May 18, 2007 - Since April 2007 the SAFE has launched inspections of foreign exchange capital inflows and sales in 10 coastal cities and provinces. A reporter interviewed the SAFE's spokesperson on related issues.

Q: Why did the SAFE launch inspections of foreign exchange capital inflows and sales?

A: In recent years, the SAFE, centering on the goal of achieving an equilibrium in the balance of payments, has changed its working style, adopted innovative administrative means, and improved its management of capital inflows and foreign exchange sales. Some progress has been made. However, the situation in the balance of payments remains grim. This year our foreign exchange capital still posts a trend of net inflows. Foreign exchange reserves still remain high, reaching USD 1.202 trillion at the end of March, an increase of 12.72% compared with the end of 2006, and to some extent affecting stable and sound economic development. Therefore, the SAFE launched inspections of foreign exchange capital inflows and sales in ten coastal cities and provinces for the following purposes. First, to grasp the overall situation of capital inflows, and foreign exchange sales and the use of RMB capital from foreign exchange sales to provide a scientific and reliable foundation for improving macro-control. Second, to understand the channels, methods, structure, and operation of abnormal and illegal capital inflows, foreign exchange sales, and the use of RMB capital from foreign exchange sales to curtail the inflows of cross-border short-term venture capital. Third, to check the effect of the policies on foreign exchange administration, step up the fight against foreign exchange-related illegal behavior, alleviating their negative impact on economic development and achieving rapid and sound economic development.

Q: Why did the SAFE choose ten coastal cities and provinces like Guangdong to carry out the inspection?

A: In light of the foreign exchange revenue and expenditure of each province in 2006, the SAFE decided to carry out off-site inspections of the foreign exchange capital inflows and sales in Guangdong, Jiangsu, Zhejiang, Shandong, Fujian, Liaoning, Ningbo, Qingdao, Xiamen, and Dalian where the foreign exchange business is brisk and where collection and sales account for 60% of the entire country. Therefore, grasping the foreign exchange capital inflows and foreign exchange sales and use of RMB capital from foreign exchange sales in these regions will be helpful to take account of the overall situation in China .

Q: What are the requirements for the inspected subjects and time slot for the inspected businesses?

A: The SAFE will mainly inspect subjects involved in foreign exchange, including Chinese- and foreign-funded banks engaged in foreign exchange collection and sales in China, non-bank financial institutions, foreign-funded enterprises, Chinese enterprises and institutions, foreign organizations in China, and individuals. Foreign exchange collection and sales as well as the use of RMB capital from foreign exchange sales from January 1, 2006 and March 31, 2007 (or, if necessary, the time before and after this period) will be inspected.

Q: What will the SAFE mainly inspect?

A: The SAFE will focus on the inspection of the foreign exchange collection and sales as well as the use of RMB capital from foreign exchange sales of the inspected subjects during the specified period. We will emphasize the authenticity and lawfulness of the foreign exchange collection and sales under the goods trade and services trade, capital inflows and foreign exchange sales of foreign-funded enterprises, capital inflows and foreign exchange sales of external debts and trade financing, individual capital inflows and sales, and those involved in real estate, securities, and round-trip investments, and will crack down on illegal capital inflows and foreign exchange sales through underground money shops. The SAFE also will require local foreign exchange inspection departments to analyze local foreign exchange capital inflows and sales as well as the use of RMB capital from foreign exchange sales with a special focus on the local situations.

Q: What progress has the SAFE made?

A: To ensure its success and achieve the expected goals, the SAFE made full preparations for the inspection. Inspections of the chosen regions, launched on April 9, are proceeding smoothly and the first phase is expected to be completed at the end of May. Inspections reveal that illegal behavior exists in both trade and investment. On the one hand, we will carry out extended inspections and strictly combat illegal short-term capital inflows and foreign exchange sales; on the other hand, the SAFE will adjust the policy in a targeted fashion according to the exposed problems from the inspections, further improve and strengthen foreign exchange administration, guard against the impact of short-term capital inflows, and promote an equilibrium in the balance of payments.