SAFE’s Plans for 2017
In 2017,China's foreign exchange authorities will make policy adjustments in response to the major changes in the global economy and on world financial markets. They will make renewed efforts to cope with capital outflows. China Forex interviewed senior officials at five operational departments under the State Administration of Foreign Exchange to discuss their policy objectives and the measures that could be taken to attain these goals this year. The following discussions in a question and answer form are with the heads of SAFE's Balance of Payments Department,the Current Account Department,the Capital Account Department,the Supervision and Inspection Department and the SAFE Investment Center.
China Forex: Over the past year we saw substantial swings on world financial markets and changes in capital flows. What do you expect to see in terms of cross-border capital movements in the near future?
Wang Chunying,director of SAFE's Balance of Payments Department: China's foreign exchange payments in general will trend towards greater balance. Undeniably,the global economy will likely continue to remain sluggish. The overall economic recovery remains weak and there is a slowdown in trade and investment. Oil prices continue to fall and there is limited room for further fiscal stimulus. At the same time,interest rate hike by the Federal Reserve may impact on the global market from time to time. This is the objective environment that countries around the world must contend with. However,there still are fundamental factors that support the stable movement of the cross-border capital flow. These include China's comparatively high rate of economic growth in world wide,its relatively sound financial position,a continuing current account surplus and the world's largest supply of foreign exchange reserves. Other positive factors have begun to appear as well. Market players continue to adapt to the improved rules and transparency for the renminbi exchange rate mechanism and sentiment has become more stable. Pressure from China's corporate debt repayments has been significantly reduced. In the second quarter of last year,China's foreign borrowings moved higher,suggesting more confidence in the domestic currency. There has been a further opening of the domestic bond market and the addition of the renminbi to the International Monetary Fund's special drawing rights has gradually helped balance capital inflows and outflows.
China Forex: What plans are in the works for statistics collection this year?
Wang: The main task in this area in 2017 is to review how we are going to bring our data in line with the G20 second phase of Data Gap Initative (DGI). We need to determine the methods we are going to use to do this and the order in which we implement them. It is clear we need to continue to explore new research methods and improve data quality. We also need to enhance the transparency of our statistics,disclose counter-party data (for banks and the non-bank financialsector) when releasing China banking statistics on external financial assets and liabilities. We also need to categorize the direct investment data into financial and non-financial sectors in the balance of payments and international investment position tables.
China Forex: In 2017,the State Administration of Foreign Exchange (SAFE) will make new requirements of the banks in the implementation of foreign exchange rules. What are the main requirements and what is the purpose of these changes?
Wang: In the 2016 assessment,although most of the banks basically conducted their business in accordance with foreign exchange regulations,there were still some problems. For instance,the internal mechanisms for performance evaluation needed improvement and product pricing strategies failed to fully reflect the objectives of the nation's foreign exchange policies. In order to solve these problems and better control risks from cross-border capital flows,SAFE will put forward new requirements for the 2017 evaluation of banks in the areas of internal controls and risk management.
This means there will be work on the assessment of the management of internal controls. There is a new assessment indicator linking internal performance evaluations to foreign exchange compliance management. This will be aimed at encouraging banks to adjust their systems of incentives and restraints on staff. There is also a new assessment indicator for foreign exchange product pricing,and this is aimed at optimizing the pricing mechanism for foreign exchange products to promote greater balance in foreign exchange supply and demand. Moreover,there is a new indicator for self-discipline in foreign exchange business to promote compliance regulations in banking operations. There is a new indicator for internal support within the bank for the leading department as far as foreign exchange management is concerned. This emphasizes the importance of these leading departments and it is designed to improve the transmission of foreign exchange management policies. Additionally,there are measures to encourage banks to work more actively with the regulatory bodies in foreign exchange management. And there is a new indicator for the allocation of a special position for foreign exchange policy compliance management to maintain high standards for internal controls.
There will also be more work in risk assessment with a new indicator for measuring changes in the ratio of the balance in cross-border payments against annual totals and there will be a new indicator related to offshore guarantees. We will also cancel the indicator for trade finance risk to further encourage the development of cross-border trade financing and ease pressure from foreign exchange purchases.
China Forex: In 2017,what will be the main objectives in foreign exchange management under the current account?
Sun Tianqi,director of the Current Account Department: In 2017,current-account management will pay close attention to domestic and foreign economic and financial developments and foreign exchange payments. We will also track and supervise key businesses that show abnormal foreign exchange flows. At the same time we will try to facilitate foreign trade to serve the real economy. We will also promote inter-departmental supervision and cooperation to enhance the effectiveness of real-time and post-transaction follow-up management. We will urge banks to strengthen their examination and approval procedures to ensure that transactions are legitimate.
China Forex: Domestic market players seem to be particularly concerned about whether there will be any changes in the priorities in current-account foreign exchange management. Will convenience be sacrificed as a result of these changes?
Sun: In 1996 China announced it had achieved current-account convertibility. That meant there were no longer any limits on current-account international payments and transfers. The capital account,however,is still moving towards full convertibility. The management of foreign exchange under the current account is mainly aimed at facilitating trade while preventing abnormal fund flows through the improper use of this channel. Ensuring transaction authenticity and compliance with regulations facilitating trade and maintaining a balance in international payments are seen as the priorities. This principle will not change.
Facilitating trade has always been the focus of current account foreign exchange management. Reforms will not take a step backwards. In 2017,SAFE will improve these trade-facilitation measures,and continue to cooperate actively with other departments to support the construction of a new form of foreign trade-related business.
China Forex: On December 31,2016,SAFE made an announcement on improving the management of individual foreign exchange applications. Prior to that,the People's Bank of China had issued its Management Measures on Large Transactions by Financial Institutions and Suspicious Transactions. These two measures created considerable concern among market players. One question that has been asked frequently is whether there will be any changes in foreign exchange policy pertaining to individuals?
Sun: I would like to reiterate that foreign exchange management policy for individuals has not been changed as far as quota limits are concerned. The only change has been in the effort to ensure authentic information on applications for personal settlements and sales of foreign exchange. All that is needed for most settlements and sales of foreign exchange is the individual's identification card. Transactions that exceed the maximum amount can also be processed with valid documentation of the transaction volume. The improvements to the management system are aimed at meeting the requirements of international organizations on the quality of statistics and increasing transparency. They will also lay a solid foundation for post-transaction supervision and inspection. There are also tougher punishments for irregularities. Additionally,this will help with the establishment of big data credit platforms for enterprises and individuals. Market players can rest assured that convenience will not be changed.
However,it is important to note that SAFE will conduct spot checks and follow-up inspections. Individuals who violate regulations by making false reports,illegal transfers of foreign exchange or get involved in fraud or other irregularities will be included on our "attention list."These people will be have background information entered into their personal credit records and they will be barred from purchasing foreign ex