· [Wang Yungui]: Ladies and gentlemen and friends, welcome to the press conference of the State Administration of Foreign Exchange. Beginning from 2014, every quarter a press conference on the foreign exchange situation and statistics has been held at the State Council Information Office for friends from the press, and a press conference on the foreign exchange administration policy has been held at the SAFE. [10:10]
· [Wang Yungui]: Today we have Du Peng, director of the Current Account Department, Guo Song, director of the Capital Account Department, and Wu Ruilin, deputy director of the Administration and Inspection Department. They are very happy to share information with you. The theme of today's conference is recent progress in foreign exchange administration policies. Given that many friends from the press are very much concerned about foreign exchange administration and have well interpreted the policies on foreign exchange administration, we are going to unveil here the foreign exchange administration policies during the first half of this year, especially those during the first three quarters. [10:11]
· [Wang Yungui]: First, allow me to release the foreign exchange administration policies for 2014 on behalf of the SAFE. Guided by the decisions and plans of the CPC Central Committee and the State Council and based on practices in foreign exchange administration, the SAFE has been seeking progress while maintaining stability by carrying out reforms and innovations since the very beginning of 2014, focusing on accelerating the streamlining of administration and delegating more power to lower-level departments, stressing interim and ex-post management, promoting capital account convertibility in good order, and actively guarding against financial risks, thus enhancing the capability of foreign exchange administration to serve the real economy. [10:11]
· [Wang Yungui]: Advancing the reform of foreign exchange administration under the current account to promote the healthy development of foreign trade [10:12]
· [Wang Yungui]: First, deepening the reform of the foreign exchange administration systems for trade in goods and services. In August 2012 the SAFE launched a nationwide reform of the foreign exchange administration system for trade in goods by cancelling the export and import verifications. In September 2013 the SAFE launched a nationwide reform of foreign exchange administration for trade in services, cancelling approvals for foreign exchange under trade in services and significantly simplifying the document examination requirements via banks. According to the requirements, in theory banks do not need to examine transaction documents for receipts and payments of foreign exchange of less than USD 50,000 under trade in services, and the examination of transactions of over USD 50,000 have been simplified.
· [Wang Yungui]: Since implementation of the reforms of trade in goods and trade in services, companies and banks can more easily and more quickly conduct their businesses, thus significantly reducing their social costs. Compliant companies, which account for more than 95 percent of the total, fully enjoy the conveniences offered by the policy regarding the receipts and payments of foreign exchange under trade in goods, accelerating their receipts and payments of foreign exchange and significantly improving their capability to independently allocate foreign exchange resources; approvals for each transaction totaling less than USD 50,000 or the equivalent of receipts and payments in foreign exchange under trade in services have been cancelled. Such transactions account for 87 percent of the total. [10:12]
· [Wang Yungui]: Since the beginning of this year, the SAFE has shifted the focus of its supervision from ex-ante approvals for trade in goods and trade in services to interim and ex-post management. Based on data monitoring and analysis, a risk-warning letter is sent to companies engaged in trade in goods if their goods and capital flows are seriously mismatched, and they are required to explain why they have received excessive foreign exchange or have paid insufficient foreign exchange. Those companies that fail to provide a response or to make a convincing explanation within 10 days will be downgraded by the SAFE according to the law. Those that are downgraded to class-B companied are required to have their import and export documents examined by banks and are not allowed to handle advance receipts and postponed payments of foreign exchange for more than 90 days or receipts and payments of foreign exchange under entrept trade for more than 90 days. Those that are downgraded to class-C companies are required to submit an application to the SAFE for each transaction and are not allowed to receive or make payments in advance or to receive and pay foreign exchange under entrept trade. [10:13]
· [Wang Yungui]: By stressing interim and ex-post regulation, compliant companies have a "green light" for their foreign exchange business, while companies with abnormal transactions are often questioned and verified or even limited. As of the end of August, of the 550,000 listed foreign trade companies, there were 3,194 class-B companies and 709 class-C companies.
· [Wang Yungui]: Second, expanding the pilot program among payment institutions for receipts, payments, sales, and settlements of foreign exchange under cross-border e-commerce. [10:14]
· [Wang Yungui]: In 2013 the SAFE launched a pilot program among payment institutions with respect to foreign exchange under cross-border e-commerce in order to centrally process the receipts, payments, sales, and settlements of foreign exchange under cross-border e-commerce via 17 payment institutions in 5 regions, including Shanghai, Beijing, Chongqing, Zhejiang, and Shenzhen. In February of this year, five other payment institutions were included in the program. Pilot payment institutions, such as Alipay, ChinaPay, and PayEase, are allowed to handle the purchase of small amounts of foreign exchange, as well as cross-border receipts, payments, sales, and settlements of foreign exchange for buying air tickets, reserving hotel rooms, studying abroad, and purchasing software for both parties in e-commerce transactions, thus facilitating cross-border payments under e-commerce. As of July, 22 payment institutions had processed 692,000 transactions of cross-border foreign exchange receipts and payments, worth USD 630 million, and 8.579 million transactions of cross-border foreign exchange sales and settlements, worth USD 650 million. [10:15]
· [Wang Yungui]: Third, further facilitating the settlement of foreign exchange under border trade. [10:15]
· [Wang Yungui]: Based on market demand, in March the SAFE adjusted the foreign exchange administration policy for border trade companies, including cancelling administrative approvals, further simplifying documents, clarifying the grounds for settlement of foreign exchange in cash, and improving the relevant off-site verification and management indicators based on the characteristics of the border trade companies, thus playing an active role in accelerating the turnover of capital in border trade, enhancing the capital utilization rate, and promoting the sustainable, healthy, and rapid development of border trade in China. [10:15]
· [Wang Yungui]: Fourth, simplifying the requirements for document examination of the receipts and settlements of foreign exchange under individual trade. [10:15]
· [Wang Yungui]: As the existing current account management model remains basically unchanged, in March the SAFE introduced a pilot program in Zhejiang and Fujian, where individual trade is fairly developed, to replace the Customs declaration forms with commercial documents, for instance, logistics documents, as evidence for the receipts and settlement of foreign exchange to further facilitate individual trade. [10:16]
· [Wang Yungui]: Second, advancing capital account convertibility to improve the investment and financing environment [10:16]
· [Wang Yungui]: First, reforming round-trip investments via SPVs (special purpose vehicles). In July 2014 the SAFE launched foreign exchange administration reform for round-trip investments. It clarified that domestic institutions and individuals should register with the SAFE before establishing or controlling an overseas company using their legal domestic or overseas assets and overseas companies should register with the SAFE in accordance with the regulations for FDI before establishing an enterprise in China. Meanwhile, the foreign exchange registration process for overseas investments by domestic individuals has been simplified, only requiring a standard and formatted application form, a capital legality commitment, ID evidence, and relevant authenticity evidence. Domestic residents are allowed to buy and pay in foreign exchange to establish SPVs overseas and to use as overseas working capital. Limitations on the use of capital from overseas financing are also relaxed. [10:16]
· [Wang Yungui]: Second, expanding the pilot program to some regions for the reform of willingness exchange settlements for foreign exchange capital of foreign-invested enterprises. Given the success of the pilot program in the China (Shanghai) Pilot Free Trade Zone and Tianjin Binhai New Area, in July the SAFE replicated and promoted the policy for the willingness exchange settlement for foreign exchange capital of foreign-invested enterprises in 16 national pilot economic and financial development zones, including the Shenyang Economic Zone and Suzhou Industrial Park, allowing foreign-invested enterprises in the pilot zones to choose the time and method of foreign exchange capital settlement based on their operational needs and to receive and pay for foreign exchange in RMB through the unpaid foreign exchange settlement account. To guard against risks, it is required that unless otherwise specified, RMB capital for willingness exchange settlements should not be used beyond the business scope or for securities investments, entrusted loans, or real estate investments. Since implementation of the pilot program, foreign-invested enterprises in the relevant regions have become more flexible in their use of capital, which is favorable for settling foreign exchange at an appropriate time and for mitigating foreign exchange rate risks.
· [Wang Yungui]: Third, further simplifying management of foreign exchange under direct investments. First, liberalizing management of the preliminary expenses for overseas direct investments (ODIs). If the accumulated outward remittances of the preliminary expenses for ODI are less than USD 3 million or less than 15 percent of the total Chinese investment, domestic institutions are allowed to buy or pay for foreign exchange through banks after registering their preliminary expenses with a local foreign exchange bureau by presenting their business license and the organizational code certificate. Second, liberalizing management of overseas funding by domestic companies. Domestic companies are allowed to fund overseas companies with which they have equity relations, and the limit of 2 years of validity for funding is canceled. Third, simplifying the submission of outward remittances of profits by domestic institutions. [10:22]
· [Wang Yungui]: Fourth, implementing the foreign exchange administration reform for cross-border guarantees. To ease the difficulties in financing and to reduce the staggering financing costs, in May the SAFE introduced the Regulations on Foreign Exchange Administration for Cross-border Guarantees to implement the foreign exchange administration reform for cross-border guarantees. Administration streamlining and decentralization have been significantly promoted, with ex-ante approvals related to cross-border guarantees, ex-ante verifications for the performance of guarantees, and most limitations on business qualifications replaced by proportional self-disciplined management and registration management to unify the policies on domestic loans with the overseas guarantees for foreign and Chinese enterprises in China. Measures against risks associated with cross-border guarantees have been intensified. Since implementation of the reform, cross-border guarantees have been stable, with no abnormal growth in the performance of cross-border guarantees. According to feedback from enterprises and banks, business processing has become easier and more convenient, companies' financing channels have been expanded, and financing costs have been effectively reduced since implementation of the reform. Before implementation of the reform, it would take enterprises at least one week to undergo the entire process, including applying for a financing limit, signing a contract, and registering a guarantee, whereas since implementation of the reform, enterprises only need to register and it takes them only one day to complete the financing under guarantees. On average, banks need 1 4 hours, rather than the original one week, to process overseas loans with domestic guarantees, provided that the enterprises have completed the pledge processes for collateral and have submitted the completed application materials. [10:23]
· [Wang Yungui]: Fifth, streamlining administration and decentralizing cross-border credit. This primarily includes three points. First, simplifying administration of foreign exchange under sub-loans by canceling the processes for registration per transaction, account opening, and verification, and introducing centralized registration of creditors for sub-loans. Second, simplifying management of external claims registration for financing and leasing companies by introducing ex-post registration of financing and leasing companies and canceling the processes for account opening and verification. Third, simplifying foreign exchange administration for accepting assigned domestic non-performing assets by foreign investors by canceling the SAFE approval for the receipt and payment of foreign exchange and the relevant exchange involved in the disposal of non-performing assets by financial asset management companies and simplifying the relevant registration processes.
· [Wang Yungui]: Sixth, promoting the streamlining of administration and decentralization under securities investments. On the one hand, improving management of foreign exchange market access of securities companies by replacing the three-year license renewal requirement with an annual reporting system. On the other hand, simplifying the operating processes for RQFII (RMB Qualified Foreign Institutional Investors) by simplifying or canceling approvals for postponed inward remittances and quota adjustments, thus facilitating the institutions’ flexible use of their quotas based on market needs. [10:24]
· [Wang Yungui]: During the reform, the SAFE has focused on streamlining and integrating the regulations in an attempt to provide a more transparent and clearer policy framework for market players. Currently, administrative approval items under the capital account have been slashed by 66 percent, from the original 58 sub-items to 20 sub-items. During the first half of this year, as the reform proceeded a total of 18 regulatory documents under the capital account were abolished, including 12 documents under cross-border guarantees. [10:25]
· [Wang Yungui]: Third, advancing the pilot program for the centralized operation and management of the foreign exchange of MNCs. [10:26]
· [Wang Yungui]: In June, the "upgraded version" for the centralized operation and management of the foreign exchange of MNCs was promoted nationwide. The main content of the "upgraded version" includes: first, expanding the scope of the pilot program to benefit more companies. China- and foreign-funded MNCs are allowed to apply to join the program provided that they have a genuine demand, have foreign exchange that was received and paid in the previous year, have sound internal controls, and have not committed any grave violations within three years. Second, MNCs are allowed to coordinate the use of capital both at home and abroad to improve their operating efficiency. MNCs can open a principal domestic account and a principal international account to centralize management of the capital of their domestic and overseas members. Third, centralized receipts and payments and netting settlements are applicable to capital under the current account of a principal domestic account, while willingness exchange settlement is applicable to the principal and external debts. MNCs can coordinate the use of external debts and external funding limits of its member companies to transfer the balance among its member companies. Fourth, strengthening measures to guard against risks. Collecting information on the receipts and payments of the foreign exchange of MNCs, including centralized receipts and payments and netting settlements, and conducting timely on-site verifications and inspections of anything suspicious identified in the off-site monitoring to adhere to the bottom line of foreign exchange administration to guard against risks. [10:27]
· [Wang Yungui]: Fourth, intensifying foreign exchange inspections to clamp down on foreign exchange illegalities and crimes. [10:29]
· [Wang Yungui]: Since the beginning of this year, the SAFE has organized many inspections against areas and links with abnormal flows of foreign exchange and has cracked down on foreign exchange illegalities and crimes, which have had a positive effect in promoting foreign exchange market players to run their businesses in compliance with the laws and regulations and in maintaining national economic and financial security.
· [Wang Yungui]: First, continuing to increase inspections of key areas and links with abnormal flows of foreign exchange and intensifying punishments, and conducting special inspections against false entrept trade and forward foreign exchange settlements. From January to August, 967 cases of foreign exchange violations were identified and dealt with, collecting administrative punishments in the amount of RMB 180 million. [10:30]
· [Wang Yungui]: Second, strengthening cross-departmental cooperation for financial monitoring. The SAFE signed an MOU with the Anti-Smuggling Department of the General Administration of Customs to jointly clamp down on chains of smuggling capital activities. The SAFE also worked with the Ministry of Public Security to crack down on foreign exchange illegalities, such as underground money shops and fraudulent foreign exchange letters of credit. As of the end of August, six underground money shops had been discovered and one illegal foreign exchange margin trading case had been dealt with, involving a total amount of RMB 2.8 billion. [10:30]
· [Wang Yungui]: Third, intensifying searches for clues about foreign exchange violations via the foreign exchange inspection system to further enhance the accuracy of the crackdowns and the efficiency of the inspections. Between January and August, 353 cases were filed using clues identified from monitoring analysis, involving fines in the amount of RMB 118 million and accounting for 36.5 percent and 65.5 percent of the total respectively. [10:30]
· [Wang Yungui]: Overall, foreign exchange administration measures were smoothly implemented during the first three quarters. The streamlining of administration and the delegating of more power to lower-level departments have substantially reduced the operating costs for market players, have remarkably fueled the enthusiasm of foreign-related companies for operations, and effectively promoted trade and investment facilitation, thus playing a significant role in stabilizing growth, adjusting the structure, and serving the common good. Meanwhile, by enhancing monitoring analysis and promptly adjusting pre-plans to guard against risks, the SAFE's capability to guard against systemic risks have been improved dramatically. [10:30]
· [Wang Yungui]: Now please ask your questions. [10:31]
· [Journalist]: I would like to ask Director Guo a question. We know the Fourth Plenary Session is forthcoming. You proposed at the Third Plenary Session that capital account convertibility should be accelerated, which requires building and improving a management system for external debts and capital flows under a macro-prudential management framework. I am wondering what steps the SAFE has taken thus far and what measures the SAFE will launch in the future in this regard. Could you please share some information with us? [10:36]
· [Guo Song]: It has been 2 3 decades since the concept of capital account convertibility was first raised in China. Thus far we have been trying to realize capital account convertibility step by step in accordance with the requirements of the Third Plenary Session of the 18th CPC Central Committee and previous conferences of the CPC Central Committee. Capital account convertibility is a gradual process and cannot be achieved overnight. As Director Wang just mentioned, several key reform measures under the capital account that have been introduced by the SAFE since the beginning of this year, including the reform of foreign exchange administration under round-trip investments, the pilot program for foreign exchange capital settlements, cancellation of the administrative approvals for external guarantees, as well as cancellation of the management of sub-loans of external debts and cancellation of approvals for the disposal of non-performing assets, have significantly enhanced the level of capital account convertibility. In addition to these national policies, the SAFE has carried out some pilot programs, such as promotion of the expansion of the management policy for the foreign exchange of MNCs, which thus far has been proceeding smoothly. Other pilot programs are also being conducted, such as the reform of external debt management under the macro-prudential framework which has been launched in the Heilongjiang Yanbian Development Zone and in Pingtan, Fujian. All of these measures have played some role in promoting capital account convertibility. [10:41]
· [Guo Song]: We are also accelerating study and implementation of the management system for external debts and capital flows under the macro-prudential framework, which was proposed at the Third Plenary Session of the 18th CPC Central Committee. For example, the macro-prudential management framework is taken into consideration during verification of the short-term external debts indicators of financial institutions, with more attention being paid to the banks' net assets. Of course, net assets are just one of the indicators, that is, a certain proportion of the net assets is used to verify the indicators. It is likely that many indicators may be balanced to achieve the intentions of a macro-prudential framework. We will continue to gradually remove the restrictions on capital account convertibility, to give market players more decision-making power in terms of investments, and to offer them more conveniences to use foreign exchange, which will be our top priority in the near future. [10:46]
· [Guo Song]: Thank you! [10:46]
· [Journalist]: I am a reporter from CCTV. I am concerned about the Qingdao port trade financing case that has recently attracted wide concern in the press. Was the SAFE involved in the investigation and will there be any punishment for the violators?
· [Wu Ruilin]: First, it should be made clear that the case does not only concern foreign exchange administration. It also involves foreign exchange financing and home currency financing, thus it concerns many financial regulators, while the SAFE is chiefly responsible for regulation of foreign exchange financing in China. Last April, before the case was identified, we launched a special campaign against false entrept trade and conducted special inspections of large amounts of entrept trade in 13 provinces and cities. This year we expanded the scope of the inspections to 24 provinces and cities and inspected banks handling entrept trade, with the aim of curbing false entrept trade. We also carried out an inspection in Qingdao. The inspection involved some parties in the Qingdao port case. During the investigation, we found many companies were using fake or altered commercial documents, or were repeatedly using property documents, or were applying general documents for trade in goods with imports declared for trade structuring, making entrept trade a tool for speculation and arbitrage or even a channel for flows of hot money or illegal cross-border capital flows. [10:49]
· [Wu Ruilin]: Some banks failed to assume their responsibility to verify the authenticity of the transactions before handling financing and receipts and payments under entrept trade for companies and were instrumental in the abnormal growth of entrept trade financing and in the increase in false entrept trade transactions.
· [Wu Ruilin]: False entrept trade will seriously harm the receipt and payment of foreign exchange, even the entire macro economy. It increases pressures from inflows of hot money and provides a channel for cross-border flows of illegal capital, thus curbing the development of the real economy by allowing capital to depart from the real economy and to flow into the virtual economy, and distorting the statistics on foreign trade data and impacting judgments on the macro situation. Thus far the SAFE has verified false entrept trade documents involving nearly US$ 10 billion, of which 15 cases have been handed over to the public security authorities for criminal sanctions. As the crackdown on false entrept trade proceeds, false entrept trade is being effectively contained and speculation and arbitrage through false entrept trade are decreasing. In the future, the SAFE will continue to crack down on false entrept trade in accordance with the inspection arrangements and plans and will seriously punish foreign exchange violations in accordance with the foreign exchange administration regulations, and will turn over foreign exchange crimes to the public security authorities for criminal sanctions. Meanwhile, the SAFE will cooperate with relevant departments in the investigation of financing under false entrept trade. Thank you! [10:52]
· [Journalist]: I am a reporter from people.cn. Could you please share with us something about the use of the annual limit of USD 50,000 for the sale and settlement of foreign exchange for Chinese individuals? Can this limit satisfy individuals' demand for foreign exchange? Will this annual limit be properly raised in the near future? Thank you! [10:52]
· [Du Peng]: Thank you for your question. To offer more conveniences to individuals to use foreign exchange and to reduce social costs, in 2007 the SAFE launched the convenience measure of the USD 50,000 limit for the sale and settlement of foreign exchange for individuals. This means that individuals can go directly to banks to buy or settle foreign exchange of less than USD 50,000 by presenting their ID cards, while individuals are required to present to the banks the relevant transaction documents with authentic backgrounds to buy and settle foreign exchange totaling over USD 50,000. Meanwhile, individuals going abroad can settle foreign exchange overseas using their bank cards and they are not restricted by the USD 50,000 limit when buying foreign exchange for repayment after returning to
· [Du Peng]: In general, individuals' demands for the permitted use of foreign exchange under the capital account, as well as the current account, after the authenticity and legality are verified, are basically satisfied. The SAFE conducted a questionnaire-based survey of 1,671 bank outlets in 12 provinces from March to June. More than 54,000 respondents completed the questionnaire, which revealed that 80 percent of the individuals' demands for foreign exchange are met. Statistics show that 80 percent of the individuals used foreign exchange totaling less than USD 10,000 annually, and 99 percent used foreign exchange totaling less than USD 50,000 annually, suggesting that 1 percent of the individuals might use foreign exchange beyond the annual limit. But these people can apply for the use of foreign exchange by presenting the relevant documents. It has been concluded that the current USD 50,000 limit is aligned with the current level of economic development and the level of public affluence. But as individuals become more involved in international communications, their demand for foreign exchange may increase and the types of foreign exchange they demand may become diversified, which we are also studying. [10:58]
· [Du Peng]: Overall, the SAFE is working to further satisfy individuals' demands for buying, using, and settling foreign exchange, guided by the principles of further facilitation and risk controllability. [10:59]
· [Journalist]: I have a question regarding the liberalization sequence of the capital account. It is known that China's overall financial reform is being conducted in a certain sequence. As interest rates and foreign exchange rates are not liberalized, we should be cautious about liberalizing the capital account. If economic theory and international lessons are any guide, liberalizing the foreign currency debts of domestic banks and companies is actually one of the most risky sub-items of the 100 sub-items required by the IMF. As the interest rate was liberalized due to the unilateral appreciation of the RMB in the first half of this year, many enterprises that went public in Hong Kong suffered huge exchange rate losses, some of which even reached more than RMB 1 billion. So could you please share with us the policy on the foreign currency debts of domestic companies and the SAFE's ideas on the liberalization sequence of the capital account? [11:02]
· [Guo Song]: The capital account liberalization projects, or the capital account convertibility projects, that we have carried out over the years have been divided by risk. Direct investments, for example, are fairly liberalized, and cross-border direct investments (FDI and ODI) are basically convertible, only requiring a registration processes. [11:02]
· [Guo Song]: We are very prudent in liberalizing securities investments and external debts. Limit-based management is adopted for external debts, including limit-based management for banks by imposing a restriction on the size of the annual external debts. Chinese companies are subject to more restrictions in borrowing money overseas, which is basically forbidden except in individual pilots. Foreign-invested companies are subject to a management model that focuses on the difference between investment and registered investment, under which they enjoy more freedom to borrow money overseas. Regarding the external debt risks that you asked about, we are more concerned about China's overall external debt risks rather than those of one company. Companies' external debt risks are more concerned about exchange rate risks, except for depending on their solvency, that are to be addressed using risk mitigation tools, and their selection of the type of currency they borrow is also impacted by the exchange rate and the interest rate. We have released data on the country's external debts in the first quarter and are about to unveil data for the second quarter. In the first quarter, the country's external debts in foreign currency amounted to USD 883.8 billion, while its foreign currency reserves were nearly RMB 4 trillion. This means the risk is under control from the perspective of payments according to international common risk measurements. But it is inevitable that individual companies remain exposed to external debt risks. It is hoped that companies will make more efforts to study risk mitigation measures. Thank you! [11:12]
· [Journalist]: I am a reporter from Phoenix Satellite Television. It is said that the outstanding abnormal foreign exchange funds in August was a result of accelerated outflows of capital and were temporary. Is there any policy in response to this? [11:18]
· [Guo Song]: Relevant data for August show that in general capital inflows and outflows were balanced. Statistics from the People's Bank of China show an increase of USD 15.4 billion in foreign currency deposits and a decline of USD 3.3 billion in foreign currency loans in August. According to the data, based on the current foreign exchange rate and the interest rate, more market players have adopted such a way to manipulate their capital, instead of merely focusing on the increase or decrease in inflows and outflows of capital, which shows that market players have gained more power to independently use their foreign exchange; foreign traders can independently decide when to receive or pay foreign exchange and when to settle or buy foreign exchange using their owned capital or loans. [11:37]
· [Journalist]: Could you please share with us something about the RQFII scheme? Is the SAFE going to raise the RQFII quota? [11:38]
· [Guo Song]: It has been 2 3 years since the RQFII scheme was launched. As of the end of August, a quota of RMB 278.6 billion had been doled out under this scheme. Other than in Hong Kong, approvals for the scheme in places such as Singapore, the UK, and France have just begun and there is no shortage in the quota. As of the end of August, RMB 265.3 billion of an aggregate quota of RMB 270 billion had been allocated in Hong Kong, so the quota is rapidly exhausted, which we are studying in partnership with other departments. [11:38]
· [Journalist]: I am reporter from Economic Observer. The Shanghai Hong Kong Stock Connect is about to be launched and the two points of arbitrage and regulatory arbitrage have attracted wide concern. Do you think the risks of capital inflows and outflows entailed by such arbitrage are controllable? What are your ideas about the Shenzhen Hong Kong Stock Connect? [12:05]
· [Guo Song]: Whether capital flows move northbound to Shanghai or southbound to Hong Kong depends on people's interest in A-shares and H-shares and it is hard to tell right now. As for arbitrage, if there is a regime that can address a price difference, which is a characteristic of full marketization, I believe this is good. We should not always regard arbitrage as a negative concept. Will there be capital arbitrage? Sure, it is inevitable as some A-shares are cheaper or some H-shares are cheaper. [12:05]
· [Guo Song]: As far as regulatory arbitrage is concerned, we believe there is very limited room for arbitrage in the transaction regime of the Shanghai Hong Kong Stock Connect, despite the regulatory differences in the two regions, such as the trading time, the trading day, and the price limits. [12:05]
· [Guo Song]: Therefore, the Shanghai Hong Kong Stock Connect should be a very good system and will be an important step in achieving overall capital account convertibility. The SAFE will give full support to the design of this system and its future progress. But no information on the Shenzhen Hong Kong Stock Connect is available now. [12:05]
· [Wang Yungui]: I would like to say something more on this issue. First, the central government's overall arrangement for northbound capital to Shanghai and southbound capital to Hong Kong is to allow both channels to match in aggregate. Data from the relevant department’s show that the aggregate quota for the two channels — northbound to Shanghai and southbound to Hong Kong — is basically the same, so these departments have developed a good design in terms of the aggregate quota and capital will not be seriously mismatched. As far as the policy design is concerned, the two channels — northbound to Shanghai and southbound to Hong Kong — are both closed channels that will not have a serious impact on cross-border capital flows. If stocks are bought from a market, only cash can be retrieved when selling the stocks and no other form of investment is allowed. [12:06]
· [Wang Yungui]: Thank you for attending today's press conference! Relevant events will be arranged for the fourth quarter. A press conference on the foreign exchange situation and data will be held next month at the State Council Information Office. You are warmly welcome to attend. [12:06]
(The original text is available at www.people.com.cn.)
