Greater Efforts to Facilitate Foreign Exchange Business
China Forex: What are the general policy objectives for the Current Account Department in 2020?
Liu Bin: The Current Account Department will continue to play its role in "building China into a trade power via foreign trade expansion and the development of new trade forms and models," as set out by the 19th National Congress of the Communist Party of China.
It is expected that more trade liberalization and efforts to facilitate trade will support trade innovation and thereby speed the opening up of China's economy.
Additionally，regulations will be improved in a precise and scientific manner. The department is exploring ways to regulate via risk assessment-based classifications. A mechanism with incentives and restraints will be established，taking into account the credit ratings，compliance track record and risk management abilities of market players. This will proceed in tandem with the effort to facilitate cross-border settlements under the current account.
In addition，the department will take precautions against external shocks by more closely regulating banks in their assumption of responsibility and business development capabilities，as well as their handling of risky trades.
China Forex: Six measures concerning the current account were introduced in late 2019 to promote cross-border trade. One of them，to expand the pilot program to facilitate foreign exchange receipts and payments related to trade，has attracted considerable public attention. What is your assessment of the program? Will it be expanded in 2020?
Liu Bin: The pilot project was launched at the beginning of 2019 to facilitate foreign exchange receipts and payments in the Guangdong-Hong Kong-Macao Greater Bay Area，as well as Shanghai and Zhejiang provinces. The facilitation policies became applicable to other locations at the end of that year.
The effects of this project have been increasingly apparent. Operating costs have been cut and efficiency has been raised. Enterprises included in the program say that the time needed for preparing and undergoing document examination has been cut in half. Fund settlements related to payments and receipts made via e-banking have also become much easier. Additionally，banks say they have gained greater insight into rules related to foreign trade and cross-border fund movements. Banks are now looking more closely at the essence of each transaction. These efforts have helped make banks two-thirds more efficient in examining transaction documents.
The pilot program will be rolled out more broadly and cover a greater range of business operations in 2020. Measures will be tailored to reflect the credit standing of enterprises and the compliance consciousness of banks. This will allow us to establish a system that encourages creditworthiness and discourages dishonesty.
China Forex: New trade forms and models have been constantly emerging in recent years. Faced with this changing trend，how will the current account department cope?
Liu Bin: With the advancement of China's reform initiative and the widespread application of Internet technologies，new forms of trade are emerging and becoming integrated with more traditional formats. Consequently，there is greater diversification in the manner of trade and the types of market participants. This adds to the complexity of foreign trade settlements. To address the changes，regulators have simplified the procedures of pre-transaction regulation. However，this has resulted in new challenges. For example，cross-border transactions via e-commerce may not correspond directly to customs declarations. This makes regulation more difficult.
Accordingly，the foreign exchange regulator has changed the supervisory focus from the examination of documents to the determining of the essence of underlying trades. This policy shift has allowed us to make electronic transaction documents acceptable. At the same time，a comprehensive risk-control system has been set up，including strengthened credit constraints prior to transactions as well as the interdiction of abnormal transactions and the imposition of stricter penalties for violations.
Take cross-border e-commerce as an example. Payment institutions and eligible banks can provide buyers and sellers with services related to payments for goods and services on the basis of e-information on transactions. Additionally，it is no longer necessary for the small and micro cross-border e-commerce enterprises，whose annual trade collection or payments are less than US$200,000，to be registered in the Directory of Trade and Foreign Exchange Receipt and Payment Enterprises. Such policies are designed to respond to the needs of electronic settlements of funds via e-commerce. These are often in small amounts and at low cost. The policies help facilitate settlements in a safe and efficient manner.
Additionally，payment institutions and co-operative banks are required to conduct examinations and guarantee the authenticity of transactions. This is spelled out in the latest Notice of Measures Administering Foreign Exchange Business of Payment Institutions. In terms of e-commerce platforms，payment institutions have supervisory responsibility and related banks share liability.
The principles of encouraging innovation and ensuring inclusiveness and prudence as implied in the above measures will be continued in 2020. The department will take initiatives to adapt to the changing forms of trade，including cross-border e-commerce and integrated services for foreign trade.
China Forex: The electronic filing of taxation concerning foreign exchange payments for services trade was realized nearly nationwide in early 2020. Will other measures be introduced in this area?
Liu Bin: The electronic tax filing system now covers 36 cities and provinces. As of January 1，2020，some 25,000 electronic tax filing forms have been completed，concerning the foreign exchange payments of US$34 billion. A total of 8,016 enterprises have benefited from the electronic tax-filing facility. Payments now only take five minutes on average，instead of two to three days as in the past.
The results of the project will be reviewed and specific measures will be improved. The State Administration of Foreign Exchange (SAFE) will continue to promote trade and investment liberalization and facilitation in 2020.
China Forex: Chinese enterprises have undertaken overseas projects in recent years. What measures are taken to support international contractors? In terms of the Belt and Road Initiative，are there any future steps to improve investing policies and the service system?
Liu Bin: Presently，international contractors from China have to manage their funds in overseas accounts under the category of projects. Funds cannot be transferred freely from one account to another. This leads to inefficiencies and greater risk from exchange rate fluctuations.
Accordingly，SAFE launched a pilot program in Beijing at the end of 2019 to allow domestic enterprises which are undertaking foreign projects to open an account for centralized management of overseas funds used in different projects. A construction company included in the program opened such an account in Indonesia to manage its funds covering eight projects，for example. We estimate that onshore foreign exchange expenditures will be reduced by about 10% every year as a result of this program. Moreover，in addition to reducing exchange rate risk，it is expected that this manner of fund management will save the company 15% or so of its capital costs，including interest on its borrowings related to the contracts.
The facilitation of centralized fund management will allow companies to more effectively use their overseas funds. It will also boost confidence of foreign governments in Chinese companies. SAFE will continue to boost investment in the Belt and Road Initiative by further facilitating related enterprises.
China Forex: Individual foreign exchange business is always a key area of concern. Will there be any changes in regulations in this area?
Liu Bin: Policies regarding the use of foreign exchange by individuals are always guided by the principle of assuring convenience for transactions within a specified amount and making supervision predictable for amounts beyond that. In 2019，SAFE took initiatives to support the innovation of individual foreign exchange business to meet the increased demands for convenience in foreign exchange settlements and sales. Individual purchases of foreign exchange for the purpose of overseas study，as well as for the settlement of foreign currency salaries of Chinese employees in offshore Chinese-funded institutions，can now be handled by banks via e-channels as long as they are not included in the yearly individual's quota and are reported to regulators. It also gave backing to Bank of China to carry out foreign exchange settlements related to cross-border remittances through e- channels so long as the amounts are within the annual quota for individuals.
As its next step，SAFE will further simplify document examination formalities for individual use of foreign exchange. At the same time，authenticity reviews will be strengthened. Doubtful，risky foreign exchange transactions in large amounts will be at the focus of reviews.
China Forex: At present nearly all foreign exchange business under the current account can be handled directly by banks. How can you ensure that banks have the ability to review and authenticate transactions?
Liu Bin: Efforts will be made to guarantee the authenticity and legitimacy of transactions and simplify the at times complicated procedures for examining documents. Correspondingly，SAFE will put a new emphasis on guiding banks to shift from pre-transaction reviews to post-transaction supervision. This will mean a focus on assessing the essence of transactions rather than the reviewing of documents. In order to become more familiar with a customer's creditworthiness and understand the inner logic of each transaction，banks can make use of big data as well as blockchain and other advanced technologies. Furthermore，there can be greater reliance on the sharing of public management information and making use of risk warning systems. In this way，the ability to examine authenticity and legitimacy will be enhanced.
At the same time，as mentioned earlier，the regulatory mechanism based on credit ratings will be applied and refined. Banks that show a high degree of compliance with rules and laws will enjoy more convenience in examination and have more room for innovation，while banks that violate rules and laws will be more strictly regulated and held to account.