exchange administration has been advanced to support the transformation and upgrading of the real economy. The pilot program for centralized use of foreign exchange by multinationals has been advanced, foreign bonds and external guarantee indicators have been optimized, development of cross-border e-commerce has been supported, and infrastructure construction for the foreign exchange market has been advanced. Fifth, the operation and management of foreign exchange reserves have been improved to ensure the security of foreign exchange reserve assets. Sixth, with a focus on improving regional foreign exchange situation, advances in basic tasks like systematic research and statistics for foreign exchange administration have made further progress. Seventh, administration streamlining and power delegation as well as the streamlining of regulations have been carried out more rigorously to further increase the transparency of foreign exchange administration. Eighth, the CPC Central Committee eight-point code has been implemented to further build a clean and honest government and CPC teams. The conference also studied and determined the priorities for foreign exchange administration for the coming period. First, the five transformations in the concepts and approaches to foreign exchange administration need to be accelerated to prevent any risks associated with cross-border capital flows. Monitoring and analysis of the foreign exchange situation should be strengthened, with the building of a platform for monitoring and analysis of cross-border capital flows further advanced and contingency plans and policies further fleshed out. Second, the transformation of government functions needs to be accelerated, with trade and investment facilitation enhanced. The benefits from the institutional reform of foreign exchange administration for trade in goods need to be consolidated and the reform of foreign exchange administration for trade in services needs to be advanced. Third, the convertibility of capital accounts should be steadily advanced. The capital market should continue to be liberalized in an orderly way and more conveniences should be provided for management of the capital account. Fourth, the CPC’s mass line campaign should be rigorously implemented. Closely following these themes, the campaign must be advanced vigorously and the work styles of officials must be transformed to make sure concrete benefits are achieved through this campaign. The conference stressed that since the tasks for foreign exchange administration for the coming period are arduous, the foreign exchange administration bureaus at all levels must follow completely the spirit of the 18th CPC National Congress and align their thoughts and actions with the central government’s analysis and judgment regarding China’s economic condition and related decisions and arrangements by making steady progress, deepening the reforms, streamlining administration, delegating power, and preventing risks, to fully strengthen support for the economic restructuring, transformation, and upgrading. 2013-08-05/en/2013/0805/1084.html
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Q: The State Administration of Foreign Exchange (SAFE) recently released China’s International Investment Position. Could you please say something about China’s external financial assets and liabilities? A: The statistics reveal that due to the fact that the domestic and international economies have entered a stage of deep transformation, the increase in China’s external financial assets and liabilities has decelerated to some extent. As of the end of 2012, China’s external financial assets and liabilities totaled USD5.1749 trillion and USD3.4385 trillion respectively, an increase of 9 percent and 13 percent year on year, a decline of 6 and 12 percentage points compared with the same period in 2011. Net external financial assets amounted to USD1.7364 trillion, a rise of 3 percent year on year. The structure of external financial assets was optimized. As of the end of 2012, China’s foreign direct investments, securities investments, other investments. and reserve assets amounted to USD502.8 billion, USD240.6 billion, USD1.0437 trillion, and USD3.3879 trillion respectively, accounting for 10 percent, 5 percent, 20 percent, and 65 percent respectively of the external financial assets. The share of reserve assets fell to the lowest level since the beginning of 2008. Among the new external financial assets in 2012, the contribution of reserve assets declined to 30 percent, which is far below the average annual contribution of 65 percent since the beginning of 2004. The structure of external financial liabilities remained stable. Foreign direct investments, securities investments, and other investments amounted to USD2.1596 trillion, USD336.4 billion, and USD942.6 billion respectively, accounting for 63 percent, 10 percent, and 27 percent of external financial liabilities, which is basically unchanged from the 2011 level. Foreign direct investments still contribute primarily to China’s external financial liabilities. New foreign direct investments and re-investments of foreign profits contributed 64 percent of China’s new external financial liabilities in 2012, an indication of the confidence of foreign capital in the growth potential of the Chinese economy. The large proportion of direct investments in liabilities is conducive to alleviating the impact of short-term cross-border capital flows and to promoting the development of the real economy, while it is also a manifestation of China’s high costs of foreign capital utilization which primarily contribute to the structural problems of the deficit in investment income. From a global perspective, China’s structure of external assets and liabilities is similar to that of most emerging economies. In terms of external assets, securities investments and direct investment assets constitute a larger portion of total liabilities in the developed countries in Europe and North America. Meanwhile the emerging economies have a higher proportion of reserve assets among their total liabilities. For instance, the proportion of reserve assets in the total liabilities of the emerging economies, such as South Korea, Russia and Brazil, are in excess of 40 percent; in India the figure has even reached 73 percent. In terms of external financial liabilities, most countries in the developed world have a higher proportion of securities investments in liabilities, in excess of 50 percent, whereas in the BRIC countries such as Russia, Brazil and India, direct investments account for over 30 percent of total liabilities. Q: We’ve noticed that the SAFE has made revisions to China’s International Investment Position in 2011. How do we properly use the revised data? A: Both the Balance of Payments and the International Investment Position are subject to regular revisions. The SAFE makes revisions to the BOP data for various periods in the previous year after releasing the BOP data at the end of the year. This time we made revisions to China’s International Investment Position at the end of each quarter of 2011 based on the latest acquired and compiled data for China’s International Investment Position at the end of 2012. Meanwhile, the data for the previous three quarters of 2012 have not been revised. So the data for the previous three quarters of 2012 are temporarily not comparable to the revised data in 2011 and the end of 2012 data. We will release the revised data at the end of each quarter of 2012 in parallel with the release of China’s International Investment Position at the end of 2013. Using foreign direct investment as an example, when revising China’s International Investment Position at the end of 2011 and compiling China’s International Investment Position at the end of 2012, we updated the data on stocks of foreign direct investment based on the annual inspection of FDI that was completed in 2012. After the revision, the stock of foreign direct investment in 2011 amounted to USD1.9069 trillion, an increase of USD102.7 billion from the pre-revision level. The data on stocks of foreign direct investment at the end of 2012 are the sum of the data on flows of foreign direct investments in 2012 and the revised data on stocks at the end of 2011. The data on stocks of foreign direct investment at the end of the previous three quarters of 2012 have not been revised; they will be revised in China’s International Investment Position at the end of 2013 which will be released at the beginning of 2014. 2013-04-22/en/2013/0422/1081.html
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To implement the relevant requirements of the State Council that the financial community should support the growth of the real economy, provide more conveniences for trade and investment, and promote the development of trade in services, the State Administration of Foreign Exchange (SAFE) recently issued the Circular on Printing and Distributing the Regulations of Foreign Exchange Administration for Trade in Services (Hui Fa [2013] No. 30, or the Circular), stating that a nationwide reform of foreign exchange administration will kick off on September 1, 2013. This reform will mainly focus on the following: First, advancing the streamlining of administration and instituting decentralization. Purchases/sales of foreign exchange for trade in services will be handled by financial institutions without being verified. The foreign exchange regulatory bodies are expected to strengthen the due diligence requirements for financial institutions, urge them to improve their internal controls and operating processes, and monitor and inspect their implementation. Second, canceling the verification of documents for small-value foreign exchange transactions. Small-value foreign exchange receipts and payments for trade in services will be handled directly with the financial institutions. In theory, a foreign exchange receipt or payment transaction in the amount of USD 50,000 or less (or the equivalent in other foreign currencies) can be made without document verification. However, institutions and individuals in China are required to retain all the documents related to each foreign exchange receipt and payment transaction for trade in services for five years in the case of any future checks. Third, streamlining the verification of documents. The requirements for document verification for some foreign exchange transactions will be simplified, including simplifying and integrating the existing rules of verification for dozens of documents, eliminating the verification for most approval and filing documents by the relevant authorities, and eliminating the tax certificates for external foreign exchange payments. Fourth, simplifying and integrating the regulations. The Guidelines on Foreign Exchange Administration for Trade in Services and their rules for implementation will be introduced, and more than 50 regulatory documents will be rescinded, to provide a systematic, clear, and transparent regulatory basis for foreign-related bodies to handle foreign exchange transactions for trade in services. Fifth, relaxing the requirements for depositing foreign exchange abroad. Conditions for overseas deposits of foreign exchange income from trade in services by domestic organizations will be relaxed, with corporate groups allowed to deposit abroad their foreign exchange income from trade in services. Sixth, strengthening balanced follow-up management. The monitoring of inflows and outflows of foreign exchange from trade in services will be intensified, with the establishment of an off-site regulatory system integrating macro analysis, intermediate monitoring, and micro checks, coupled with the necessary on-site inspections and examinations to enhance risk prevention and control. The reform, reflecting the transformation of the concepts and approaches to foreign exchange administration, will help develop a new management approach that is convenient and risk-resistant and adapted to the trends in the development of trade in services and to promote the healthy growth of trade in services in China. (The end.) 2013-07-24/en/2013/0724/1082.html