SAFE Reports

Interpretation of Chinas Operation and Management of Foreign Exchange Reserves by the State Administration of Foreign Exchange
(SAFE)Transcript of an Online Interview

Theme:
Interpretation of Chinas Operation and Management of Foreign Exchange Reserves
Time:
10 a.m., June 12, 2014
Guests:
Huang Guobo, Chief Economist, SAFE
Guan Tao, Director of the Balance of Payments Department, SAFE
Introduction:
During his visit to Africa, Li Keqiang, premier of the State Council, noted: Excessive foreign exchange reserves have already become a great
burden for us because they will become the monetary base of our country and will affect inflation.
According to data of the Peoples Bank of China (PBOC), by the end of Q1 2014 Chinas foreign exchange reserves were the highest in the
world, at US$3.95 trillion, accounting for one-third of the worlds total. In order to balance receipts and payments under the current account, the
State Council recently issued Several Opinions on Supporting the Stable Growth of Foreign Trade, which points out the need to further enhance
imports.
How can we revitalize stock assets and control incremental investments? How can transform this burden into wealth? How should we properly
operate and manage our foreign exchange reserves? At 10 a.m. on June 12, 2014, Huang Guobo, chief economist of the SAFE, and Guan Tao,
director of the SAFEs Balance of Payments Department, accepted an exclusive interview with www.gov.cn to interpret Chinas operation and
management of its foreign exchange reserves.
[Host] Dear Netizens, you are welcome to watch the online interview on www.gov.cn. Foreign exchange reserves, an issue frequently
mentioned by State Council Premier Li Keqiang during his visit to Africa, have become a great burden for us because they will become the
monetary base of our country and will affect inflation. How can we revitalize our stock assets and control incremental investments? How can we
transform this burden into wealth? How should we properly operate and manage our foreign exchange reserves? Today we have invited two
guestsHuang Guobo, chief economist of the SAFE, and Guan Tao, director of the SAFEs Balance of Payments Department, to interpret
Chinas management of its foreign exchange reserves and to respond to relevant topics about which Netizens are concerned. 2014-06-12
10:02:45
[Netizen SS] During his recent visit to Africa, Premier Li Keqiang indicated that our huge foreign exchange reserves are a heavy burden.
What makes the reserves a burden? Can you list the pros and cons? 2014-06-12 10:03:12
[Huang Guobo, Chief Economist of the SAFE] This question can be seen from two perspectives. First, the maintenance of massive foreign
Index number:000014453-2014-00160 Dispatch date: 2014/07/07
Publish organization: State Administration of Foreign Exchange
Name: Interpretation of Chinas Operation and Management of Foreign Exchange Reserves by the State Administration of Foreign Exchange (SAFE)Transcript of an Online
Interview
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8/3/2014 http://www.safe.gov.cn/wps/portal/!ut/p/c5/04_SB8K8xLLM9MSSzPy8xBz9CP0os3gPZxd...
exchange reserves is of great significance to our country. For example, since 1997 there have been a number of global crises, such as the subprime
crisis and the European sovereign debt crisis, but they had little influence on our country. A very important contributing factor was that we had
massive and adequate foreign exchange reserves. Both the strength and position of our country were improved during the crises. 2014-06-12
10:07:00
[Huang Guobo] Since 2007, Western central banks have pursued a quantitative easing monetary policy and have pumped a large amount of
capital into the market. But foreign exchange reserves have served as a flood discharge area, effectively isolating our real economy and the
external impacts, sustaining favorable external conditions for our economic restructuring, transformation, and upgrading, and providing a
precious window for time. Therefore, in recent years, our foreign exchange reserves have actually played a significant role in the smooth and
effective operation of our macro economy. On this basis, we should see that our country is a big developing country, with our total volume of
international trade approaching US$4 trillion, foreign debt of over US$800 billion, and foreign direct investments (FDI) of over US$2 trillion
per year. Our outward direct investments (ODIs) are also growing very rapidly. Financial and real economic activities both require huge foreign
exchange reserves to enhance confidence and provide payment guarantees. Hence, it is necessary to have adequate foreign exchange reserves.
2014-06-12 10:07:22
[Huang Guobo] However, the excessively rapid growth of foreign exchange reserves reflects the imbalance in Chinas international payments
and presents a series of challenges: first, it increases macro-control difficulties. On the one hand, excessive foreign exchange reserves increase
the supply of domestic currency and pose potential inflationary pressures at home. On the other hand, they raise the reserve requirement ratio
(RRR) and increase hedging pressures on the central bank and further restrict monetary policy. Second, they increase the asset-liability risks of
the central bank. Since foreign exchange reserves account for over 80 percent of the total assets of the central bank, there is a mismatch in the
monetary mechanism of its assets and liabilities, thus presenting huge exchange-rate risks and hedging pressures. 2014-06-12 10:09:14
[Huang Guobo] Third, foreign exchange reserves increase our operational challenges. Compared with the large amount of foreign exchange
reserves, the capacity of the international financial market is limited and there are constraints on large-scale investments; asset safety and price
risks are caused by the frequent outbreaks of international financial crises, as well as by the freezing of assets and other extreme risks triggered
by political and diplomatic conflicts. Fourth, resource, environmental, and other costs are also growing; for instance, exports of some raw
materials and labor-intensive products may easily increase pollution and place additional pressures on resources and the environment. 2014-06-
12 10:10:15
[Netizen Gao Yuan Mu Chang] Director Yi Gang has repeatedly indicated that the marginal costs of further increases in our foreign exchange
reserves surpass their marginal revenue. Does this mean that Chinas foreign exchange reserves have already exceeded a reasonable size? How
does one determine what is a reasonable size? 2014-06-12 10:11:55
[Huang Guobo] This is actually a tough question, about which various parties may have different views and measurement criteria. But, in
general, when size is considered, it is necessary to also take into account a countrys macro-economic conditions, including its economic
openness, its capability to utilize foreign capital and to engage in international financing, and the maturity of its economic and financial systems.
2014-06-12 10:11:27
[Huang Guobo] Specifically, the basic function of foreign exchange reserves is to guarantee a countrys external payments. If the domestic
currency is an internationally-accepted hard currency, then it can be the currency of payment. But in the case where the RMB is not yet a
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generally-accepted hard currency, we need foreign exchange to guarantee our payments. With sufficient guarantees, we can prevent difficulties in
external payments and risks of a significant devaluation of the RMB exchange rate. We have noted that an IMF study has proposed a package of
the following composite indicators: foreign exchange reserves shall be equivalent to 100 percent150 percent of the sum of 30 percent of the
short-term external debt, 15 percent of portfolio investments, 10 percent of exports, plus 10 percent of broad money. 2014-06-12 10:12:16
[Huang Guobo] This is one of numerous concepts. We think that this indicator is relatively comprehensive because it considers the needs for
payments of imports, repayments of external debt, and foreign exchange outflow channels, such as securities redemptions and foreign exchange
purchases by domestic residents. But when applied to China, it still ignores some special national circumstances. For instance, China has such
large-scale FDI (i.e., foreign direct investments) and some of the principal and profits of the FDI may need to be remitted. But this is omitted
from the indicator. In addition, it does not take into account our need for ODI and the need for foreign capital to support Chinas economic and
financial systems reforms. In terms of the concept, a reasonable size is still open to discussion, but a broad consensus must be reached. 2014-06-
12 10:14:12
[Huang Guobo] For more than a decade, the massive foreign exchange reserves have prevented an overly rapid appreciation of the exchange
rate and have effectively supported fast economic growth, employment growth, and growth of income and fiscal revenue. The deep problems
from the sustained growth of foreign exchange reserves include the persistent imbalance in international payments and the continuous serious
overdrawing of scarce domestic resources and serious environmental pollution. The huge costs of the foreign exchange reserves cannot be
absorbed by the real economy so they are held mainly in the form of financial assets and flows overseas. The direct and indirect national
benefits are obviously insufficient to offset the problems and costs. The foreign exchange administration departments will deeply implement the
spirit of the 18
th
CPC National Congress and the 3
rd
Plenary Session of the 18
th
CPC Central Committee, further accelerate transformation of
the economic development mode, focus on the central task of maintaining a basic equilibrium in the balance of payments, and insist on
expanding domestic demand, making structural adjustments, reducing the surplus, and promoting a balance to maintain a reasonable and
stable size of foreign exchange reserves. 2014-06-12 10:16:43
[Host] Some Netizens have asked whether there are excessive foreign exchange reserves. How can we change this situation? 2014-06-12
10:17:37
[Guan Tao, director of the SAFEs Balance of Payments Department] This question can be answered in the following way. First, the Chinese
government has long made it clear that it does not seek more foreign exchange reserves, an increase or decrease of which will be reflected in the
countrys balance of payments. At the end of 2002, the 16
th
Party Congress included for the first time that maintaining a balance of payments is
one of the four objectives of macro control. It was pointed out at the Central Economic Work Conference in late 2006 that the major
contradictions in Chinas balance of payments have shifted from a shortage of foreign exchange to an excessive trade surplus and overly rapid
growth of foreign exchange reserves. Therefore, in the past years our primary work has been to make structural adjustments, expand domestic
demand, reduce the surplus, and promote a balance, and the Chinese government has been making efforts in this direction. We can see that this
policy has brought about certain results, for instance, in recent years the current account surplus (mainly trade in goods and trade in services) as
a proportion of GDP has declined from its peak level of 10.1 percent in 2007 to about 2 percent, which is much lower than the internationally-
accepted rational standard. This shows that we have made great achievements in improving the external equilibrium in our economy and in our
balance of payments. 2014-06-12 10:19:16
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[Guan Tao] Second, we should take a two-pronged approach to cope with the excessive foreign exchange reserves, which are embodied in both
high flows and high stocks. Our foreign exchange reserves have now basically reached US$4 trillion. Thus, to resolve the flow problems and
control the balance of payments, we must take a major measure by accelerating the transformation of the mode of economic development and
the restructuring and transformation of the mode of economic growth from being driven by investments and exports to being jointly driven by
consumption, investments, and exports. Another measure is to increase imports while stabilizing exports to promote a trade balance. While
improving the quality of foreign capital utilization, we shall also steadily expand capital outflow channels, increase capital exports, and facilitate
a two-way, orderly, and rational flow of cross-border capital. Moreover, we shall continue to improve the market-oriented RMB exchange-rate
formation mechanism, cultivate the domestic foreign exchange market, give further play to price leverages in the exchange rate to adjust the
balance of payments, strengthen the monitoring of cross-border capital flows, and fine-tune the response plans. We shall guard against shocks of
large capital inflows as well as the possible risks of concentrated capital outflows, carry out two-way monitoring and early warnings, and
maintain our bottom line. 2014-06-12 10:21:41
[Guan Tao] Another feature is to revitalize our stock assets. Given that we have such a large quantity of foreign exchange reserves, in order to
improve their operation and management systems, we shall constantly make innovations and widen the channels and methods for applying
foreign exchange reserves and shall raise their utilization efficiency according to the principles of complying with the law, paying for use,
improving benefits, and regulating effectively, as well as in accordance with the overall national plan for reform and opening up and the
objective requirements for economic development. All of these things cannot be accomplished overnight. Many domestic reforms, especially
structural reforms, will be a long-term process. In addition, some reforms in the foreign economic sector should not be carried out in haste, but
rather they need to be coordinated and matched with other domestic reforms. 2014-06-12 10:24:11
[Guan Tao] Also, when promoting an equilibrium in the balance of payments, we shall give due consideration to our growth, employment, and
inflation objectives instead of only focusing on the foreign exchange or an equilibrium. Furthermore, now that the balance of payments is also an
international financial problem, it is constrained by the external environment; changes in the external environment will affect the evolution of
the balance of payments. As a result, regarding the issue of promoting an equilibrium in the balance of our international payments, we must have
confidence and courage as well as patience and perseverance. 2014-06-12 10:26:59
[Host] Now lets look at how foreign exchange serves the real economy. China has noted that finance must serve the real economy; then how do
such huge foreign exchange reserves serve the real economy? Why dont we use our large foreign exchange reserves to invest in domestic
infrastructure or to solve the pension and health-care problems of our citizens? 2014-06-12 10:27:27
[Huang Guobo] As I see it, the foreign exchange reserves must first of all guarantee our normal needs for foreign exchange purchases in the
foreign exchange market, meet the needs of residents and enterprises in all respects, and play a supporting role in basically balancing supply and
demand in the foreign exchange market. On this basis, due to various reasons such as the previous strong expectation that there would be an
appreciation in the RMB exchange rate and the high interest rate spreads between China and other countries, people are unwilling to hold
foreign exchange and foreign exchange reserves are increasing. Aside from guaranteeing the peoples needs for foreign exchange purchases in
the foreign exchange market, there is the problem of how the foreign exchange reserves can support the real economy on such a basis. 2014-06-
12 10:27:57
[Huang Guobo] We have done some work on this. During the past few years, we have been considering what the foreign exchange reserves can
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do based on the requirements of the CPC Central Committee and the State Council and on the layout of the economic and financial reforms and the
actual needs of the real economy. We have thereby applied the foreign exchange reserves at multiple levels. On the one hand, the PBOC and the
SAFE have actively adjusted the foreign exchange surpluses and deficits of banks and the capital market by making many innovations in the
instruments of the foreign exchange market (such as the spot exchanges and foreign exchange options) and in some platforms (such as the
entrusted loan platform for foreign exchange reserves), and by supporting banks that have insufficient foreign exchange positions and adjusting
their capital surpluses and deficits by means of loans. 2014-06-12 10:28:50
[Huang Guobo] Nevertheless, foreign exchange funds have been offered to back up some key foreign cooperative projects and industries with
national support. We have provided substantial financial support not only to SOEs but also to banks (including private banks), private
enterprises, and small and micro enterprises to go out and bring in so as to mitigate their shortages of foreign exchange funds. In addition,
we have cooperated with some international financial agencies, with a focus on the economies in the emerging markets, to meet local needs for
investment and financing and to create a favorable international environment for Chinese enterprises to go global, to make investments, and to
develop local trade. 2014-06-12 10:33:38
[Huang Guobo] Since foreign exchange reserve investments are also much needed in many areas at home, such as infrastructure construction
and development, there is a common concern whether the foreign exchange reserves can be used in these areas. Foreign exchange reserves are
mainly intended for imports and investments, and if they are to be pumped into the domestic sectors, the primary focus should be on whether
foreign exchange or RMB is needed in these sectors. If foreign exchange is needed, we can purchase foreign exchange in certain ways and some
investment entities can invest with foreign exchange capital. This issue can be addressed in such ways. 2014-06-12 10:36:46
[Huang Guobo] But if RMB is needed for domestic infrastructure projects, some problems may be created because if the foreign exchange
reserves are converted into RMB, there will be a secondary settlement of foreign exchange, RMB will be arbitraged, and the foreign exchange
reserves will not decline substantially. During these years, in response to this problem, the SAFE has, on the one hand, met the needs of the real
economy (including that of infrastructure investments) for foreign exchange funds and demands by the general public for foreign exchange
purchases; on the other hand, we have supplied abundant foreign exchange funds through the banking system to address the needs for
infrastructure investments. Another issue of common concern is whether the foreign exchange reserves can resolve the pension and health-care
problems for our citizens. As mentioned above, in addition to the secondary settlement of foreign exchange, this also involves the problem of
uncompensated distribution and use of the central banks liability-backed foreign exchange assets. 2014-06-12 10:38:47
[Huang Guobo] What are foreign exchange reserves? In our country, foreign exchange reserves are now held by the central bank and are formed
by foreign exchange purchases supported by the PBOCs liabilities. These funds correspond to the PBOCs liabilities, and if they are used to
cover pension and medical expenses without compensation, the central bank will be left with a mountain of debt and no assets and it will lose its
robustness. Therefore, when talking about uncompensated use of foreign exchange reserves, we must keep in mind that foreign exchange
reserves actually correspond to liabilities; in other words, we borrow funds to buy foreign exchange. But how can this debt be repaid if you
divest these assets? This issue should be taken into consideration. 2014-06-12 10:44:47
[Host] Is it because of large inflows of hot money that our country now holds so much in foreign exchange reserves? Will foreign exchange
reserves increase significantly in the future? 2014-06-12 10:48:50
[Guan Tao] We have also paid great attention to this issue. If hot money is the main source of our foreign exchange reserves, there will be high
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volatility and there will be a lot of impact. This issue has been under discussion since I first started to work at the SAFE. Our foreign exchange
reserves doubled in 1994 and at the time everyone was discussing the source of these foreign exchange reserveswhether they came from a
trade surplus or from hot money inflows. We have been tracking and monitoring this issue. The foreign exchange reserves reflect the balance of
payments, namely the composition of the surplus in the balance of payments. So we can conclude that the increase in foreign exchange reserves
basically comes from the surplus in the current account and direct investments. 2014-06-12 10:48:18
[Guan Tao] We have calculated that during the thirteen years from 2001 to 2013, the current-account surplus and net inflows under direct
investments amounted to US$3.8 trillion, while during the same period the foreign exchange reserve assets from trade increased by US$3.7
trillion. This means that trade and investment activities can basically account for the foreign exchange reserve growth during the past thirteen
years, which is closely related to our real economic activities. This has strong policy implications for us; specifically, with the goal of reducing
the surplus in the balance of payments and the accumulation of foreign exchange reserves, it is insufficient to simply rely on hot money
controls. We have to find the structural reasons and accelerate the transformation of the economic development mode and the restructuring of
the domestic economy. Therefore, this is not only an academic question, but also a question that has strong policy implications. 2014-06-12
10:52:29
[Guan Tao] Concerning the issue of hot money or arbitrage fund flows, based on our analysis and practical knowledge, this is mainly associated
with the pro-cyclical financial operations of domestic enterprises. In good economic times, there are RMB appreciation expectations, so
enterprises convert foreign currencies into RMB and hold them in RMB. When foreign exchange is used, they either owe it to their overseas
counterparts or borrow it from the bank to make external payments. In the aftermath of the 2008 crisis, there was a critical economic
phenomenon whereby the major developed countries successively resorted to a quantitative easing monetary policy, which led to strong global
liquidity and low interest rates for the major currencies. Thus before the crisis, the JPY was the arbitrage currency, but now the USD and EUR
are both arbitrage currencies. The European Central Bank has just expanded its monetary policy and EUR arbitrage will be further improved.
Under these circumstances, because of the generally expected appreciation of the RMB and the high interest rates for the RMB in China,
enterprises engage in arbitrage behavior. There are inflow pressures during good times, but in the case of the volatile situation and downturn in
the domestic economy in late 2011, expectations were changed and there were outflow pressures. 2014-06-12 10:53:36
[Guan Tao] So the hot money we refer to is different from that which is understood internationally. Internationally, hot money refers to asset
and currency speculation by financial conglomerates. But in China, hot money refers to capital that is manipulated by our enterprises and
ordinary people based on the interest-rate spreads. Hence, in late 2008 and early 2009 there were acute fluctuations in Chinas foreign debt, with
heavy inflows during the first three quarters of 2008 and substantial outflows later in the year, but we did not face a crisis because we had large
foreign exchange reserves and adequate solvency. Additionally, unlike elsewhere many of our arbitrage activities were based on actual
operations instead of entry into speculative fields, so we were relatively stable. 2014-06-12 10:58:14
[Guan Tao] Whether vast foreign exchange reserves will be accumulated in the future depends on how we predict the future balance of
payments. According to our basic judgment, on the one hand receipts and payments under the current account will tend to be more balanced due
to the acceleration of the economic restructuring and the transformation of the economic development mode. On the other hand, we encourage
enterprises to go global. This will also increase the export of capital and direct investments, thus contributing to a gradual transition from the
past net inflows to a more balanced state. 2014-06-12 11:00:09
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[Guan Tao] Third, as the RMB exchange rate becomes more market-oriented, the market will believe that the RMB exchange rate has basically
reached a balanced and reasonable level, which will trigger two-way fluctuations and will restrain risk-free arbitrage activities. Just like the
situation since this February, as a result of two-way fluctuations, expectations will diverge and corporate financial operations will be adjusted,
thus also relieving the stresses of capital inflows. Furthermore, there are many instabilities and uncertainties worldwide, making two-way
fluctuations of cross-border capital flows a new normal. Therefore, the future balance of payments will move closer to an equilibrium and the
momentum of accumulating foreign exchange reserves will tend to slow down. 2014-06-12 11:00:53
[Host] What is the investment income from the foreign exchange reserves? What are the measurement criteria for high or low investment
income? Is it sufficient merely to just exceed the rate of inflation?
[Huang Guobo] During these years, foreign exchange reserves operations have faced low interest rates in the global environment. This implies
low income from bond purchases or deposits because the central bank has flooded the market with capital and has lowered interest rates. Owing
to a fairly low rate of return and a volatile global financial market, foreign exchange reserves have faced a low-income and high-risk
environment. In the past several years, including last year, Chinas foreign exchange reserves have maintained stable growth and have realized
fairly good operating earnings in this low-income environment. Perhaps you will ask why good operating earnings have been realized in a low-
income environment. This shows that the diversified asset allocations that have been vigorously promoted in recent years have exerted a waxing
and waning hedging effect among the various currencies, markets, and financial assets, which is a major reason for the generally fairly good
earnings. In addition, confronted with a complex and ever-changing market, the reserves managerial personnel have actively seized all kinds of
opportunities to reap profits, and the team has stood the test of several crises and the impact of significant market volatility. The excellent
operations and management team for foreign exchange reserves investments has been very helpful. 2014-06-12 11:02:46
[Huang Guobo] Another issue of common concern is why we should compare the income of the foreign exchange reserves with inflation. We
often consider the safety of foreign exchange reserves and whether their value is preserved or increased from a basic starting point that is,
whether their purchasing power is maintained but how can we measure this? We should compare the rate of return on the foreign exchange
reserves and the inflation rate, and if the former is higher than the latter, purchasing power is maintained. In China today, the rate of return on
foreign exchange reserves is far above the inflation rate in the invested countries, which suggests that the purchasing power of the foreign
exchange reserves has been maintained, or has even been improved, and their safety is guaranteed. 2014-06-12 11:07:49
[Huang Guobo] I want to make two points about how to treat the rate of return on the foreign exchange reserves. Significantly different from the
management of general investments, foreign exchange reserves must have sufficient liquidity because their primary function is not to make a
profit from investments but to guarantee Chinas ability to make external payments under normal and extreme circumstances. Therefore, the
fundamental principles for reserves management are safety, liquidity, and then appreciation. What does liquidity mean? Just like cash in your
hands, the liquidity yield is very low. For example, if you compare demand deposits and time deposits, the yield of the former is low whereas
that of the latter is much higher and the revenue from some wealth management products may be even higher. Foreign exchange reserves must
first have sufficient liquidity, which will lower their overall rate of return. After their liquidity requirements are met, longer-term and more
diversified investments with much lower liquidity but with much higher income can be made. This is basically a structural consideration. 2014-
06-12 11:08:49
[Huang Guobo] I would like to add one thing. An internationally and domestically accepted investment benchmark management mode has been
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introduced to foreign exchange reserves during these years. What is an investment benchmark? An investment benchmark is used to analyze the
historical market data according to the objectives and requirements of the foreign exchange reserves and actual market conditions and to
constantly optimize the analysis based on predictions of trends in future economic and market developments to determine the investment
structure and the investment tools for the foreign exchange reserves. It has been shown that the investment benchmark mode for foreign
exchange reserves, which has its own features and also draws upon the experience of domestic and overseas peers, accommodates current needs
for large-scale operations and management. Such an investment benchmark system has helped the operations and administration team for
foreign exchange reserves withstand the tests of all crises and over the years has generated extra income from the foreign exchange reserves.
2014-06-12 11:11:58
[Netizen Sha Bo Tou Xiao Wai] Since there are many uncertainties and great risks in the current international financial market, how can we
prevent risks in the operation and administration of our foreign exchange reserves? 2014-06-12 11:14:25
[Huang Guobo] The international market is highly volatile. Facing an uncertain market, we shall first set clear and efficient authorization
mechanisms with distinct authorization boundaries and make rapid responses and effective decisions. Now there is a set of clear-cut and explicit
authorization mechanisms that guarantees highly effective administration and operation of our foreign exchange reserves. On this basis, we have
been operating our foreign exchange reserves based on the principles of safety, liquidity, value preservation, and appreciation, always placing
priority on risk prevention and safety assurances and then engaging in prudent, standard, and positive investment operations. 2014-06-12
11:13:50
[Huang Guobo] You may wonder what our specific measures are to prevent risks. On the one hand, the most important means to prevent the
risks of large-scale financial assets is always diversification. Dont put all of your eggs in one basket; when one door shuts, another opens. Not
everyone can judge the market accurately, but whatever risks may occur, they can be tolerable and can be compensated for by other investment
income. During these years, the foreign exchange reserves team has done a lot of work in this respect and its most fundamental response has
been to diversify the reserves in terms of currency, assets, and investments. 2014-06-12 11:16:10
[Huang Guobo] Furthermore, the foreign exchange reserves team has always adhered to a prudent investment philosophy, avoided making
investments without first making accurate judgments or thorough analyses, observed a very rigorous risk management system, and carefully
assessed and prospectively analyzed the various possible risks to the foreign exchange reserves. In the case that all risks could be identified,
advanced risk management technologies have been applied to carry out early warnings, timely tracking, and all-round and multi-dimensional
monitoring and management of a wide range of risks. Over the past years, we have accumulated an excellent and effective risk management
system. What role has it played? For example, when the subprime crisis erupted, we did not have any product with a subprime mortgage
problem in our foreign exchange reserves. 2014-06-12 11:17:30
[Huang Guobo] Moreover, in addition to investment risk prevention, internal controls are critical. Great importance has been attached to
internal controls, and an internal control system of checks and balances has been established according to the requirements of standardization,
routinization, and institutionalization, and various regulations and operating procedures have been constantly improved. Meanwhile, the foreign
exchange reserves administration department has been regularly audited by the relevant departments and has actively accepted external
supervision and increases in the transparency of policy and administration in a variety of ways. 2014-06-12 11:21:13
[Netizen Xiao Xiao Dou Ya Cai] Despite such huge foreign exchange assets, ordinary people know very little about how to manage and utilize
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them. Can information on the operation and administration of the foreign exchange reserves be more transparent? 2014-06-12 11:21:28
[Huang Guobo] During these years, the transparency of information about the foreign exchange reserves has been continually improved due to
quite a number of channels to distribute information. For instance, as per the Regulations on the Disclosure of Government Information, we have
distributed information through the SAFEs Web site, press conferences, exclusive media interviews, expert forums, and so forth. Additionally,
relevant information is also regularly released in such publications as the Annual Report of the State Administration of Foreign Exchange and
the Report on the Balance of Payments. Overall, the degree and standards for disclosure of information regarding our foreign exchange reserves
meet the IMFs General Data Dissemination Standard (GDDS). We are also certainly aware that information transparency can be further
enhanced. So we will gradually raise the transparency of information about our foreign exchange reserves in line with international norms,
continue improving the channels and means of information disclosure, and increase communications with Netizens and the general public. 2014-
06-12 11:22:50
[Huang Guobo] I would like to stress one point. The scale and trading volume of our foreign exchange reserves are so large that if we disclose
too much investment information, it may trigger market fluctuations, imitation, and speculation, which, on the one hand, will destabilize the
international financial market, and, on the other, will affect the management, investment, and normal operations of our foreign exchange
reserves. So we have prudently mastered the methods and degree of disclosure. The following is a counter-example. Amid the subprime crisis,
some countries frequently disclosed structural data about investments based on their own systems. When these countries were coping with the
crisis, realizing assets, and stabilizing financial market operations, information was expected by the market in advance because it had been too
transparent, which increased the difficulties in the crisis response and the volatility of the financial market. Therefore, we have to give overall
consideration to these issues. 2014-06-12 11:23:50
[Netizen Lou Shang Ren Jian] Chinas foreign exchange resources are centralized in the hands of the state in the form of foreign exchange
reserves. Why do we not vigorously promote the policy of foreign exchange held by the people? On a number of occasions, the SAFE has
proposed allowing the people to hold foreign exchange. Isnt that the case of transferring some foreign exchange reserves to the people?
2014-06-12 11:24:24
[Huang Guobo] The SAFE encourages private application and investment of foreign exchange funds and the realization of foreign exchange
held by the people to alleviate the pressures of centralizing foreign exchange in the state. Over the years, the SAFE has constantly improved the
foreign exchange management system to guarantee the legal demands for foreign exchange purchases by banks, enterprises, and residents. Now
foreign exchange is not limited to import payments by Chinese enterprises. In the foreign exchange link with enterprises going global, the
SAFE has imposed no limits and basically has adopted an open policy. Individuals can hold foreign exchange in many ways and are allowed to
purchase up to US$50,000 of foreign exchange per year. There are QDIIs and other channels for outward investments. And the travel, shopping,
overseas study, visits, and other swap channels are all open. 2014-06-12 11:24:39
[Huang Guobo] During these years, there has been much policy space for foreign exchange held by the people. The problem with the policy
was there were strong expectations for a one-way appreciation of the RMB, so people were unwilling to hold foreign exchange. The foreign
exchange inclination toward liabilities and the local currency inclination toward assets were similar cases, suggesting that residents and
enterprises were both reluctant to hold foreign exchange. Given this situation and the large current-account surplus and the continuous inflows of
foreign investment over the years, the accumulation of foreign exchange was centralized in the foreign exchange reserves. The current scale of
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foreign exchange reserves is not the objective of the PBOC or the SAFE, but the foreign exchange reserves should execute macro policies and
undertake the task of market stabilization. Efforts must now be made to further advance the policy of foreign exchange held by the people,
further fine-tune foreign exchange management policies, and, more importantly, continue to improve the RMB exchange-rate formation
mechanism and enhance the flexibility of two-way exchange-rate fluctuations. In this way, people will not expect a one-way appreciation and
will be more willing to hold foreign exchange, thus gradually allowing the policy to be achieved. There is optimism in the future as current
exchange rates are expected to take on two-way trends and the appetite for holding foreign exchange will tend to rise. 2014-06-12 11:26:08
[Host] One Netizen asked that since the price of gold has been falling recently, is gold bargain-hunting under consideration? 2014-06-12
11:29:19
[Huang Guobo] We have just talked about the issue of foreign exchange held by the people. As far as holding gold is concerned, China now
has a rational structure with both official gold reserves and active holding and purchase of gold among the people. Hence, the policy of gold
held by the people has been well achieved. Let me quote some basic data. China is now the worlds largest producer of gold, with annual output
of about 400 tons. It has not only produced its own gold, but it has also imported gold in large quantities. Data from the Census and Statistics
Department of the Hong Kong SAR Government show that in 2013, Hong Kong exported a total of 1,495 tons of gold to Mainland China, with
net imports of 1,158 tons from Mainland China. The imports and exports basically reflect private purchases and demand. Therefore, private
investment and consumption needs are growing rapidly in China and gold held by the people is being realized. 2014-06-12 11:30:20
[Huang Guobo] How does one purchase and import gold? Actually, gold is purchased with foreign exchange. In other words, this not only
realizes the goal of gold held by the people, but also helps ease pressures from the growth foreign exchange reserves. So it has produced very
good momentum. Because foreign exchange reserves are huge whereas the gold market is relatively small, both in terms of annual production
and capacity, the investment of foreign exchange reserves will have a significant influence on the gold market. For example, if the price of gold
is pushed up, then people will have to pay more for gold and the cost of gold will also go up, which will be unfavorable in terms of our high
consumption of gold. Because of this, when planning to invest foreign exchange reserves in the gold market, we must take into consideration its
influence on the market and whether it will be beneficial for consumer groups in China that import a large quantity of gold. 2014-06-12 11:31:56
[Huang Guobo] From another perspective, private demand for gold purchases is actually large but it is fragmented and intangible, and it is
conducted through multiple channels and by multiple subjects that have less influence on the market, so this is more efficient in terms of the
gold trade. In addition, gold held by the people has both investment and consumption roles with higher allocative efficiencies. Therefore, overall
consideration must be given to the increase and investment of official gold holdings by our country as well as to private gold holdings. 2014-06-
12 11:34:19
[Host] A Netizen asked that since China possesses massive foreign exchange reserves, but enterprises are often cash-strapped to launch
overseas investments, how can we better support enterprises to go global? 2014-06-12 11:35:04
[Huang Guobo] We have taken a series of key initiatives during these years. First, the SAFE and the state macro-control departments have
actively promoted a basic equilibrium in the balance of payments. Under the architecture of a basic equilibrium, enterprises and various
investment subjects and consumer groups will increase their investments abroad and the consumption of imports and foreign exchange will be
used more by the real economy. On this basis, the SAFE has done a lot of work, such as removing the policy obstacles for enterprises to
purchase foreign exchange in order to go global. During the past few years, we have set up the entrusted loan office, greatly alleviating the
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banks shortages of foreign exchange funds and providing them with strong backing. In order to better support enterprises to go global, we have
supported the banks foreign exchange reserves to fund the creation of a macro environment with an improved balance of payments and
balanced fluctuations of the RMB as well as some advanced micro policies, such as further deregulating the capital account. 2014-06-12
11:35:24
[Huang Guobo] By the way, going global refers to both many opportunities as well as many risks, so it is critical that one make money with
ones capital, do things within ones capabilities, and clarify rights and responsibilities. In the international market, whether opportunities can be
seized depends on your capital strength and the cost of funds. Zero-cost and low-cost funds must be short. Bad for fair competition, these funds
may cause blind and vicious competition and may undermine corporate profitability. The support of foreign exchange for enterprises to go
global must be based on the premise of effective risk preventions and clear liability subjects, and must adhere to market-oriented operations
with the aim of safeguarding fund security and fair returns. 2014-06-12 11:39:12
[Host] The size of the foreign exchange reserves is so large, but investment income is always negative. Does this mean our foreign exchange
reserves are operating at a loss, and how can we improve the level of returns on outward investments? 2014-06-12 11:43:25
[Guan Tao] For this question, Mr. Huang just provided an explanation. Chinas return on foreign exchange reserves investments is higher than
the inflation rate in the invested countries, so foreign exchange reserves operations and administration have effectively attained the targets of
value perseveration and appreciation, without incurring losses. Beginning from when our external financial assets and liabilities were publicized
in 2004, by subtracting liabilities from assets China has been a net external creditor with net external assets. Except for 2007 and 2008 when
investment income registered a small surplus, in the other years there was always a deficit. Such a situation did exist, for example, in late 2003
when China was the second largest net creditor, next only to Japan, as reflected in its net external assets of US$1.97 trillion. But its investment
income was US$-59.9 billion. However, the negative income did not mean that our outward investments were in the red. 2014-06-12 11:43:46
[Guan Tao] Because investment income differences reflect the return of foreign investments minus the income of outward investments, they are
different business entities. We make profits by investing in other countries and vice versa. Just because they make money does not mean we lose
money. Take FDI in China for example. Profits are repatriated after the investment and management. Nevertheless, they bring us funds,
technologies, and management experience, create job opportunities, increase our tax revenue, and expand our international market. As a result, it
is not the case that we lose money. The balance of payments statement shows that our return on investments abroad amounted to US$167.7
billion in 2013, with a considerable part being derived from the investment income of foreign exchange reserves. As we have calculated, from
2005 to 2013, Chinas return on outward investments averaged 3.3 percent, almost the same as that of the developed countries. 2014-06-12
11:54:43
[Guan Tao] As to why our investment income is negative after offsetting the balance, this reflects the structural problems in Chinas opening
up. For one thing, we make use of foreign investments (mainly FDI) and the return on foreign investments in China is high, which is a direct
reason for our negative investment income. From 2005 to 2013, the return on foreign investments in China averaged 6.7 percent while that in the
developed countries was 1 percent to 3 percent. Why is that? Because 60 percent of the foreign investment that we utilized was FDI. As equity
investment, FDI has high stability but poor liquidity. Risks are shared and normally there is a demand for a high risk premium. 2014-06-12
11:58:47
[Guan Tao] In addition, the advantage is that such kinds of capital inflows are long term and stable and thus they avoid monetary and debt crises
Page 11 of 12 !
that are brought about by the introduction of foreign capital by many emerging countries through foreign debt or portfolio investments. Another
reason lies in the mismatch of the subjects of our external assets and liabilities. It can be seen from the external balance sheet that our country is
a creditor and the private sector is a debtor. If the foreign exchange reserves are excluded, the external net liabilities of the private sector would
total approximately US$2 trillion. At the national level, China is an immature net creditor, but from the perspective of the private sector, it is a
mature net debtor. From the development stage of a net debtor, we conform to a reasonable pattern in the balance of payments, featuring a
current-account and trade surplus and an investment deficit. 2014-06-12 12:02:16
[Guan Tao] However, our investment income is negative and China is a net creditor, which indicates that there is much room for improvement
in the utilization efficiency of our foreign exchange reserves. Based on this, the financial openness of a country should be measured by the ratio
of its financial assets and liabilities to GDP. We are now the worlds second largest economy, but our financial openness is low. In 2013 external
assets and liabilities were 1.1 times GDP, as compared with the following figures in some developed countries: 3.2 times (in the US), 2 times (in
Japan), 3.7 times (in the Eurozone), 1.2 times (in Russia), and 1.4 times (in South Korea). Also, a considerable part of our outward investment
assets is foreign exchange reserves and the ratio would be lowered to 0.65 times if they were to be removed, so there is much room in this
regard. 2014-06-12 12:07:30
[Guan Tao] Therefore, on the one hand, we must further promote the policy of foreign exchange held by the people and expand private
outward investments to develop decentralized, diversified, and market-oriented modes and channels for outward investments and application of
foreign exchange funds in the future. On the other hand, we must utilize foreign capital in a more active, rational, and efficient way. Based on
financial openness, market tolerance, and risk management ability, we shall work along both lines further improving the quality of FDI
utilization and trying to use foreign capital in other forms because of the lower costs to change our negative investment income. 2014-06-12
12:11:08
[Host] Thank you, and thanks for the attention of our Netizens. See you next time. 2014-06-12 12:13:43
(The original text was published on www.gov.cn)
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Contact Us For Home Join Collection
State Administration of Foreign Exchange
Addess:Huarong Plaza, No.18 in Fucheng Road, Haidian District, Beijing
Postcod:100048 Informants'hot-line telephone:68402265
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The SAFE and the Ministry of Public Security Jointly Hold a Working Conference to Crack Down on Illegal and Criminal Activities
Related to the Illegal Trading of Foreign Exchange
A working conference on cracking down illegal and criminal activities related to the illegal trading of foreign
exchange was held recently by the State Administration of Foreign Exchange (SAFE) and the Ministry of Public
Security (MPS). At the conference, the joint efforts by the SAFE and the MPS in 2013 to crack down on illegal and
criminal activities related to the illegal trading of foreign exchange were summarized and relevant work for 2014
was arranged. In addition, advanced groups and individuals in terms of combating illegal and criminal activities
related to the illegal trading of foreign exchange in 2013 were commended.
It was pointed out at the conference that the foreign exchange authorities and the public security organs at all levels
have tightened cooperation and have jointly carried out investigations according to the arrangements of the CPC
Central Committee and the State Council, uncovering in 2013 more than forty cases involving foreign exchange
related illegal and criminal activities including the illegal trading of foreign exchange in an amount over RMB50
billion and more than one hundred criminal suspects were captured on site. Great achievements were made and
foreign exchangerelated illegal and criminal activities of all kinds were successfully deterred.
It was emphasized at the conference that fluctuations in cross-border capital flows have been increasing since 2013.
Therefore, there is a heavy responsibility to prevent unusual foreign exchange capital flows. The foreign exchange
authorities and public security organs at all levels are required to strengthen study and judgments about the
situation, make innovations in terms of the means of investigation, and improve the relevance and effectiveness of
cracking down on foreign exchangerelated illegal and criminal activities. Efforts shall be made to increase
regional cooperation and to consolidate centralized governance in key regions in due time so as to build joint forces
for cracking down on foreign exchangerelated illegal and criminal activities. Meanwhile, upstream and
downstream crimes related to the illegal trading of foreign exchange shall be pursued based on available clues,
crime networks shall be thoroughly investigated, in particular criminal activities including money laundering and
activities transferring hidden illegal money. In addition to investigating the criminal responsibility of the operators
of underground money shops, administrative penalties shall be imposed on the participants in underground money
shop transactions to increase punishment for illegal and criminal activities, such as the illegal trading of foreign
exchange. In addition, investigations and research shall be strengthened in order early on to discover and to prevent
Name: The SAFE and the Ministry of Public Security Jointly Hold a Working Conference to Crack Down on Illegal and Criminal Activities Related to the Illegal Trading of Foreign
Exchange
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new types of foreign exchangerelated illegal and criminal activities.
It was requested at the conference that the foreign exchange authorities and public security organs in 2014 should
continue to deepen their cooperation, upgrade the means of investigations, and continue to maintain high pressure
and to crack down on foreign exchangerelated illegal and criminal activities so as to safeguard the healthy
development of Chinas foreign-related economy and finance.
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Transforming Foreign Exchange Administration of Round-trip Investments to Further Facilitate Cross-border Investments and
Financing
The State Administration of Foreign Exchange (SAFE) recently issued the Circular of the State Administration of
Foreign Exchange Concerning Foreign Exchange Administration for Domestic Residents Conducting Overseas
Financing and Round-trip Investments via Special Purpose Companies (Huifa No. 37 [2014], hereinafter referred
to as the Circular) so as to support implementation of the going-global strategy, to fully utilize international
and domestic resources and markets, to promote the facilitation of cross-border investments and finance, practically
serve development of the real economy, and to increase the convertibility of cross-border capital and financial
transactions in an orderly manner.
The Circular mainly includes the following:
First, optimizing the administration process: Rationally defining the scope of foreign exchange administration for
round-trip investments based on the role and objectives of foreign exchange administration. Transforming foreign
exchange administration of round-trip investments and optimizing the relevant administration process based on the
concept of administering cross-border outflows against overseas direct investments (ODI) and cross-border
inflows against foreign direct investments (FDI).
Second, streamlining the administration processes: Adjusting the scope of registration of overseas special purpose
companies and only registering those companies directly set up or controlled by domestic residents (first level).
Abolishing the established procedures, such as the set-up registration, financing registration, registration for
changes in financing of foreign special purpose companies, and simplifying changes in the content of the
registration.
Third, simplifying the business materials. Domestic residents carrying out foreign exchange registration for
outward investments in person are only required to submit a standard application form in a fixed format, a
commitment regarding the legitimacy of the funds, and identification and relevant supporting authenticity
evidence.
Fourth, expanding the channels for capital: Allowing purchases and payments in foreign exchange by domestic
residents to be used to establish overseas special purpose companies and overseas working capital and, at the same
time, eliminating the restrictions on domestic companies overseas lending to special purpose companies.
Name: Transforming Foreign Exchange Administration of Round-trip Investments to Further Facilitate Cross-border Investments and Financing
Page 1 of 2 !
Fifth, relaxing restrictions on the utilization of funds from overseas financing, abolishing the mandatory rules on
the repatriation of funds, i.e., profits, dividends, and foreign exchange earnings brought about by capital changes
derived from special purpose companies by domestic residents shall be repatriated within 180 days from the day of
receipt, and allowing funds from overseas financing and other related funds to be retained for overseas use.
Sixth, clearly incorporating incentive plans for employee rights and benefits in non-listed special purpose
companies into the scope of registration to better satisfy the reasonable individual demands of domestic residents.
Seventh, strengthening the idea of risk prevention and control. Intensifying responsibility investigations of
violations by putting more efforts into statistics and monitoring and focusing on regulation during the course and
ex-post regulation as well as decentralizing to promote the facilitation of cross-border investments and financing.
This Circular will be implemented as of the date of issuance.
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"Practicing the 'Five Changes' to Promote Trade Facilitation"Transcript of a Press Conference
[Wang Yungui]: Good afternoon, ladies and gentlemen and friends from the press. We welcome you to this press conference of the State
Administration of Foreign Exchange (SAFE). Given that foreign exchange administration reforms for trade in goods and trade in services have
attracted wide concern, the SAFE has worked hard to implement reforms in recent years, and is holding this special press conference to release
relevant information. The press conference is entitled Practicing the 'Five Changes' to Promote Trade Facilitation. Du Peng, director of SAFE
Current Account Management Department, will host the conference. Let us welcome him to introduce the foreign exchange administration
reforms under the current account. [14:58]
[Du Peng]: Good afternoon, friends from the press! [15:00]
[Du Peng]: In May the General Office of the State Council issued its Opinions on Supporting Stable Growth of Foreign Trade (Guo Ban Fa
[2014] No. 19), proposing many measures to support the stable growth of foreign trade, including optimizing the structure of foreign trade and
further improving the foreign trade environment. Among these measures, many are relevant to foreign exchange administration and are our work
priorities for the next phase of the reform. I am delighted to have this opportunity to introduce to you the role of foreign exchange administration
under the current account, especially under trade in goods and trade in services, in driving the reforms, promoting facilitation, guarding against
risks, and serving the stable growth of foreign trade. The current account is closely related to our life. It primarily consists of two parts, the first
is trade in goods, or imports and exports, and the second is trade in services, including cross-border travel, study abroad, transportation, and
intellectual property rights. The current account, together with the capital account, comprises the major parts of a country's balance of payments.
Receipts and payments of foreign exchange under the current account in China are characterized by the following three major features: [15:01]
[Du Peng]: First, large size and rapid growth. Since it joined the WTO in 2001, China has witnessed rapid growth in terms of the size of the
receipts and payments of foreign exchange under the current account. Increasing at an annual average of 56 percent, China's receipts and
payments of foreign exchange under the current account amounted to USD 5.14 trillion in 2013. [15:01]
[Du Peng]: Second, receipts and payments of foreign exchange under the current account constitute a large proportion of the overall receipts and
payments of foreign exchange. They have accounted for an annual average of 70 percent since 2001, representing a major part of Chinas overall
receipts and payments of foreign exchange. [15:01]
[Du Peng]: Third, the surplus under the current account as a percentage of GDP has gradually decreased to within the internationally recognized
rational range. This percentage has been lower than 3 percent for three consecutive years, and at 2 percent in 2013 and a further decrease to 0.3
percent in the first quarter of this year. [15:02]
[Du Peng]: First, the principles and objectives of foreign exchange administration under the current account [15:06]
[Du Peng]: Foreign exchange administration under the current account has undergone rigid regulation and gradual liberalization to realize RMB
current-account convertibility. At the end of 1996 China announced that it would accept the obligations of Article VIII of the Articles of
Agreement of the International Monetary Fund to commit to RMB current-account convertibility and would remove restrictions on international
payments provided that such transactions are true and legitimate. The "authenticity verification" has since become a fundamental principle of
foreign exchange administration under the current account for the purpose of preventing funds without true transactions from flowing in or out
through the current account during our current special phase when the current account is fully convertible while the capital account is partially
restricted so as to ensure the overall effectiveness of foreign exchange administration. [15:06]
Name: "Practicing the 'Five Changes' to Promote Trade Facilitation"Transcript of a Press Conference
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[Du Peng]: In addition to guarding against the risks of abnormal capital flows, administration of the current account aims to promote trade
facilitation for the healthy development of the real economy. However, because risk prevention and facilitation promotion are contradictory,
finding the best balance between the two to deliver good performance in services and administration is a significant challenge. After years of
exploration and innovation, the reform of foreign exchange administration under trade in goods and the reform of foreign exchange
administration under trade in services that were launched by the SAFE in August 2012 and September 2013 respectively are the best examples
of the SAFE's efforts. The two reforms have effectively promoted trade facilitation via integrating regulations, simplifying documents, and
removing prior approvals, while enhancing risk prevention via constructing systems that stress post monitoring and risk regulation and
improving cross-departmental information sharing and joint regulation, thus effectively combining risk prevention and facilitation promotion.
These reforms are the highlights of the SAFE's exploration and practice of the "five changes." [15:07]
[Du Peng]: Second, the foreign exchange administration reform under the current account under the guidance of the "five changes." [15:08]
[Du Peng]: The "five changes" are the overall guiding principles for the reform of foreign exchange administration. Under the fully open
economic framework, in 2009 the foreign exchange authorities reviewed foreign exchange administration in China and proposed the "five
changes" to deepen foreign exchange administration reform for a new phase: first, by changing approvals to monitoring and analysis; second, by
changing prior regulation to post administration; third, by changing behavioral management to market-player management; fourth, by changing
the presumption of guilt to the presumption of innocence, and; fifth, by changing the "positive list" to a "negative list." [15:08]
[Du Peng]: Yi Gang, director of the SAFE, has mentioned and elaborated on the "five changes" on many occasions. Under the guidance of the
"five changes," the foreign exchange authorities have remarkably raised awareness of market services and the and the concept of costs,
dramatically changed the methods of foreign exchange administration, and put the construction of a mechanism for the system of foreign
exchange administration onto a fast track. What changes have occurred to the foreign exchange administration model under the current account
since the announcement of the "five changes"? To put it vividly, the traditional airport security check-in model has been changed to a novel
traffic cameralike model. Specifically, prior regulation, front-office approval, and behavioral regulation have been changed to post regulation,
back-office monitoring, and market-player regulation. This new model is like a traffic camera that allows compliant cars to pass through but
keeps track of violating cars. With front-office approval changed to back-office monitoring, the visible hand of foreign exchange administration
has become an invisible hand, allowing the foreign exchange authorities to timely lock up the few violating companies without interrupting the
operations of the absolute majority of companies, thus improving the relevance and effectiveness of administration and reducing the costs of
regulation. [15:08]
[Du Peng]: First, changing approvals to monitoring and analysis [15:08]
[Du Peng]: Premier Li Keqiang has said the government departments at all levels should, with an output capacity of great courage, further
streamline administration and delegate more power to lower-level governments. Thus far, the SAFE has removed 65 administrative approval
items for foreign exchange administration, accounting for more than 73 percent of the total approval items, and it has declared nearly 700
regulatory documents abolished or null and void. In terms of current- account administration, since 2009 in terms of the foreign exchange
reforms under trade in goods and trade in services, the SAFE has canceled 82 percent of the administrative licenses and integrated and
rescinded 80 percent of the regulations, and has nullified 123 and 52 regulations respectively, constituting a total of 175. On this basis, the SAFE
has established a clear and concise regulatory system primarily comprised of guidance provisions and operation procedures. The two reforms
have benefited the absolute majority of market players and have effectively promoted trade facilitation. For example, after implementation of the
reform of trade in goods, the average time to receive and pay foreign exchange for each transaction has been shortened by 70 percent and 85
percent respectively, thus substantially improving processing efficiency; the cost for traveling between the SAFE and the bank has also been
slashed significantly and the costs for human resources have dropped by one-third. Data from company investigations and estimates of the
number of companies show that foreign trade companies in China saved nearly RMB 4.8 billion in labor costs and transportation fees during the
one year after implementation of the reform. Since implementation of the reform of foreign exchange under trade in services, verification
documents are no longer been required by banks for the absolute majority of receipts and payments of foreign exchange under trade in services
and the time that banks spend on processing has been shortened from more than 20 minutes to 5 minutes, thus helping companies save RMB 30
50 in transportation fees for each transaction. To support the reform of foreign exchange under trade in services, the tax authorities no longer
require that taxpayers submit tax certificates. They have been replaced by filing for the record for outbound payments of foreign exchange, thus
significantly shortening the payment cycle. [15:09]
[Du Peng]: How do the foreign exchange authorities manage and safeguard our bottom line against risks since the administrative approvals have
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been cancelled? We depend chiefly on monitoring and analysis as well as on follow-up management. Currently, we primarily analyze and
compare information, such as capital flows and goods flows of companies and individuals, using an advanced IT-based management system and
we share information with Customs, the tax authorities, and the commercial authorities to comprehensively, promptly, and accurately monitor
data about the transaction players. As monitoring is conducted in the back office, ordinary companies and individuals are not aware of the
foreign exchange administration, but once a company or an individual violates the regulations, the SAFE will instantly take note and begin
processes such as follow-up verifications, classifications, and punishments, which is the underlying meaning of traffic cameralike
administration. To guarantee the effects of the regulations, we have made great efforts to improve our hardware, making sure each key business
is supported by the system, such as the monitoring system for foreign exchange under trade in goods, the monitoring system for foreign
exchange under trade in services, and the monitoring system for individual settlement and sales of foreign exchange. We also are working to
improve our software. The system regularly and automatically screens abnormal market players based on the early warning indicators and
threshold values that we have set, and we conduct further screening manually to combine the brain with the computer. An off-site macro-
medium-micro monitoring management system, or a system that identifies capital flows and overall trends based on the macro situation,
understands regional and industrial capital distribution structures based on the medium level, and monitors and screens violating companies at
the micro level, has been initially set up, thus organically combining three levels of efforts. For example, in 2013 we determined from our
system that the capital flows and goods flows of Company A, which was engaged in "entrept trade" that attracted wide concern among the
foreign exchange authorities at the time, were seriously mismatched, and the frequency of its receipts and payments of foreign exchange as well
as its counterparties were questionable. Using the system to conduct a correlation analysis, we found that Company B was running in the same
way and its registered address and contacts were the same as those of Company A. We immediately cooperated with government departments to
conduct an on-site investigation and confirmed that the company was defrauding government subsidies through entrept trade. [15:10]
[Du Peng]: The above case indicates that monitoring and analysis have an obvious effect. Since the end of May of this year, the SAFE has
shifted its focus of regulation from monitoring 540,000 companies on the list to monitoring 80,00090,000 key companies, conducted strict
supervision of 3,584 Class-B companies and 623 Class-C companies, wrote off 3,793 shell companies, transferred more than 300 companies to
the foreign exchange inspection authorities, and punished 189 violating companies across China, thus promoting trade facilitation while
effectively improving our capability to guard against risks. [15:11]
[Du Peng]: Second, changing prior regulation to post administration. [15:12]
[Du Peng]: Since the cancellation of the prior approvals, we have established and continued to innovate in providing effective approaches for
post administration. [15:12]
[Du Peng]: First, developing a series of post administration systems during the reform, such as a comprehensive analysis system and an on-site
verification system. The on-site verification system was created to require companies that are singled out by the system for abnormalities to
explain such abnormalities through interviews with company heads and on-site verifications. The classified administration system was designed
to classify companies based on their compliance with the laws and to provide adequate receipt and payment conveniences for Class-A
companies, and to carry out strict supervision of Class-B and Class-C companies in terms of document verification, business processing, and
methods of settlement so as to build a positive incentive mechanism that "offers conveniences to companies that abide by the laws, to identify
suspects, and to punish violators," thus making discredited companies or individuals pay the price and smooth the way for trustworthy
companies. [15:12]
[Du Peng]: Second, continuing to promote innovations in approaches to administration. For example, given that some companies created
fictitious trade backgrounds and raised enormous funds overseas during the first half of 2013, we designed a risk notification system, that is, the
SAFE sends letters to companies whose goods flows and capital flows are seriously mismatched, requiring them to make an explanation, and the
SAFE will duly downgrade those companies that fail to explain or cannot make a convincing explanation within 10 days upon receipt of such a
letter. [15:12]
[Du Peng]: Post regulation proves to be more cost effective. [15:12]
[Du Peng]: Third, changing behavioral management to market-player management. [15:15]
[Du Peng]: Over the long term, foreign exchange transactions by Chinese companies have been simple and small-sized, so behavioral regulation
featuring transaction-by-transaction verifications were efficient. For example, the traditional verification system for receipts and payments of
foreign exchange under trade in goods required companies to record the capital flows arising from receipts of foreign exchange for each export
transaction and to record the capital flows arising from payments of foreign exchange for each import transaction. If the two capital flows
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matched each other, the company could smoothly undergo the various procedures; otherwise it could not receive or pay foreign exchange or file
for the export tax refund as was normally the case. But as China's foreign trade surged in size in recent years, the number of companies on the
list reached 540,000 and the types of trade in goods increased to 96. In the three years between 2008 and 2010, just before implementation of the
pilot reform of trade in goods, there were nearly 137 million transactions involving verification of receipts and payments of foreign exchange
from imports and exports, with an annual average of more than 45 million transactions. [15:15]
[Du Peng]: Under such circumstances, transaction-by-transaction behavioral regulation was not efficient and economic agentbased
management was needed. As a result, the current-account reform abandons the traditional model of "one-to-one matching and transaction-by-
transaction verification" and conducts aggregate assessments of company information using comprehensive data acquired by the system and
information involving the company profile, trade in goods and trade in services, advances from customers and prepayments, deferred income
and payments, foreign exchange loans, import bill advances by overseas institutions, and the opening of letters of commitment. The reform
provides comprehensive searches for company information, including receipts and payments under the capital account and the filing status and
classification, thus avoiding drawing a conclusion from incomplete data. This shift enhances regulatory efficiency, reduces administrative
interruptions for the absolute majority of market players, and creates a loose market environment for fair competition for trustworthy and law-
abiding companies. [15:15]
[Du Peng]: Fourth, changing from "presuming guilty" to "presuming innocent" and from a "positive list" to a "negative list." [15:19]
[Du Peng]: The traditional current-account system was aimed to guard against violating companies, so companies had to submit considerable
evidence for prior verification and were required to undergo complex procedures. To have their business processed, each company had to go
through a rigorous document verification, which could easily delay the business processing. Since the reform, document verification has been
streamlined and the verification process has been simplified, offering a great convenience for companies and individuals. In particular, as the
traffic cameralike management is implemented, 99 percent of companies throughout the country can hardly perceive of the existence of foreign
exchange administration. In addition, the letter of commitment system is based on a presumption of innocence, that is, the foreign exchange
authorities will liberalize management of those companies that sign the accountability document and commit to abiding by the laws. [15:19]
[Du Peng]: Before the reform, current-account management stressed a "positive list," or "companies or individuals were not allowed to do
anything that was not explicitly stipulated by law," because we traditionally introduced legislation by positively listing the items and attempted
to list all the authenticity verification evidence for various ways of trading and various business formats. For example, before the current-
account reform, verification evidence was listed one by one for more than 100 foreign exchange items under trade in services. But since the
kickoff of the reform, except for transactions of trade in services that are explicitly prohibited by national laws and regulations, companies
engaged in trade in services are only required to provide core verification elements, including contracts and invoices, for the banks to verify the
authenticity in line with the three operational principles, thus basically meeting the requirements of "doing things not explicitly prohibited by the
law." But, in general, the "negative list" management approach is still being explored and still needs time before it can be widely applied.
[15:27]
[Du Peng]: To sum up, in response to the proposal of the Third Plenum of the Eighteenth CPC Central Committee that "efforts should be made
to further streamline administration and delegate more power to lower-level governments," and to "give the market a decisive role in allocating
resources," the foreign exchange authorities have actively made innovations in the concepts and methods of administration to align them with
the direction of the socialist market economic reform and to meet the overall requirements of the central government and the State Council in
terms of streamlining administration and delegating more power to lower-level governments and to accelerate the transformation of government
functions. The foreign exchange authorities are working to improve risk regulation regarding receipts and payments of foreign exchange so as to
enhance regulatory efficiency while serving the real economy and vigorously promoting trade facilitation, thereby integrating administration and
services. [15:27]
[Du Peng]: Third, initial ideas on implementing the Opinions on Supporting Stable Growth of Foreign Trade to advance the reform of foreign
exchange administration under the current account. [15:27]
[Du Peng]: The foreign exchange administration reforms under trade in goods and trade in services are the highlights of the SAFE's exploration
and implementation of the "five changes." To achieve these changes, we still face with huge challenges. For example, some grassroots foreign
exchange administration staff have not fully adapted to the new administration approach and their ability to focus on key tasks and priority
regulations amid the heavy regulation loads and the short supply of regulatory employees needs improving. We also need to further enhance our
professional capabilities to promote trade facilitation and to enhance risk prevention. [15:28]
Page 4 of 8 !
[Du Peng]: As is known, in May the General Office of the State Council released the Opinions on Supporting Stable Growth of Foreign Trade,
proposing requirements to sustain stable growth in trade in goods, supporting the development of trade in services, enhancing trade facilitation,
improving financing services, and supporting the development of foreign trade companies. This also requires us to further deepen the reform of
foreign exchange administration under the current account including trade in goods and trade in services. Our measures are as follows: [15:28]
[Du Peng]: First, vigorously promoting trade and investment facilitation. Develop systems and mechanisms of foreign exchange administration
that can be copied and promoted to respond to China's new round of reform and opening up and to support the development of the Shanghai
Free Trade Zone and the special economic zones; to provide more foreign exchange policy support for centralized fund management at MNCs to
underpin the development of MNCs; to drive the upgrading of exports and the balanced development of trade, to promote the development of
cross-border e-commerce, and based on the existing 22 pilot companies in 5 regions, to study how to expand the pilot regions and the scope of
foreign exchange payments for cross-border e-commerce of third-party payment institutions; to provide foreign exchange policy facilitation for
individuals to conduct foreign trade and policy support for the development of border trade to underpin the development of small and micro
businesses. [15:28]
[Du Peng]: Second, safeguarding our bottom line against risks and enhancing regulation of cross-border capital flows. We will focus our
attention on the impact that international economic and financial trends, especially the progress and methods of the QE tapering, will have on
China's foreign exchange and will develop our response plans. We will enhance monitoring of key companies and special monitoring of key
businesses, such as banks' on- and off-balance-sheet financing products, to guard against the rise of trade structuring; focus on system
upgrading, improving system application capability, and exploring pragmatic and effective approaches, such as building a "regulator system" to
assign fixed personnel to regulate and serve a batch of companies and a "sample bank system" to monitor and analyze companies with a large
proportion of foreign exchange business; and, driven by classified management, further enhance the level of cross-departmental regulation.
[15:28]
[Du Peng]: Third, deepening understanding and accelerating talent building to comprehensively transform management in accordance with the
requirements of the "five changes." Training and instruction will be provided to foreign exchange administration staff through policy training,
case communications, and professional instruction, so that all staff in the foreign exchange system will be transformed into those who are good
at business management, monitoring and verification, and situation analysis by improving their comprehensive quality and professional skills,
and to meet the transformation requirements as soon as possible. [15:29]
[Du Peng]: Thank you very much! Next I would like to answer your questions on the reform of foreign exchange administration under the
current account, the "five changes" on foreign exchange administration, and other relevant issues. [15:29]
[Journalist from Economic Information Daily] Just now, you mentioned guarding against risks. We all know that at the end of last year the
SAFE introduced the Circular on Improving Foreign Exchange Administration for Bank Trade Financing. I am wondering about the effect of
this Circular and about any new measures to crack down on false trade financing. Thank you. [16:11]
[Du Peng]: You just asked two questions, the first is how to guard against risks after the implementation of the reforms. As I have just now said,
there are two priorities in current-account management, one is promoting trade facilitation and the other is guarding against risks. These are
somewhat contradictory with one another. If great efforts are made to provide trade facilitation, management may be weakened, whereas if
management is enhanced with the introduction of many regulations, companies will face inconveniences. This is a good question, but it is very
tricky. The foreign exchange authorities have long been struggling with this issue, which will be effectively addressed during the reform of
foreign exchange administration under trade in goods and trade in services: documents have been significantly simplified, many administrative
licenses have been canceled, and, as I have just now said, the two reforms will be followed by two major and four minor reforms. In processing
their foreign exchange, companies no longer have to come to the SAFE for verification, thus substantially promoting trade facilitation. [16:12]
[Du Peng]: Regarding the regulations, an advanced comprehensive back-office monitoring system has been built. Currently, under the current
account, including trade in goods, trade in services, and individual accounts, a sound and efficient monitoring system has been put in place.
Scientific and rational threshold values have been established in the system, and basic information about companies can be obtained through the
system. Under trade in goods, for example, companies need to first register, entering their relevant information into the system, so we can
understand the industry in which they are engaged, their main businesses, the registered capital, and their business scope, and we must have a
well-defined objective in mind when making analyses and comparisons. Second, a comprehensive regulatory system has been built within the
system. Problems and issues at the macro, medium, and micro levels can be analyzed via the system. At the macro level, we can understand the
overall situation regarding the receipts and payments of foreign exchange since the system can monitor any changes in receipts and payments.
Page 5 of 8 !
We can also promptly understand abnormalities in any region or any industry through medium-level analysis. Based on these problems, we can
carry out a deep analysis and obtain some micro information, such as information about the company or the individual. [16:12]
[Du Peng]: Third, enhancing the classified management of companies through monitoring. Classified management of companies follows a
specific standard. For example, under trade in goods, the standard is whether the flow of capital and the flow of goods match one another. If not,
the company will be required to make explanation, or we will conduct an on-site verification to identify any violating behavior by the company.
Under trade in services, since there is no issue of matching between capital flows and goods flows, we need to rely on the system to judge and
identify whether a company's capital inflows and outflows match its overall size and type of business, and whether its capital inflows and
outflows increase substantially and frequently. With these approaches, we can efficiently verify companies and carry out classified management
on such a basis. [16:12]
[Du Peng]: Fourth, verification through banks and financial institutions. Since implementation of the reform of foreign exchange administration
under trade in goods, documents have been substantially streamlined, and banks are now required to verify the authenticity and legitimacy of
companies' transactions following the three principles of knowing your customers, knowing your business, and due diligence investigations. The
above three approaches have been very helpful in guarding against risks. The following is some data that we should reveal: we took special
actions last May to verify companies' structuring of trade after adoption of post regulation and during the month categorized 614 companies as
Class-B companies and 3 companies as Class-C companies. This suggests that violating behavior by companies can be promptly identified using
the above approaches. [16:13]
[Du Peng]: We have long been concerned about such false trade and structuring of trade. We know that currently there are two markets, two
exchange rates, and two interest rates. If the above circumstances are not changed, companies will continue financing from arbitrage through
financial control. Given this, last year our foreign exchange inspection department conducted inspections of entrept trade, identifying within a
short time and verifying 1,082 copies of false documents, which were worth USD 2.5 billion. In turn, in December 2013 the SAFE released a
circular on improving foreign exchange administration associated with banks' trade financing business. As required by the circular, banks should
verify the authenticity and legitimacy of trade financing, especially long-term trade financing that is longer than 90 days, while actively
supporting the development of the real economy. Banks should conduct authenticity verifications based on the characteristics and abnormal
transactions of a company, regardless of whether or not the deposit for trade financing has been paid in full. We have also enhanced monitoring
of abnormal companies, especially those whose long-term trade financing has increased abnormally and has typical features of arbitrage. [16:13]
[Du Peng]: In the meanwhile, we have intensified punishment of violating banks and companies. By the end of 2013 after the release of the
circular, we issued more than 1,500 copies of risk notifications to companies engaged in trade financing, requiring them to make an explanation
and guiding them to carry out a verification. Among these, during the month 251 companies were categorized as Class-B and Class C-
companies, including 193 Class-B companies and 58 Class-C companies. After release of the circular, especially in the first quarter of this year,
the balance of receipts and payments from entrept trade was down 26 percent year on year and 29 percent month on month, the signing value of
usance L/Cs of more than 90 days was down 3 percent month on month, and the growth of the balance was down 11 percentage points,
indicating significant results have been achieved. We will continue to pay close attention to this issue during the next step. As long as there are
interest- rate spreads and exchange-rate spreads between China and other countries, there will be violating companies. Given this, we will step
up efforts to verify companies, continue to require banks to enhance verification in accordance with the three principles, intensify punishment of
violating companies, and have the creditability of discredited companies lowered in various departments through information sharing and
mutual recognition in enforcement to curb the growth of false trade. [16:13]
[Journalist from Economic Daily]: As you have just now said, China's surplus under the current account as a percentage of GDP has dropped
year by year, and China's trade in goods surplus fluctuated sharply this year. Do you think China's surplus under the current account will
continue to drop or will it remain stable in the near future? Thank you! [16:19]
[Du Peng]: You have noted that China's surplus under the current account as a percentage of GDP in recent years has dropped year by year. Of
investment, consumption, and exports, the three drivers behind China's economic growth, net exports contributed most to the economy, but in
recent years they have fallen significantly as a percentage of China's GDP. The statistics we have collected show that China's surplus under the
current account as a percentage of GDP has fallen within the internationally recognized rational range, or 4 percent, since 2010. The ratio further
dropped from 2 percent in 2013 to 0.3 percent in the first quarter of this year, which is a product of our efforts in recent years to expand
domestic demand, restructure, reduce the surplus, and promote a balance. Overall, falling within the rational range will have a positive influence
on the balance of payments in China. [16:20]
Page 6 of 8 !
[Du Peng]: We believe that there will be a certain surplus in the receipts and payments of the current account for the foreseeable future, but its
ratio to GDP will remain at a relatively low and rational level, and the trade in goods surplus will remain the major source of the surplus under
the current account. Currently, the advanced countries that are our traditional export markets will see a stronger overall economic recovery than
they did in 2013, so demand for our exports will rise. In the meanwhile, as the Chinese economy sustains stable growth while the prices of some
bulk stocks in the global market remain low and lack sufficient momentum for growth, China's import growth will also remain stable. [16:20]
[Du Peng]: But it is likely that trade in services will see a widened deficit in the future, especially travel and study abroad that account for a large
proportion of the balance of trade in services, because Chinese residents' consumption, including travel and study abroad, is in a rising phase,
which leads to large outbound payments. Overall, as the deficit and surplus accounts evolve and influence one another, the surplus under the
current account will be volatile at a low level. In the next step, the foreign exchange authorities will continue to pay close attention to economic
and financial developments both at home and abroad, especially the influence of the U.S. QE tapering on China's foreign exchange receipts and
payments. To respond to these influences, we will follow the principle of balanced management, study timely solutions, and develop relevant
response plans, lest there are some abnormal in or out capital flows during a certain period. Thank you! [16:21]
[Journalist from China National Radio]: Since the current account in China is currently convertible whereas the capital account is not, some
companies use funds under the capital account to conduct arbitrage through the current account. How will the reform of foreign exchange
administration under the current account that enhances trade facilitation curb arbitrage and can it guard against risks in this respect? [16:21]
[Du Peng]: Good question. I have given this lady some answers to this in the first question, and here I would like to repeat them briefly: we will
guard against these risks through first, the system; second, classified management; third, bank monitoring; fourth, punishment of violating
companies with abnormal capital inflows. Thank you. [16:22]
[Journalist from Peoples Daily Online] It has been emphasized by the central government that management by a negative list shall become the
direction of management and reform, and you have also mentioned that among the five changes in foreign exchange administration there is
also one change that focuses on replacing the positive list with a negative list. I am wondering how management by a negative list will be
implemented during the reform of the current account. [16:37]
[Du Peng]: I have just now also mentioned management by a negative list, which means that any transaction can be carried out unless it is
explicitly forbidden by law. Preliminary exploration has been carried out to reform foreign exchange administration under the current account.
We know that China started to accept the obligations of Article VIII of the Articles of Agreement of the International Monetary Fund in 1996.
Since then, relevant foreign-related receipt and payment activities under the current account have not been restricted provided that such activities
have authentic and legitimate transactional backgrounds. This means, in principle, we do not have negative-list management under the current
account, or, in other words, any business under the current account can be conducted. However, we have also conducted exploration and made
efforts in this regard. We have mainly implemented negative-list management measures based on the classified management under trade in
goods, which are targeted at special entities. [16:37]
[Du Peng]: Currently we do not have specific document verification and approval requirements for Class-A enterprises engaged in trade in
goods, and we only impose standards on the main principles that banks follow and the core vouchers that they require for authenticity
verification as well as on certain key procedures. For Class-B and Class-C enterprises under trade in goods, we set limits on the scope of receipts
and payments of their trade in goods in the form of a negative list. For example, it is stipulated that Class-B and Class-C enterprises are not
allowed to make deferred payments of longer than 90 days nor are they allowed to sign export contracts that contain articles for receipt of
foreign exchange of longer than 90 days, and Class-C enterprises are not allowed to handle receipts and payments of foreign exchange under
entrept trade. In addition, we have set specific rules for personal businesses. All of this is what we have done to replace positive-list
management with negative-list management. [16:38]
[Du Peng]: With the development of the foreign exchange situation and changes in business in the future, it is not unlikely that we may impose
restrictions on other activities. Except for such restrictions, all business under the current account can be conducted. This is part of our work in
the process of transferring from positive-list management to negative-list management. [16:38]
[Journalist from China Daily]: You have just now mentioned issues about cross-border payments, cross-border e-commerce, and third-party
payments. Could you please say something more about this? [16:54]
[Du Peng]: Cross-border e-commerce has received vigorous support from the government. From the perspective of management functions, the
foreign exchange authorities mainly perform monitoring and management of receipts and payments as well as monitoring and management of
exchange activities of enterprises. Therefore, the foreign exchange authorities chiefly support the development of cross-border e-commerce in
Page 7 of 8 !
terms of fund receipts and payments. Presently, we are conducting a third-party pilot payment program for cross-border e-payment commerce in
22 companies of five regions throughout the country, i.e., fund transfers of cross-border e-commerce organizations and individuals via third-
party payments. These 22 companies are located in Beijing, Shanghai, Shenzhen, Chongqing, and Hangzhou. We are very cautious about this
program as this is still an emerging business.
[Du Peng]: Enterprises should first obtain a license from the Peoples Bank of China for third-party payments if they wish to launch this
business. Then they are required to set up an external electronic networkbased payment system. We will conduct an inspection of the system
and allow them to launch this business if they pass the inspection. Based on the current situation, the volume of third-party payments is not very
big because we have set some limits on the amount and scope of goods under trade in services, and we only allow micro-payments of less than
USD 10,000 or the equivalent under trade in goods. [16:55]
[Du Peng]: Currently we are summarizing the experience of the pilot program to identify related problems. For the next step, we may further
expand the pilot-program efforts in regions, business varieties, and funds, which are all under exploration now. We may introduce some specific
measures this year, for example, expanding the scope of enterprises and regions included in the program. Thank you for your question! [16:56]
[Wang Yungui]: Thank you for your support and attention to foreign exchange administration. This is the end of the press conference today.
Thank you! [16:56]
(The original text was released at people.com.cn)
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Page 8 of 8 !
Circular of SAFE and the General Administration of Customs on Printing and Distributing the Regulations on the Administration of
Banks Transport of Foreign Currency Banknotes Into or Out of the Territory of the PRC
In order to adapt to the development of banks transport of foreign currency banknotes and further standardize
administration of banks transport of foreign currency banknotes into or out of the territory of the PRC, the State
Administration of Foreign Exchange (SAFE) and the General Administration of Customs (GAC) jointly revised the
Regulations on the Administration of Banks Transport of Foreign Currency Banknotes Into or Out of the Territory
of the PRC (see the attachment). It is hereby printed and distributed to you and the relevant particulars are notified
as follows:
I. Banks that already qualify to transport foreign currency banknotes into or out of PRC territory prior to the
issuance of this Circular do not need to reapply for such qualification.
II. The License for Banks Transport of Foreign Currency Banknotes Into or Out of PRC Territory that has been
printed and signed by the SAFE prior to the issuance of this Circular shall remain valid until September 30, 2015.
Licenses that have not been used by then will be uniformly reclaimed and destroyed by the SAFE.
After receiving the Regulations, the branches and administrative departments of the SAFE shall timely transfer them
to the central sub-branches, sub-branches, and Chinese-foreign banks within their respective jurisdictions. The
Circular of the State Administration of Foreign Exchange and the General Administration of Customs on the
Issuance of Regulations on the Administration of Banks Transport of Foreign Currency Banknotes Into or Out of
the Territory of the PRC (Huihan No. 65 [1998]), the Circular of the State Administration of Foreign Exchange and
the General Administration of Customs on Issues Concerning Banks Transport of Macau Pataca Banknotes (Huifa
No. 204 [1999]), the Circular of the Comprehensive Department of the State Administration of Foreign Exchange
and the General Office of the General Administration of Customs on Issues Concerning the Transport of Russian
Ruble Banknotes Into or Out of the Territory of the PRC (Huizongfa No. 44 [2004]), and the Circular of the
Comprehensive Department of the State Administration of Foreign Exchange and the General Office of the General
Administration of Customs on Issues Concerning Banks Transport of Foreign Currency Banknotes Into or Out of
the Territory of the PRC Handled by the Urumqi Port Customs (Huizongfa No. 198 [2007]) shall simultaneously be
repealed. If problems arise in implementation, please contact the SAFE and the GAC in a timely manner.
Publish organization: State Administration of Foreign Exchange Reference number: Huifa No. 24 [2014]
Name: Circular of SAFE and the General Administration of Customs on Printing and Distributing the Regulations on the Administration of Banks Transport of Foreign Currency
Banknotes Into or Out of the Territory of the PRC
Page 1 of 2 !
Contact No. of the SAFE: 010-68402313
Contact No. of the GAC: 010-65194959
Attachment: Regulations on the Administration of Banks Transport of Foreign Currency Banknotes into or Out of
the Territory of the PRC
State Administration of Foreign Exchange (SAFE)
General Administration of Customs (GAC)
April 22, 2014
FILE: Regulations on the Administration of Banks Transport of Foreign Currency Banknotes Into or Out of the Territory of the PRC
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Page 2 of 2 !

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Interpretation of Chinas Operation and Management of Foreign Exchange Reserves by the State Administration of Foreign Exchange

(SAFE)Transcript of an Online Interview

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