[Wang Yungui]: Good afternoon, friends from the press. Welcome to the Policy Press Conference of the State Administration of Foreign Exchange (SAFE) for March 2016. I am Wang Yungui, director of the General Affairs Department. Today we have with us Wang Chunying, deputy director of the Department of Balance of Payments, Du Peng, director of the Current Account Management Department, Guo Song, director of the Capital Account Management Department, and Zhang Shenghui, director of the Management and Inspection Department. [15:18]

[Wang Yungui]: On behalf of the SAFE, I would first like to unveil the latest foreign exchange situations and policies of the foreign exchange administration. [15:18]

[Wang Yungui]: Since the beginning of 2016, the SAFE, following the work plans of the CPC Central Committee and the State Council, has focused foreign exchange administration on maintaining the equilibrium of the balance of payments, pushed the foreign exchange administration reform, enhanced monitoring, analysis and assessment of cross-border capital flows, highlighted the requirements on the authenticity and compliance of foreign exchange business, and cracked down on irregularities such as underground banks, in a bid to create a favorable foreign exchange environment for economic development. [15:21]

[Wang Yungui] The pressure on China from cross-border capital outflows has been remarkably relieved. First, foreign exchange reserves drops have slowed down. The balance of foreign exchange reserves fell by USD 107.9 billion, USD 99.5 billion and USD 28.6 billion as of December 2015, January and February 2016 respectively. In particular, the foreign exchange reserves hit USD 3.2023 trillion in February, down by a margin that was 71% less on a month-on-month basis. Second, the deficit in foreign exchange settlements and sales has contracted. The non-banking sectors, companies or individuals, registered a deficit of USD 88.1 billion, USD 69.4 billion and USD 35 billion in December 2015, January and February 2016 respectively. In particular, the deficit for February was down by 50% month on month, and the daily average deficit in settlements and sales of foreign exchange has continued to drop since the beginning of March. Third, net cross-border capital outflows have been dropping. The non-banking sectors registered net cross-border capital outflows of USD 72.5 billion, USD 55.8 billion and USD 30.5 billion, and net foreign exchange outflows of USD 40.1 billion, USD 20.1 billion and USD 10.5 billion in December 2015, January and February 2016 respectively. The net cross-border capital outflows for February slumped by 45% month on month and the net foreign exchange outflows for the same month plunged by 48% month on month. The daily average net outflows of cross-border capital have continued to drop since the beginning of March. Fourth, the RMB exchange rate is being stabilized. Since the beginning of 2016, the CNY and the CNH exchange rates against the US dollar have been weakened and then strengthened, slightly dropping in January and stabilized since February, the spread between the CNY and the CNH has contracted, and the RMB nominal effective exchange rate has been stabilized. [15:30]

[Wang Yungui] While being committed to monitoring, analyzing and assessing cross-border capital flows, the SAFE has pushed the foreign exchange administration reform with the following measures: [15:32]

[Wang Yungui] I. Reforming the foreign exchange administration system for QFIIs [15:32]

[Wang Yungui] In February 2016, the SAFE published the Regulations on Foreign Exchange Administration for Domestic Securities Investments by QFII to reform the foreign exchange administration system for QFIIs and further liberalize domestic capital markets. The highlights of the Regulations include: first, easing the upper limit on the investment quota of a single QFII. The SAFE will no longer define a unified upper limit on the investment quota of a single institution and assign an investment quota (basic quota) to the institution in proportion to the size of its assets or assets under management (AUM). Second, simplifying quota approval management. A QFII's application for an investment quota that is within the basic quota will be subject to filing management, while the application for an investment quota that goes beyond the basic quota will be subject to SAFE approval. Third, further facilitating inward and outward remittances of funds. No requirements will be imposed on the deadline for the inward remittance of investment principal by a QFII. QFIIs will be allowed to subscribe and redeem open-end funds on a daily basis. Fourth, the lock-up period will be shortened from one year to three months, but the requirement that funds should be remitted out in batches and installments will remain unchanged, with the monthly total of outward remittance by a QFII no more than 20% of its domestic assets. Overall, the foreign exchange administration reform for QFIIs is centered on further simplifying quota management and facilitating exchange. [15:34]

[Wang Yungui] II. Rolling out the pilot program of macro-prudential management of full-scale cross-border financing [15:34]

[Wang Yungui] To further push the pilot program of macro-prudential management of full-scale cross-border financing for integrated management of domestic and foreign currencies, the SAFE published in January 2016 with the People's Bank of China the Circular of the People's Bank of China on Rolling out the Pilot Program of Macro-prudential Management of Full-scale Cross-border Financing (Yinfa No. 18 [2016]). This policy introduces the restraint mechanism on cross-border financing based on capital and net assets at the micro level under the macro-prudential principle, which allows pilot companies and 27 pilot banks to independently conduct cross-border financing in domestic and foreign currencies in compliance with regulations. By summarizing the experiences gained from the preliminary piloting of macro-prudential management of external debt and relying on the existing capital account information system and extensive management experience, the SAFE has cooperated with the People's Bank of China in studying and exploring the macro-prudential management framework for full-scale external debt and improved the operation particulars to ensure the implementation of the external debt macro-prudential policy. [15:35]

[Wang Yungui] III. Pushing the liberalization of inter-bank bond markets [15:35]

[Wang Yungui] In February 2016, in a bid to further push the opening of inter-bank bond markets and facilitate investments in inter-bank bond markets by QFIIs in compliance with laws and regulations, the People's Bank of China published the No. 3 Announcement of 2016, intended to further liberalize China's inter-bank bond markets, encourage foreign investors to invest in the markets as mid and long-term investors, and conduct macro-prudential management of investing activities of foreign institutional investors. Next, the SAFE will introduce detailed rules on foreign exchange administration with respect to investments in China's inter-bank bond markets by foreign institutional investors. [15:35]

[Wang Yungui] IV. Pushing Mutual Fund Connect in a good order [15:36]

[Wang Yungui]: In November 2015, the People's Bank of China and the SAFE jointly issued the Operating Guidance on the Management of Cross-border Issuance and Sales of Funds by Mainland and Hong Kong Securities Investment Funds, clarifying the quota management rules and relevant operations of the Mutual Fund Connect scheme and marking the official launch of the Mutual Fund Connect scheme. The Mutual Fund Connect opens new channels for mainland and HK investors to invest in securities markets, marking a breakthrough in the capital account convertibility. The policy has been implemented in a smooth and orderly manner, with the funds applied for mutual recognition recognized by each other's securities regulatory commission and issued and sold in mainland and HK. As at the end of January 2016, the cumulated net inward remittance from the issuance and sales of Mainland funds in Hong Kong amounted to RMB 21.5433 million, and the cumulated net outward remittance for the issuance and sales of HK funds in the Mainland, RMB 40.1767 million. [15:49]

[Wang Yungui]: V. Cracking down on activities in violation of foreign exchange laws and regulations [15:49]

[Wang Yungui] In 2015, the SAFE, while optimizing foreign exchange administration services, required banks to enhance authenticity reviews in compliance with existing regulations, by focusing on the main channels of unusual cross-border capital flows and conducting special inspections of banks, financial leasing companies and rubber companies, and intensifying the crackdown on foreign exchange irregularities such as fabricated trading and underground banks. The SAFE cracked more than 2,000 cases arising from foreign exchange irregularities and collected an administrative penalty of more than RMB 400 million in the year. Since the beginning of 2016, the SAFE has continued intensifying off-site inspections and analysis and on-site inspections of the channels for irregular capital flows and unusual leads, conducted special inspections of foreign exchange business under outflows, and cracked down on foreign exchange irregularities to safeguard a normal order in foreign exchange markets. [15:50]

[Wang Yungui] VI. Launching the individual foreign exchange monitoring system [15:50]

[Wang Yungui] The SAFE officially launched the individual foreign exchange monitoring system on January 1, 2016. Unlike the previous system, the new system does not require manual input, effectively avoiding secondary input of bank information and saving time for banks and individuals with respect to foreign exchange business. The new system requires the data on individuals' foreign exchange receipts and payments, and their deposits and withdrawals of banknotes, in addition to the data on individuals' settlements and sales of foreign exchange as required in the previous system, realizing the full coverage of the data on individuals' foreign exchange. Moreover, the SAFE uses the system to refine watch list management for nationwide sharing. The new system has run smoothly over the past two months of piloting, ensuring the smooth and orderly processing of individual foreign exchange business. [15:50]

[Wang Yungui] VII. Improving management of domestic institutions' receipts and payments of foreign currency banknotes [15:51]

[Wang Yungui] To satisfy the development needs of the foreign-currency banknotes business in China, the Measures for Managing Domestic Institutions' Receipts and Payments of Foreign-Currency Banknotes introduced by the SAFE has been implemented starting from February 2016. The highlights of the Measures are as follows: first, adjusting the way of managing the receipts and payments of foreign-currency banknotes to base the management on risk level and utilization frequency. Second, specifying the requirements on banks' reviews for the foreign-currency banknote receipts and payments business. Banks should review the authenticity, legality and necessity of the receipts and payments of foreign-currency banknotes under the three business principles. Third, improving relevant foreign exchange regulations. The SAFE has enhanced data collection and analysis, and intensified ex-post regulation and investigation, further standardizing the management of domestic institutions' receipts and payments of foreign currency banknotes. [15:51]

[Wang Yungui] Overall, the measures for the foreign exchange administration reform have been in effect and played significant roles in satisfying normal demand of individuals and companies for foreign exchange, facilitating cross-border investment and financing by market players, and guarding against risks arising from cross-border capital flows. [15:51]

[Wang Yungui] Now I will take your questions, with one from each reporter since time is running short. Please tell us your organization before asking your question. Let's get started. [15:52]

[CBN Daily] I am wondering whether China's policy tool kit is sufficient to cope with the changes since most policies on foreign exchange administration were for capital inflows before 2014. What are the tools we have now? What policies are being researched into, such as Tobin tax? Are there any guiding philosophies for market expectations management with reference to the lessons from last year? [16:04]

[Wang Yungui] Let me answer you in brief. Before 2014, China had been under pressure from net inflows for about a decade, and China's foreign exchange reserves had been rising for many consecutive years. Under such circumstances, we developed many tools, which helped us effectively relieve the pressure on foreign exchange administration and macroeconomic policies from heavy cross-border capital inflows. Since 2014, most emerging market economies have been under the pressure from capital outflows along with interest rate hikes in the US and the changing global financial markets. China is no exception. But we believe the existing foreign exchange administration tool kit is sufficient to relieve the pressure from capital outflows, as having been proved since the second half of last year. This tool kit contains many types of tools. For example, we still highlight authenticity and compliance in the management of existing and opened items under the current account. We require banks to intensify authenticity and compliance reviews of transactions under the current account including trade in goods and trade in services, which has produced positive results. We have spotted foreign capital involved in structuring of trade or fabricated trading through verifications and inspections and solved some cases. This tool has been proved effective. For items that are not liberalized under the capital account, we may adopt trace management. For direct investment that is basically convertible, including FDI and ODI, we require players to register to leave traces when handling transactions with banks, and then track these traces through big data analytics, assessing, analyzing, verifying and investigating relevant institutions, or even inspecting them. These trace tools are effective too. For some liberalized QFII and QDII businesses, we are committed to joint approval and regulation with relevant departments, which have produced positive results. The qualified institutional investor system including QDII is favorable for the two-way opening of capital markets, with foreign capital investing in China's securities, foreign exchange and bonds markets and Chinese players investing in foreign capital markets, and has been proved fruitful. Therefore, we consider this tool kit is effective with aggregate risk within control and the micro-economy being buoyant. Next, we will research and develop more tools, including Tobin tax as mentioned by the reporter. We are also studying other international experiences, like financial transaction tax in Latin American countries. The policy on the URR for forward sales of foreign exchange introduced by the People's Bank of China last year, we believe, is a good instrument. We will continue to study relevant policy measures such as macro-prudential management of external debt, which is also part of the tool kit. In a word, we believe our policy tool kit works, with measures effectively implemented based on active cooperation from banks. [16:11]

[Financial News] Could you brief us on the SAFE's monitoring of cross-border capital of late? Thank you. [16:47]

[Wang Chunying] We have been closely monitoring relevant data and observe and analyze various data every day. Mr. Director has unveiled recent situation just now, and given the data for last December, this January and February, or even this month, the pressure from foreign exchange outflows has been significantly relieved. For example, foreign exchange reserves have dropped more slowly, and the deficits in settlements and sales of foreign exchange and cross-border receipts and payments have been falling. The daily average estimations by working or trading day show that the outflow pressure was gradually eased in January and February, after adjustment of the Chinese New Year holiday. As of March 18, the daily average deficit in settlements and sales of foreign exchange has dropped by 9% from February, the daily average net outflow of cross-border capital has been 30% lower than that of February, and the daily average net outflow of foreign exchange has gone down by 79% from February, with even net inflows in some days. The RMB exchange rate has stayed stable. The RMB nominal effective exchange rates against CFETS, BIS and SDR baskets of currencies, compiled by China Foreign Exchange Trading System & National Interbank Funding Center (CFETS) yesterday, were down slightly by 2.8%, 2.5% and 1.5% respectively from the end of 2015. Market players are adjusting their assets and liabilities in domestic and foreign currencies in a smoother way. On the one hand, people's pace to hold foreign exchange was slowing down, with the balance of foreign exchange deposits for February rising by USD 8.3 billion, which was USD 11.3 billion less than that of January. On the other hand, companies' pace to service debt was slowing down too. For example, the balance of cross-border financing for imports for February dropped by USD 2.5 billion, which was USD 7.2 billion lower than that of January. [16:47]

[Wang Chunying] This is the result of the changing domestic and overseas environments. First, financial markets are being stabilized after fluctuations. Our observations show that the US Dollar Index has sustained narrow fluctuations since it slumped in January, and the VIX that reflects the fluctuations of market aversion has fallen since peaking in mid-February, leading to narrower fluctuations in international markets. Second, the RMB exchange rate remains stable. Despite recent large appreciation, the margins of appreciation and depreciation have been stable these days. Third, no supplementary adjustments have been made to the policies for foreign exchange administration, except highlighting the requirements on the authenticity and compliance of foreign exchange transactions and curbing speculations, which has stabilized market sentiment. [16:47]

[Wang Chunying] Cross-border capital flows are expected to stay stable in the near future. The SAFE released the data on settlements and sales of foreign exchange and cross-border capital flows for February at its website on March 16, together with Q&As and a brief introduction. Specifically, trade surplus and actual utilization of foreign capital will remain large. The external debt of companies will be more stable after more than one year's deleveraging. Globally, market expectations of the Fed's interest rate hikes will drop significantly soon. The Fed's adjustment of its monetary policy, if meeting market expectations, will be favorable for stabilizing global financial markets and capital flows. Domestically, China's GDP growth target for this year is 6.5%-7%, which is high at the global level, indicating the fundamentals for attracting inflows of foreign capital remain unchanged. We also have discussed with domestic and overseas experts and scholars the pressure from capital outflows. A prestigious scholar once asked us where we thought we should invest to obtain a stable return of up to 7%. [16:47]

[Economic Information Daily] As you have said just now and we pushed on our official microblog in March, the SAFE has raised higher requirements on authenticity reviews by banks starting from 2015. I am wondering whether such reviews will impact companies' imports and exports. Thank you. [17:03]

[Du Peng] Promoting trade facilitation to serve the real economy has always been the SAFE's top priority. We carried out the reform of the foreign exchange administration system for trade in goods in 2012. During the reform, we streamlined administration and delegated powers, canceled transaction-by-transaction verifications of imports and exports and adopted classified management of companies by rewarding the excellent and restricting the poor. As at the end of 2015, there were 655,000 companies on the List of Enterprises with Receipts and Payments of Foreign Exchange under Trade, including 5,216 class-B and C enterprises, less than 1% of the total, which indicates that the majority of the enterprises are law-abiding and entitled to policy facilitation, except a minority or less than 1% of the enterprises are subject to restrictions and stringent management. This approach will not negatively impact but boost foreign trade. What I want to stress is that since serving the real economy will always be the top priority of foreign exchange administration, the direction of the foreign exchange administration reform will not change, and so will the policy orientation of boosting trade and investment facilitation. Meanwhile, we will further strengthen risk prevention and control, highlighting the requirements on authenticity and compliance reviews and intensifying monitoring, early warning, verification and crackdown on foreign exchange irregularities. To put it simply, authenticity reviews are necessary to ensure the authenticity and compliance of receipts and payments under trade and safeguard a normal order in foreign exchange markets. Without changing the existing policy framework, the SAFE further clarified and standardized the requirements on authenticity reviews of receipts and payments under trade in goods in 2015, but did not add new regulations. The purpose of specifying and refining relevant review requirements is to guard against risks arising from cross-border receipts and payments, given the usual irregularities involving a minority of enterprises. In recent years, we have spotted arbitrages and illegal allocation of cross-border capital by some lawbreakers through trade in goods, such as receipts and payments of foreign exchange not under trade, overseas fund transfers through trade channels, as well as fabricated trade and acquiring the CNY/CNH spread through offshore switch trade. As a result, intensifying authenticity reviews and special verifications is necessary for guarding against and cracking down on company irregularities, and creating a fair and competitive environment for law-abiding enterprises with integrity, and will not impact market players' reasonable and legitimate requirements for use of foreign exchange, or interrupt their normal trade in goods. [17:03]

[Market News International of the US] The Wall Street Journal reported that some Chinese institution has carried out non-public derivatives trade to underpin the RMB. What would you say about this? [17:19]

[Wang Yungui] There are various financial products in both domestic foreign exchange markets and offshore markets, such as forward and swap products in domestic markets. These products are developed to support flexible floating of foreign exchange rates and rational risk mitigation by companies and institutions through reasonable and valid processes. Transactions in offshore markets should be in compliance with the requirements of financial regulators there. They may have some impact on foreign exchange rates via various products, which is within control. We don't think derivatives trading has severely impacted the RMB exchange rate. On the whole, the rate is in line with China's tendency to maintain stability. [17:28]

[CCTV] There are reports on mainland residents buying insurance in Hong Kong of late. Could you brief us on relevant policy? Thank you. [17:48]

[Wang Yungui] We have noted these reports too and I would like to share some of our ideas with you here. First, Chinese residents must comply with the policies and regulations of the Chinese insurance regulator in buying insurance overseas. Second, they should also comply with relevant regulations under the foreign exchange administration policy. There are two cases on Chinese residents buying insurance overseas, which are subject to foreign exchange administration. In one case, Chinese residents buy personal accident insurance or health insurance for travelling, business activities and studying abroad, which are transactions under trade in services and allowed and supported under the policy framework for foreign exchange administration. Anyone who has gone abroad knows that buying such insurance abroad as travel insurance, personal accident insurance and health insurance is subject to no restriction and supported by the foreign exchange administration policy. In the other case, mainland residents buy life insurance and dividend-paying insurance overseas, which are transactions under the financial and capital account. The existing foreign exchange administration policy and regulations have no expressed provisions to support such insurance products, or are not fully opened with respect to these products. We consider such transactions risky. China UnionPay's investigations of January 2016 into overseas acquirers found that some of them were averting the foreign exchange administration policy. What is the foreign exchange administration policy about? In 2004 and 2010, the SAFE published two regulations on bank cards, clearly encouraging domestic residents to buy insurance products under trade in services within the limit equivalent to RMB 5,000 per transaction. China UnionPay, based on the above findings, has required the acquirers to make adjustments, and the acquirers have done so. In a word, we believe it is highly risky for institutions and individuals to operate such overseas insurance products that are not opened as capital account convertibility is pressed ahead with in a good order. [17:49]

[Economic Daily] It is generally expected that the Fed will raise interest rates in June, but an Fed official recently hinted that the time might be April. My question is that if the Fed raises interest rates earlier than expected, would China's capital flows and RMB exchange rate come under pressure again? [17:53]

[Wang Yungui] We are not in a position to speculate when the Fed will raise interest rates as the Fed sets its pace for interest rate hikes depending on various indicators. But past experiences show that the US dollar interest rate hikes did have strong impact on global capital flows, leaving both emerging economies including China and most developed and developing countries under the pressure from US dollars' flows back to the US, some of which, we believe, are a correction of the massive inflows of the past. For example, as some countries implemented the QE policy after the 2008 global financial crisis, massive cheap US dollars flew into emerging economies including China, who had been under heavy pressure from foreign exchange inflows for some time thereafter. It is a normal cyclical reaction for relevant funds to flow back as the US adopts the interest rate hike policy. Our observations show that the pressure from capital outflows arising from the US dollar interest rate hikes since the second half of 2014 is tolerable and bearable. Some institutions serviced relevant external debt in US dollars in advance and even made structural arrangements for some trade finance products, which were favorable for lowering corporate leverage ratio and guarding against risks. Since June 2014, foreign exchange reserves have dropped by USD 790 billion, which should be bearable, and are USD 3.2 trillion at present. Cross-border capital outflows have been contracting for three months consecutively since December 2015. All these data, either declines in foreign exchange reserves, cross-border capital outflows or declines in the deficit of foreign exchange settlements and sales, show that the impact from the Fed's interest rate hikes on cross-border capital flows is being digested and addressed. [17:54]

[Xinhua News Agency] I want to ask Mr. Director more about purchases of insurance overseas. Is it associated with the current pressure from capital outflows in addition to being risky? Is there anyone who transfers funds overseas in this way? [17:55]

[Wang Yungui] As I have said just now, two documents released in 2004 and 2010 set forth the policy on how to use bank cards overseas, with the later one covering but remaining coherent with the previous one. We provide foreign exchange for individuals' purchases of accident insurance and health insurance overseas under trade in services without any restrictions, provided that each transaction with payments made through bank cards is no higher than USD 5,000. This policy was effective in 2004, not a new one. Some individuals, however, purchased life insurance or dividend-paying insurance overseas on their overseas trips, some of which, we believe, are for cross-border asset arrangements. But these transactions are under the financial and capital account for foreign exchange administration and are not supported by the policy. We don't think such transactions are related to ongoing capital outflows but are more likely a way of diversified asset allocation. Therefore, I don't think such transactions are a cause of the pressure from capital outflows. [17:57]

[Wang Chunying] The policy about overseas insurance that Mr. Director has briefed us on is actually not an adjustment and was introduced in 2004 with clear provisions. The reason that you ask why we say so is that it is in line with our emphasis on enhancing authenticity and compliance reviews. We are fully supportive to authentic transactions under the current account that are in compliance with regulations, and have not set any policy barriers to domestic purchases of foreign exchange to repay the overdrafts that are used to pay for overseas consumption through a bank card. We adopt the same policy for domestic cards such as UnionPay cards and foreign-currency cards issued by international card organizations such as VISA by screening merchants via domestic banks with ATMs and overseas acquirers. What we want to stress and clarify is that management of the amounts of transactions under bank cards, just one of the various payment tools, is aligned with the principle of current account convertibility we have long stuck to, provided that the transactions are authentic and in compliance with regulations. [17:59]

[Wang Yungui] The SAFE will always and continue to support use of bank cards in normal consumptions during cross-border travels to facilitate international communications, provided that the transactions are in compliance with regulations. The SAFE's policies such as for domestic purchases of foreign exchange to pay for overseas consumptions will remain unchanged. [18:00]

[Securities Times] It is widely expected that the Fed will raise interest rates again in June-September. My question is whether there will be sharp fluctuations at some points of time in cross-border capital flows, though Mr. Director says the flows stay stable at large. Governor Zhou Xiaochuan said last week that efforts may be stepped up to crack down on super short-term speculations in cross-border capital flows. I wonder when you consider would be proper to introduce Tobin tax? Thank you. [18:10]

[Wang Yungui] The Fed's interest rate hikes' impact on global cross-border capital flows should be long term, which we have never averted. How heavy the impact would be on China's cross-border capital flows could be assessed with reference to past rounds of interest rate hikes. We think the Fed's interest rate hikes will put China's cross-border capital flows under pressure as US dollars will strengthen in the process. If that happens, domestic institutions that owe external debt or want to make outbound investments or have overseas consumption may have to make some financial arrangements, which we consider normal. We have a large toolkit with various tools to cope with the pressure and the size of capital outflows will be bearable. To put it simply, we have made relevant policy arrangements for possible interest rate hikes, and players have taken actions in response such as buying foreign exchange to repay trade finance funds, which we support and are favorable for micro-players to avert interest rate risks and reducing our dependence on external debt. Foreign exchange administration toolkits are necessary for reducing pressure on cross-border capital outflows, including financial transaction tax or Tobin tax mentioned by Mr. Governor. Tobin tax is not merely a type of tax. A Tobin tax, suggested by US economist Tobin, is intended to slow down global capital flows. All price means that can slow down cross-border capital flows and raise speculators' transaction costs can be called Tobin tax. Further research is needed as for whether Tobin tax will be imposed on short-term cross-border capital flows. We have noted that a financial transaction tax of 6% or so imposed by some countries such as Brazil and Argentina also has short-term effect, indicating the necessity of further assessment. Policy measures should be taken into consideration to increase the trading costs of short-term speculative funds without impacting trade and investment facilitation, based on China's practices and with reference to foreign experiences, theoretically or practically. The SAFE will work closely with the People's Bank of China to make further research and will adopt measures that are favorable for promoting the healthy development of the economy, especially the real economy. [18:12]

[Reuters]: We know that the regulator has been stressing the stability of the RMB against a basket of currencies. But the past week's RMB exchange rate index shows that the RMB had been overstated, by a margin many analysts believed to be 10%. Would you believe the RMB will be adjusted to be its fair value at proper points of time this year? [18:22]

[Wang Yungui] The policy arrangements made by the People's Bank of China and the SAFE for the RMB exchange rate, I believe, are rational. We now say that the RMB exchange rate is a managed floating exchange rate mechanism based on market supply and demand and adjusted with reference to a basket of currencies. This does not point out where the fair value of the RMB exchange rate should be, but stresses that domestic demand and supply as well as the changes in the value of international currencies should be reflected from the RMB exchange rate mechanism, with the RMB exchange rate floating in a managed way, not freely in the market. Making sure the RMB exchange rate stays stable against other currencies helps us find where the reasonable and balanced value, or the fair value should be. As for whether the RMB exchange rate is overstated, you will learn many institutions say it is understated if you carry out a survey. It is meaningless, I believe, to say the RMB exchange rate is overstated or understated merely based on the price levels, as some players make settlements in US dollars, while some use Euros, Japanese Yen or South Korean Won, but what we stress is the stability of the RMB exchange rate against a basket of currencies. In our opinion, the Sino-US bilateral exchange rate should reflect more of domestic demand. It is normal for exchange rate to rise or fall. So is for any currency to rise or fall or for making the RMB exchange rate against the USD stable. The RMB depreciated against the USD but appreciated against other currencies in the past few months, so the RMB remained stable against a basket of currencies after hedging. As Ms. Director has said just now, the RMB exchange rate against CFETS, BIS and SDR baskets of currencies has been in the same direction despite differences in specific value, suggesting that the RMB exchange rate has stayed stable. Any institution that speculates about or bets on the fair value of the RMB will be faced with policy risk. [18:23]

[CBN Daily] Could you brief us on your thinking about policies for foreign exchange expectations management? [18:32]

[Wang Yungui] Expectations management is very important as financial markets stress confidence, which has great implications for financial markets. The key to expectations management, we believe, is to tell people the truth. Herd effect is a commonplace in financial markets as many people do not know how the market performs and follow suit as large institutions take actions. We have been stressing that we should look at the fundamentals to assess the RMB exchange rate, such as GDP, productivity, CPI and trade surplus. Governor Zhou Xiaochuan and Deputy Governors Yi Gang and Pan Gongsheng once said, there is no basis for long-term RMB depreciation, which means that it is normal for the RMB exchange rate to rise and fall in the short term, but not in the long term. In my opinion, expectations management is critical and responsible governments and administration institutions should tell people the truth. For example, we often say that China's trade surplus has surpassed USD 590 billion, China is using an increasing number of FDI and Chinese enterprises are cutting down the leverage ratio while servicing their external debt, which are good news. In a word, I would like to reiterate that there is no market basis for long-term depreciation of the RMB. The reason is complex, but I recommend people paying more attention to the fundamentals. The purpose we compile and disseminate various data is to facilitate your understanding of market fundamentals. [18:33]

[Shanghai Securities News] Premier Li Keqiang said at a press conference that Shenzhen-Hong Kong Stock Connect will be launched this year. Could you brief us on the SAFE's preparations in terms of the technicality of foreign exchange administration? [18:33]

[Guo Song] Shenzhen-Hong Kong Stock Connect is not the SAFE's responsibility. The inflows and outflows of capital are in the RMB and in a closed cycle, so in theory, this does not involve foreign exchange administration. Nor are the daily data on Shenzhen-Hong Kong Stock Connect disseminated by the SAFE, but other market institutions. As a result, the SAFE does not need to make any preparation. [18:34]

[Wang Yungui] Thank you for coming to today's press conference. You are welcome to another press conference for data dissemination, which is to be held in mid or late April at the State Council Information Office. Thank you. [18:34]