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)