-
The State Administration of Foreign Exchange (SAFE) has recently published the data on banks' foreign exchange sales and settlements as well as the foreign-related receipts and payments via banks for July 2016. The SAFE press spokesperson answered media questions on recent cross-border capital flows. Q: The pressure from cross-border capital outflows has been relieved in the first half of this year. What would you say about July? A: China's cross-border capital flows fluctuated within a normal range in July. First, the deficit in banks' foreign exchange sales and settlements represented a month-on-month increase, but that of non-banking sectors such as enterprises and individuals remained relatively stable. In July, the banking sector recorded a deficit of USD 31.7 billion in foreign exchange sales and settlements, higher than the monthly average of USD 16.3 billion in the second quarter, but lower than the monthly average of USD 41.6 billion in the first quarter. In particular, the non-banking sectors registered a deficit of USD 19.8 billion in foreign exchange sales and settlements, up by 12% month-on-month, but at a low level in the year to date. Second, the non-banking sectors registered a deficit in foreign-related receipts and payments again, but the deficit was low. In July, the deficit was USD 31.9 billion, including a deficit of USD 1.3 billion in foreign exchange receipts and payments. In the first four months, China posted a deficit of USD 20.1 billion, USD 10.5 billion, USD 5.9 billion and USD 2 billion in foreign exchange receipts and payments respectively, but registered surpluses in May and June. The short-term impact from Britain's exit from the EU and seasonal factors contributed to stronger net demand for foreign exchange in July. In July, Britain's exit from the EU led to volatilities in international financial markets and helped strengthen the dollars but dragged down the RMB exchange rate. Under such circumstances, Chinese market players became less willing to settle foreign exchange. In the month, the ratio of foreign exchange sold by bank customers to foreign-related foreign exchange receipts was 58%, down by 3 percentage points from June. As global markets tended to be stabilized, the supply and demand for foreign exchange in China was less impacted and fell within control. On the other hand, as July is traditionally the month when foreign-funded enterprises remit out profits and overseas listed companies distribute dividends and bonuses, the ROI-related demand for foreign exchange rose, which is also a key cause behind the heavy deficit in foreign exchange sales and settlements of banks themselves who hold overseas listed shares; what's more, as individuals' purchases of foreign exchange for overseas travel and study are high during the summer vacation, foreign exchange purchases under travel went up by 12% month-on-month in July. Positive factors in favor of the equilibrium of supply and demand for foreign exchange continued to emerge. First, the foreign exchange sales rate, or the ratio of purchases of foreign exchange from banks to the payments of foreign-related foreign exchange was 69% in July, down by 5 percentage points month-on-month. In particular, although individuals' purchases of foreign exchange presented seasonal rises, yet purchases of foreign exchange under travel dropped by 7% year-on-year in the month, indicating stable market sentiment for the moment. Second, foreign exchange financing through certain channels continued to pick up in the month, and the balance of cross-border foreign exchange financing for imports such as refinancing and forward L/C rose by USD 3.4 billion from the end of June, representing the fifth month of bouncing back, and showing enterprises' deleveraging of external debt continued to slow down. In conclusion, China's cross-border capital flows have fluctuated within a normal range recently, without changing the pattern of mid and long-term stability, and will continue to develop toward a stronger equilibrium between inflows and outflows in the future. 2016-11-08/en/2016/1108/1222.html
-
To push forward the rule of law in finance and support the policy measures of stabilizing reform, promoting reform, readjusting structure and improving people's living standards, the State Administration of Foreign Exchange (SAFE) has continued to increase legislations and streamline regulations in key areas since the beginning of 2016. Legislations mainly concern settlement of foreign exchange under the capital account, investment in interbank bonds markets by foreign institutional investors, domestic securities investment by qualified foreign institutional investors (QFIIs), foreign currency exchange agency and self-service currency exchange machines, declaration of the balance of payments statistics and refinement of authenticity review requirements. Regulations streamlining is to abolish or nullify regulations on foreign exchange administration that cannot adapt to the requirements for business development and reform. To facilitate public enquiry and application, the SAFE then upgraded the Catalogue of Major Existing Laws and Regulations in Effect on Foreign Exchange Administration (Catalogue) and released it at its official website. The upgraded Catalogue contains 213 policies, laws and regulations on foreign exchange administration released as of June 30, 2016, which fall into 8 categories including general foreign exchange administration, foreign exchange administration under the current account, foreign exchange administration under the capital account, regulation of the foreign exchange business of financial institutions, the RMB exchange rate and the foreign exchange market, balance-of-payments and foreign exchange statistics, foreign exchange inspections and application of the laws and regulations, and the scientific administration of foreign exchange, and several sub-categories by specific business type. This is the seventh straight year that the SAFE has regularly updated and published the list of currently effective regulations. The SAFE will continue to implement a long-term mechanism for regulations streamlining, step up efforts with regard to power delegation, centralization and services, regularly streamline and update the Catalogue, to help market players understand and use foreign exchange administration laws and regulations, so as to serve the development of the real economy. 2016-11-08/en/2016/1108/1220.html
-
To further promote trade and investment facilitation and support the policy measure of "stabilizing growth, promoting reform, adjusting restructure and benefiting people", with a vision to streamline administration, delegate powers, combine decentralization and regulation, and optimize services, the State Administration of Foreign Exchange (SAFE) has been committed to law-based administration and sorting out regulations, to abolish, nullify or modify selected regulations on foreign exchange administration that cannot adapt to the requirements for business development and reform. More than 700 documents on foreign exchange administration have been abolished and nullified since 2009. To further streamline the effective regulatory documents on foreign exchange administration, the SAFE has recently released the Circular of the State Administration of Foreign Exchange on Announcing 14 Regulatory Documents on Foreign Exchange Administration Abolished and Nullified and One Modified (Huifa No. 13 [2016]) Specifically, one was modified, 3 were abolished including one that was announced abolished with the Ministry of Finance through negotiation, and 11 were nullified. The documents mainly concerned management of individual foreign exchange settlement under trade, foreign exchange administration under the capital account, balance of payments and foreign exchange statistics, foreign exchange administration for financing institutions and construction of foreign exchange system. Bearing in mind the whole picture of reform and development, the SAFE will continue to implement the long-term mechanism for regulation streamlining, and attach equal importance to establishment, modification, nullification and interpretation of regulations, so as to enhance policy transparency and serve the real economy. 2016-11-08/en/2016/1108/1217.html
-
To deepen the foreign exchange administration system, better serve and facilitate domestic players' demand on operations and capital operation, and boost cross-border investment and financing to serve the development of the real economy, the State Administration of Foreign Exchange (SAFE) recently published the Circular of the SAFE on the Policies for Reforming and Standardizing Management of Foreign Exchange Settlement under the Capital Account (Huifa No. 16 (2016), "Circular"). The highlights of the Circular are as follows: First, managing discretionary settlement of foreign exchange under external debt in an all-round way, allowing companies to choose the time for foreign exchange settlement under external debt at their discretion. Second, unifying the policy for discretionary settlement of foreign exchange receipts under the capital account by domestic institutions. Third, clarifying that domestic institutions' use of foreign exchange receipts and settlements under the capital account should be in conformity with the regulations on foreign exchange administration, a "negative list" approach will be adopted to the use of receipts under the capital account, and relative negative lists will be deeply cut. Fourth, further standardizing the payment management with regard to receipts and settlements under the capital account, and clarifying banks should take responsibility for authenticity review under the three-point business principle. Fifth, the SAFE will strengthen ongoing and ex-post management, with focus on strengthening ex-post regulation and punishments arising from violations. The Circular will come into force as of the date of issuance. (End) 2016-11-08/en/2016/1108/1218.html
-
The State Administration of Foreign Exchange (SAFE) has recently published the 2016 list of enterprises surveyed for trade credit. According to the Statistics Law of the People's Republic of China, and the Measures for the Declaration of Balance of Payments Statistics, enterprises are obligated to cooperate with the survey and liable for the accuracy of the data reported. China's trade credit survey system came into force in 2004. In January 2016, the SAFE revised the system and released the Circular on the Issuance of the Trade Credit Survey System (Huifa No.1 [2016]）, effective August 1, 2016. Based on the foreign trade volume and receipts and payments under trade, 16,439 enterprises participated in the survey in the year, consistent with the figures of past years. To be specific, 11,851 enterprises participated in the annual survey, and 4,588, monthly survey. These two types of enterprises were required to report data by the month or per annum, so as to find an equilibrium between the improvement of the quality of statistical data and reduction of reporting burdens. To make it easy to enquire, the list is categorized by the foreign exchange authority located in the registration places of the enterprises surveyed. The list may be subject to minor adjustments as the survey goes on. 2016-11-08/en/2016/1108/1223.html
-
The SAFE has recently published the Circular of the State Administration of Foreign Exchange on Foreign Exchange Administration for Overseas Institutional Investors Participating in China's Interbank Bond Market (Huifa No. 12 [2016], "Circular") to facilitate the opening-up of the interbank bond market and standardize foreign exchange administration for overseas institutional investors participating in the interbank bond market. The highlights of the Circular are as follows: (a) overseas institutional investors are subject to registration management, and shall perform foreign exchange registration via a settlement agent; (b) no quota will be set for an individual institution or no total quota will be set. An overseas institutional investor may go through without authorization or approval of the SAFE the procedures for inward and outward remittances, or settlement and purchases of foreign exchange with a bank directly, based on relevant registration information; (c) the currencies in outward and inward remittances shall be the same, i.e., the proportion of domestic and foreign currencies in an outward remittance by an investor shall be consistent with that of an inward remittance, with the difference no higher than 10%. The Circular will come into force on the day of release. (The end) 2016-11-08/en/2016/1108/1219.html
-
On September 7, 2016, Pan Gongsheng, Deputy Governor of the People's Bank of China and Administrator of the State Administration of Foreign Exchange (SAFE), met with Stephen A. Schwarzman, Chairman, CEO and Co-Founder of Blackstone in Beijing. The two sides exchanged ideas on topics such as global economic and financial trends, investment opportunities, and business cooperation. 2016-11-08/en/2016/1108/1216.html
-
On the morning of August 30, 2016, Pan Gongsheng, Administrator of the State Administration of Foreign Exchange (SAFE), met with a delegation led by Leo Melamed, Chairman Emeritus at the Chicago Mercantile Exchange (CME Group). The two sides exchanged ideas on topics of interest such as enhancing financial infrastructure construction and deepening cooperation. 2016-11-08/en/2016/1108/1215.html
-
The State Administration of Foreign Exchange (SAFE) has recently released the Balance of Payments and the International Investment Position for 2016, and its spokesperson answered media questions on relevant issues. Q: Could you brief us on China's balance of payments for 2016? A: In 2016, China's balance of payments continued to present the pattern of "one surplus and one deficit", namely, surplus under the current account and deficit under the capital and financial account (excluding reserve assets). In 2016, the surplus under the current account remained at a reasonable level in China. The surplus hit USD 196.4 billion in the year, accounting for 1.8% of GDP. In particular, a surplus of USD 494.1 billion was registered under trade in goods, down by 14% from the historical high of last year, but remaining much higher than the levels of 2014 and the years before, showing China was still competitive in foreign trade. A deficit of USD 244.2 billion was recorded under trade in services, up by 12%, chiefly due to a growing deficit under tourism, suggesting that the Chinese residents' spending on travel and study abroad is rising alongside the increase in people's income and the opening up of relevant policies, but the deficit under tourism grew at a slower pace of 6% only in 2016, which was down by 6 percentage points year on year. The pressure from cross-border capital outflows was relieved to some extent, but went through ups and downs in the four quarters. In 2016, a deficit of USD 417 billion was registered under the non-reserve financial account, down by 4% year on year. To be specific, a deficit of USD 126.3 billion was recorded under this item for the first quarter, down by 16% from USD 150.4 billion for the fourth quarter of 2015; the deficit contracted significantly to USD 52.4 billion in the second quarter but rebounded remarkably to USD 135.1 billion in the third quarter, the highest quarterly deficit in 2016, but remaining much lower than the deficits for the third and fourth quarters of 2015; and then the deficit shrank to USD 103.1 billion in the fourth quarter, down by 31% year-on-year. Q: Could you tell us why the surplus under the current account for the fourth quarter of 2016 dropped by more than USD 20 billion from the preliminary statistics? A: In the fourth quarter of 2016, China posted USD 11.8 billion in the surplus under the current account, about USD 26 billion less than the preliminary statistics of USD 37.6 billion. This is chiefly because: First, the profit of foreign-funded enterprises estimated based on the latest data rose, leading to increases in the expenses under ROI and in the deficit under primary income. In China's Balance of Payments, the profits generated by FDI that belong to foreign parties are the profits of foreign-funded enterprises above designated size and the investment enterprises from Hong Kong, Macao and Taiwan calculated by the National Bureau of Statistics. The statistics show that enterprises' operations picked up as China's economic performance was being stabilized. In 2016, the total profits from industrial enterprises above designated size grew by 8.5% from that of the previous year. In particular, the total profits of foreign-funded enterprises and investment companies from Hong Kong, Macao, and Taiwan went up by 12.1%. But as the Balance of Payments was prepared, no data for the whole year were disseminated, and as a result, the preliminary estimates were USD 20 billion lower than the official data. But considering the preliminary data covered all the profits remitted outward, the undervalued RMB 20 billion in the expense under ROI was still recorded under the inflows of FDI under the financial account in recording the expense on ROI under the current account in the Balance of Payments, based on accrual accounting since the expense was not remitted outward. Such recording will affect the structure — but not the overall situation—of the Balance of Payments. Second, as the way the statistics on travel income and expense was adjusted, with payment channel data used, the deficit under tourism rose. In the new method, the revenue and expense under tourism were compiled based on the payment channel data such as credit card, debit card, remittance and banknotes. The deficit under tourism for the four quarters estimated using the new method was USD 6 billion higher than the preliminary statistics. At the same time, retrospective adjustment was made to all of the revenues and expenses under tourism for the quarters since 2014, which were recorded under relevant entries under the financial account, instead of the current account. Q: Could you brief us on the features of cross-border capital flows for 2016? A: In 2016, Chinese market players continued to increase their holding of external assets, and saw the conversion of net outflows of external debts in the last year into net inflows. On the one hand, the domestic market players have diversified the ways of using external funds, with ODI, portfolio investments and other investments on an upward trend. In 2016, the external assets held by domestic market players in various forms grew by USD 661.1 billion, up by 98% year on year. To be specific, a net increase of USD 217.2 billion was registered under ODI, up by 25%; a net growth of USD 103.4 billion was recorded under external portfolio investment, up by 41%; and a net increase of USD 333.6 billion in other investments such as overseas deposits and external loans, climbing by 305%. On the other hand, as the domestic securities market is liberalized and the demand for financing rebounds among enterprises, net inflows of external debt have replaced net outflows of the previous year. In 2016, a net inflow of USD 244.1 billion was registered under foreign investments such as FDI, portfolio investments and other investments, compared with USD 101.0 billion in net outflows for 2015. In particular, a net outflow of USD 13.5 billion was registered in the first quarter, but a net inflow had been recorded and risen quarter after quarter since the second quarter, hitting USD 77.1 billion, USD 84.2 billion and USD 96.3 billion respectively. First, foreign capital under direct investment sustained net inflows, which amounted to USD 170.6 billion throughout the year, including USD 95.8 billion for the second half, up by 28% from the first half. Second, foreign portfolio investment maintained a net inflow of USD 41.2 billion, 512% higher than that of the previous year, which indicated China's increasing attractiveness to foreign capital and deepened liberalization. Third, a net inflow of USD 30.1 billion in other foreign investments was recorded, compared with the net outflow of the previous year, suggesting domestic market players' servicing of foreign debt has come to a halt, and the demand for cross-border financing is rising. Q: Could you tell us about the changes in international investment position at the end of 2016? A: In 2016, China's external financial assets, liabilities and net assets all registered growth. As at the end of 2016, China posted external financial assets of USD 6.4666 trillion, external debt of USD 4.666 trillion, up by 5% and 4% year on year respectively, and net external assets of USD 1.8005 trillion, a year-on-year increase of USD 127.7 billion, or 8%. The external assets held by the private sector have for the first time accounted for more than half of the total. As at the end of 2016, the balance of international reserve assets reached USD 3.0978 trillion, including USD 3.0105 in the balance of foreign exchange reserves. The reserve assets took up 48% of China's external financial assets, still topping China's reserve assets, but the ratio dropped by 7 percentage points year on year, the lowest level since China began to disseminate the international investment position data in 2004. That the proportion of the external assets held by the private sector exceeded half of the total shows that China's external economic and financial communication are shifting from the focus on commodity exports to equal importance of commodity exports and capital exports, and from the focus on external investing by official authorities to the equal importance of outbound investments by official authorities and the private sector. The rises in external debt were primarily contributed by the sustained growth in FDI and the increases in other foreign investments. By the end of 2016, of China's external debt, FDI hit USD 2.8659 trillion, up by 6% year on year, and continued to take the first place among external debt, accounting for 61%, indicating foreign investors are still optimistic about making long-term equity investments in China. Moreover, external debt from investments such as non-resident deposits and external loans reached USD 984.9 billion, down by 2% year on year and accounting for 21% of total debt. Q: What are your expectations of China's balance of payments for 2017? A: Overall, China's balance of payments for 2017 will continue to present the landscape of "surplus under the current account and deficit under the capital and financial account (excluding reserve assets, the same below)", and cross-border capital flows will continue to develop towards an equilibrium. The surplus under the current account will continue to remain within the reasonable range. First, a surplus will continue to be registered under trade in goods. With regard to exports, though trade frictions will potentially threaten China's exports, yet the stable global economic growth in 2017 will continue to provide a basic guarantee for stable external demand in China. Moreover, as relevant cooperation projects such as the Belt and Road Initiative are stably advanced, the countries within the region will benefit in exports. As for imports, China's economic fundamentals will remain sound, and the global prices of commodities will pick up, and therefore, the imports are expected to stay stable. Second, the growth of deficits under trade in services will be stabilized. Tourism has constituted the majority of the deficits under trade in services. As the consumption demands for travel and study abroad are unleashed quickly, the deficit under tourism has begun to be stabilized over the past two years; and as Chinese enterprises are adjusting the revenues from trade in services and their spending structure, the deficits in trade in services other than tourism have contracted substantially. Third, as investments such as ODI by the private sector are on the rise, China is expected to see growing returns from outbound investments. It is expected that the surplus under the current account as a percentage of GDP will hit a balanced and reasonable level in 2017. The deficit under the capital and financial account is expected to contract. On the one hand, due to unstable and uncertain international environment, the market sentiment may often change, thus leading to the interim volatilities in China's cross-border capital flows. On the other hand, the factors that are favorable for the equilibrium between inflows and outflows of cross-border capital will continue to play positive roles. First, China's economy has remained stable recently, with relevant risks being controllable, and the government has introduced policy measures to expand opening up and actively leverage foreign capital, and the foreign investment environment has been optimized further, which will be conducive to boosting the inflows of long-term capital. Second, as Chinese enterprises' comprehensive strength is strengthened and the global demand for resource allocation is enhanced, China has embraced high-speed growth in ODI in recent years. After achieving fast growth in the short term, enterprises' awareness of investment risks will be raised, and their outbound investment will be more reasonable and stable. Third, turning to the policy of expanding the opening up of the financial market, China has implemented the policies such as macro-prudential management of full-coverage cross-border financing, boosting the further opening up of the interbank bond market, and deepening foreign exchange administration for QFII and RQFII, which have produced positive outcomes, and will continue to attract the sustained inflows of cross-border capital. As the market-oriented RMB exchange rate formation mechanism reform is being stably pressed ahead with, the elasticity of the RMB exchange rate will be enhanced, which will be favorable for the inflows and outflows and two-way fluctuations of cross-border capital in China. 2017-04-24/en/2017/0424/1259.html
-
As the world economy recovered slowly and economic and trade globalization were faced with tough challenges, General Secretary Xi Jinping proposed in 2013 the initiative of jointly building the Silk Road Economic Belt and the 21st-Century Maritime Silk Road. The Belt and Road Initiative, integrating China's development with those of the countries along the routes, and Chinese dream with the best wishes of the peoples of the countries alongside, is set to become a great undertaking that enhances the wellbeing of the peoples across the world. While following the gist of the key speeches by General Secretary Xi Jinping on the Initiative, and adhering to the general work guideline of making progress while maintaining stability, the State Administration of Foreign Exchange (SAFE), as an important foreign-related economic management department, has conformed to the development philosophy of innovation, coordination, greenness, opening and sharing to build a new pattern of opening up that features mutual benefit, openness and transparency, equality and inclusiveness. It also has been committed to deepening the system reform for foreign exchange administration, enhancing trade and investment facilitation, and leveraging resources on the domestic and foreign markets, in a bid to create a benign, healthy and stable environment for the Initiative. Shaping New Patterns for the Connectivity between China and the Rest of the World under the Belt and Road Initiative Since the outburst of the global financial crisis in 2008, the world's economic and financial patterns have undergone complex and profound changes. For lack of dynamics for growth, the world economy has recovered slowly and in a divergent way. The global economic governance has fallen behind and could hardly adapt to the new changes in the world economy, while the global investment and trade patterns and multilateral investment and trade rules are to go through remarkable adjustments. As the global development is imbalanced, and trade protectionism, anti-globalization and populism rise, countries are faced with complex and tough challenges in the course of their development. How to make the world economy more vibrant, inclusive and sustainable? How to unleash more positive effect of economic globalization? Under such circumstances, China proposed the Belt and Road Initiative. In the spirit of open regional cooperation, the Initiative is designed to safeguard the global systems for free trade and the open world economy to rebalance the economic globalization. While serving the fundamental interests of the international community, and being aligned with China's basic national strategy of reform and opening up, the Initiative is favorable for China to build a new pattern of all-round opening up and deepen the linkage between China and the rest of the world to allow China to be further integrated into the world economic system. First, favorable for rebalancing the world economy. China has not only benefited from economic globalization but also contributed to it. The China-proposed Belt and Road Initiative is in line with the common demand of the countries along the routes, and opens a new opportunity window for these countries to complement each other and open up, which will be favorable for China and these countries to achieve common development and for further balancing the global economic development. In August 2016, General Secretary Xi Jinping stressed at the seminar on pressing ahead with the Belt and Road Initiative that strengthening cross-border connectivity, enhancing trade and investment cooperation and boosting global production capacity and equipment manufacturing cooperation by capitalizing on the opportunities the Initiative presents are in nature to generate new demands by increasing effective supplies so as to rebalance the world economy. In particular, in the face of the sluggish world economy, exporting the huge production capacities and construction capabilities developed in the pro cycle to meet the pressing needs of the countries along the Belt and Road for advancing industrialization and modernization and enhancing the level of infrastructure will be conducive to stabilizing the world economic conditions. Over the past three years, Chinese enterprises have invested more than USD 50 billion in these countries, with myriads of key projects implemented, thus driving the economic development of the countries and creating many job opportunities for them. Originating in China, the Initiative has delivered benefits well beyond its borders. Second, favorable for enhancing China's impact on the world economy. The Initiative, which embodies China's national strategy of opening up to seek mutual benefit, charts the new course for China's opening up and will become the new growth point of China's economy. Jointly building the Silk Road Economic Belt will be favorable for consolidating the basis for cooperation between China and Central and Southeast Asia, shaping the road towards common development of China and the countries along the Belt and Road, promoting the opening up of inland and border regions, and improving the development and competitiveness of the central and western regions of China while boosting the transformation, upgrading and outbound investments of East China to create a new landscape for joint development, drive the implementation of the supply-side structural reform and achieve the Chinese dream of great national rejuvenation. Over the past three years, over 100 countries and international organizations have given warm responses and support to the Initiative. More than 40 countries and international organizations have signed cooperation agreements with China, and our circle of friends along the Belt and Road is growing bigger. Third, providing good opportunities for cross-border capital flows. Cross-border capital flows, the natural products of economic globalization, help boost the effective allocation of capital around the world and drive the proliferation and flows of advanced technologies and management experience to promote global economic growth. Jointly building the Belt and Road is designed to promote orderly and free flows of economic factors, highly efficient allocation of resources and deep integration of markets, which will be favorable for boosting the two-way liberalization of China's financial market, enhancing cross-border trade and investment facilitation, driving convertibility of the capital account and pressing ahead with RMB internationalization. While supporting Chinese enterprises to go global, the Initiative attracts long-term foreign capital to flow in to create the healthy, benign and stable order of cross-border capital flows and to ensure China's balance of payments is basically balanced and robust. Creating Favorable Policy Environment for the Belt and Road Initiative through Foreign Exchange Administration Reform By following the gist of a series of General Secretary Xi Jinping's speeches, foreign exchange authorities have been committed to ensuring opening and cooperation, harmony and inclusiveness, market operation and mutual benefit in accordance with the Vision and Actions on Jointly Building Silk Road Economic Belt and 21st-Century Maritime Silk Road, with focus on policy coordination, facilities connectivity, unimpeded trade, financial integration and people-to-people bonds. To create a favorable policy environment for the Initiative, we will adhere to two basic principles for foreign exchange administration: First, we will persevere in reform and opening up to support and boost two-way liberalization of the financial market, further enhance cross-border trade and investment facilitation and serve the real economy. We will support capable enterprises that meet relevant conditions to carry out authentic outbound investing activities in compliance with regulations to better serve the Initiative. Second, we will be on guard against risks arising from cross-border capital flows and the impact from the disorderly flows of cross-border capital on the macro economy and financial stability, so as to maintain the stability of the foreign exchange market, create a sound market environment for reform and opening up and the Initiative, and promote joint growth and common prosperity of other countries. Promoting Sound Economic and Trade Cooperation to Ensure the Smoothness of the Belt and Road Initiative Trade and investment cooperation is a key part of the Initiative. General Secretary Xi Jinping said in his keynote speech at the opening ceremony of the 2017 annual meeting of the World Economic Forum that we must persevere in supporting free trade and investment worldwide and boosting trade and investment liberalization and facilitation while opening up, and guarding against protectionism. In recent years, foreign exchange authorities have been committed to enhancing trade and investment facilitation, removing investment and trade barriers, deepening linkage between trade and investing activities, expanding the scope of trade and investment, optimizing trade and investment structure, exploring new growth points for trade and investment, promoting the balanced development of cross-border trade and investment, and creating sound business environment inside and outside the region to unleash cooperation potential and expand and improve cooperation with the rest of the world. First, implementing the foreign exchange administration system reform for trade in goods in all respects. Trade development is a key part of the Initiative, with trade in goods being the top priority. In 1996, China accomplished convertibility of the current account. In recent years, the verification on a transaction-by-transaction basis of foreign exchange receipts and payments under trade in goods has been cancelled to allow banks to review electronic documents for eligible enterprises and allow class-A enterprises' foreign exchange receipts under trade to be transferred directly into the foreign exchange account under the current account. Efforts have been made to enhance the facilitation of foreign exchange receipts and payments under trade in goods, and consolidate and expand traditional trade to serve the Initiative. Second, deepening the foreign exchange administration reform for trade in services. Efforts have also been made to build and refine the systems in favor of trade in services, cancel prior approval for trade in services, and hand down foreign trade receipts and payments under trade in services to banks, with documents significantly simplified. The reform has effectively reduced the operating costs for enterprises, which is favorable for developing modern trade in services, and optimizing trade structure, thereby vigorously supporting the Initiative. Third, promoting diversified foreign trade development. The SAFE will continue to enhance facilitation of border trade and individual trade, cancel administrative permission for border trade accounts, accelerate turnover of capital and simplify document requirements for individual trade to expand trading under the Initiative. Fourth, supporting the development of new formats. The SAFE has been active in supporting the development of cross-border e-commerce comprehensive pilot zones and expanding the zones to cover 12 cities including Tianjin. In 2015, the pilot program for cross-border e-commerce payments business was rolled out nationwide. Since then, 33 pilot payment institutions across the country have registered an accumulated USD 24.6 billion in cross-border receipts and payments, and supported the development of cross-border e-commerce such as the Internet+, which is favorable for innovating the way of trading and developing new business formats such as cross-border e-commerce to explore the new growth points for trading under the Initiative. Fifth, actively supporting Chinese enterprises to go global. Direct investment is a key channel for Chinese enterprises going global to support the joint building of the Belt and Road. In recent years, foreign exchange administration for direct investments has been significantly simplified and basically convertible and enterprises have remarkably picked up speed to go global. The statistics from the Ministry of Commerce show the ODI from non-financial Chinese enterprises was USD 170.1 billion in 2016, up by 40% year on year. The rapid increase in China's ODI shows the enhanced comprehensive national strength, the higher level of opening up, and the steady advancement of the Initiative, the global production capacity cooperation and administration streamlining and power delegation, which is conducive to boosting China's economic transformation, and promoting economic growth in the globe and the host countries to accomplish mutual benefit and common development of China and the countries along the Belt and Road. At the same time, countries will be faced with various risks in building the Belt and Road, such as country risk, market risk, legal risk and labor risk. As a foreign-related economic administration department, the SAFE has always encouraged enterprises to participate in international economic competition and cooperation, and in joint building and production capacity cooperation under the Initiative to promote the transformation and upgrading of the domestic economy and deepen mutual benefit and cooperation between China and the countries along the Belt and Road. By following the outbound investment management principle that "under the guidance of the government, enterprises will play a dominant role based on market orientation and international practices", the SAFE supports capable Chinese enterprises that meet relevant conditions to make authentic outbound investments in compliance with regulations. Deepening Financial Integration to Expand New Channels for the Belt and Road Initiative The Belt and Road Initiative champions wide-ranging, multi-dimensional, and multi-level connectivity, and financial connectivity is a strong support for the Initiative. General Secretary Xi Jinping emphasized at the 2015 Boao Forum for Asia that the Belt and Road should be jointly built through consultation to meet the interests of all, and integrate development strategies and complement each other's advantages. In recent years, the SAFE has been dedicated to expanding the funding channels for enterprises, innovating the ways of financing, and driving enterprises to go global with capital that has gone global. The SAFE has participated in the Initiative and international production capacity and equipment cooperation by making use of China's capital and experience, as well as its advantages in high-end technology and equipment. At the same time, the SAFE has brought in advanced international technology to achieve integration, cooperation and mutual benefit in terms of technology, management, culture and markets with relevant countries. As at the end of 2016, China's banking industry registered USD 147.6 billion in assets in the countries along the Belt and Road, up by 12% year on year. First, new breakthroughs have been achieved in the two-way opening of portfolio investment. Portfolio investment is a key area for the connectivity of asset allocation. In recent years, the SAFE has harnessed the opportunities from the equilibrium of foreign exchange to refine the systems for qualified foreign institutional investors (QFII) and qualified domestic institutional investors (QDII) in the logic of "balanced regulation and two-way flows" and launched the system for RMB qualified foreign institutional investors (RQFII). It implemented the foreign exchange administration reform for QFIIs and expanded the pilot program for RQFIIs, and simplified the approval procedures for QFIIs and RQFIIs. Moreover, it loosened the upper limit for investments by a single institution, facilitated inward and outward remittances, and eased the restriction of the lockup period, thereby further boosting the opening up of China's capital market. By the end of December 2016, 278 QFIIs obtained the quota of USD 87.309 billion, and 177 RQFIIs obtained the quota of RMB 528.475 billion. Second, the macro-prudential management policy for full-scale cross-border financing has been adopted nationwide. External debt is the key channel for expanding domestic market participants' support for the sources of financing for the Initiative. In recent years, the SAFE has canceled prior approval for external debt and overseas guarantee. In 2016, while summarizing the experience gained from the pilot program for macro-prudential management of external debt, the SAFE rolled out nationwide the macro-prudential management policy for full-scale cross-border financing and innovated the way of supporting investment and financing, in a bid to reduce the difficulties and the cost of financing for enterprises going global. In 2016, Chinese enterprises, including non-banking Chinese financial institutions, registered a contracted amount of USD 102.1 billion for external debt, 2.3 times that of 2015. Third, China's bond market has been further opened up. The SAFE facilitates the issuance of panda bonds by foreign institutions in the Chinese market, allows foreign institutional investors to invest in the domestic inter-bank bond market without imposing limit on a single institution or a total limit, and allows foreign institutional investors who have invested in China's bond market to participate in the foreign exchange derivatives markets both at home and aboard based on real demand to satisfy foreign institutional investors' demand for risk aversion. As of the end of April 2017, there were 48 foreign exchange settlement agencies. Driving enterprises to go global with capital that has gone global is favorable for expanding capital sources for the Initiative to support facilities connectivity. As at the end of 2016, in China's interbank bond market, panda bonds of RMB 63.1 billion had been issued and involved more than 400 foreign investors, with the balance of investment nearing RMB 800 billion. Optimizing Use of Foreign Exchange Reserves to Open New Windows for the Belt and Road Initiative Capital going global plays a fundamental role in the Initiative. As a national strategy-oriented administrative institution for foreign exchange reserves, the SAFE has been committed to improving operation and management of foreign exchange reserves, strengthening coordination and risk control for diversified use of foreign exchange reserves, actively supporting significant strategies such as the Belt and Road Initiative and international production capacity and equipment manufacturing cooperation so as to build a system of external investment and financing platforms that are complementary and cooperative to each other. First, building capital platforms for the Initiative. The SAFE has been dedicated to expanding diversified use of foreign exchange reserves and taken a multi-level approach to support the Initiative through equity, debt and funds. In addition to entrusted loans, the SAFE took the lead to establish the Silk Road Fund and China-Africa Production Capacity Cooperation Fund. The Silk Road Fund boasts a total investment of USD 40 billion, with the first installment of USD 10 billion, while the latter has a total investment of USD 10 billion. Moreover, the SAFE has invested in CIC International, CNIC Corporation, China Development Bank and the Export-Import Bank of China and supported bilateral and multilateral funds in various ways such as China-Africa Development Fund, China-Eurasian Economic Cooperation Fund and China-Arab Investment Funds. Since their inception, these establishments have made explorations in functional positioning, investment concept, business practice and corporate governance and delivered a wealth of initial outcomes. Second, serving national strategies based on market orientation. Through commercial operation, the SAFE focuses on supporting projects under the Belt and Road Initiative such as infrastructure, resource development, industrial cooperation and financial cooperation so as to achieve mid and long-term financial sustainability and good returns on investment. It also has been committed to providing investment and financing support to the economic and trade cooperation between China and relevant countries and regions, and to bilateral and multilateral connectivity. Third, performing an investor's roles and responsibilities. The SAFE endeavors to guide investment institutions to conduct standardized and professional management in terms of corporate governance and the leadership of CPC. The SAFE strengthens the leadership of CPC and improves the systems and mechanism for CPC building, and makes full use of CPC's core role in corporate governance. The SAFE also devotes itself to improving corporate governance, and refining the incentive and constraint mechanisms, achieving significant progress in business expansion, company building, risk control and internal systems. Making Progress while Maintaining Stability in Foreign Exchange Administration to Further Support the Belt and Road Initiative The advancement of the Belt and Road Initiative will play a key role in creating the new pattern of comprehensive opening up, expanding China's development space, and safeguarding security and stability of neighboring countries and regions, and also creates significant opportunities for China and relevant countries to press ahead with connectivity, cooperation and common development. While adhering to the general work guideline of making progress while maintaining stability, foreign exchange authorities will continue to follow the relevant plans of the CPC Central Committee and the State Council to advance reform and opening up, build a new pattern of opening up for common development, inject new life into joint development, so as to systematically, effectively and forcefully advance the Initiative, play a due role of the facilitator, server and safeguard for the Initiative, and lend much momentum to an open world economy, so that the Initiative could better benefit different peoples. To this end, five aspects shall be ensured as follows: First, the Initiative follows market orientation. An open window will not be closed again. The SAFE shall continue to enhance trade and investment facilitation, and expand trade and investment areas, to improve the efficiency and quality of market participants in using domestic and international markets and resources. The SAFE shall also deepen the investment and financing linkage system and further study and implement the mutual benefit policies. It shall welcome foreign enterprises to invest in China and encourage domestic enterprises to participate in the infrastructure building and industrial investment in the countries along the Belt and Road, to promote connectivity under the Initiative. Second, the Initiative is open for cooperation. Efforts shall be made to further open up and facilitate domestic capital market, bond market and foreign exchange market. To achieve the current objective of balancing the supply-demand relationship of the foreign exchange market, and the long-term goal of boosting the opening up of the financial market, the SAFE shall boost the capital account convertibility in a prudential and systematic way. The SAFE shall also work to expand the liberalization of the bond market and facilitate foreign institution's entry into China's bond market to issue and invest in bonds and expand the funding sources for the Initiative. Efforts shall be made to refine the exchange rate formation mechanism, enhance exchange rate elasticity, enrich risk hedging tools in the foreign exchange market and build more friendly and convenient system environment to satisfy the needs of foreign investors for managing exchange rate risks. Third, the Initiative is balanced and robust to make good use of the intangible hand and the tangible hand. With the market laws and international rules under the Initiative observed, efforts shall be made to make full use of the market's decisive role in resource allocation and the roles of enterprises and the government to build a system for macro-prudential management of cross-border capital flows and micro market regulation to prevent the risks arising from unusual cross-border capital flows and build a healthy, stable, and benign order in the foreign exchange market for the Initiative. Fourth, the Initiative seeks mutual benefit to optimize the use of foreign exchange reserves. Under the philosophy of commercial operation, mutual benefit, openness and inclusiveness, the SAFE shall attempt new measures for diversified use while showing respect for the international economic and financial rules to invest in infrastructure, resource development, industrial cooperation, and financial cooperation under the Initiative, through a variety of financing and investment vehicles, especially equity investments to promote common development and prosperity of China and the countries along the Belt and Road. Fifth, policies are integrated to strengthen coordination and cooperation. The SAFE shall boost the policy communication with the countries and regions along the Belt and Road, strengthen connectivity and cross-border cooperation of market infrastructure, and enhance communication and exchanges with foreign investors to make the foreign exchange market more transparent. (The original text is available in the ninth issue of China Finance for 2017) 2017-05-05/en/2017/0505/1263.html