Zero-tolerance towards Illegal Activities in Foreign Exchange Management

China Forex: Compared to 2020,What kind of situation will the Supervision and Inspection Department be confronting in 2021? What would be the focuses and priorities?

Hu Chunyu: In 2020,the repeated surge and continuous spread of the Covid-19 pandemic caused severe consequences: global economic recovery was weakened,trade conflicts persisted and uncertainties in the international political and economic environment increased. Against this backdrop,however,China’s foreign exchange market continued to operate smoothly,with a basic equilibrium maintained in the balance of payments. The effective mitigation of external impact should be attributed to the successful containment of the pandemic paired with precise counter-cyclical adjustment policies. In 2021,the world economic situation remains complicated and challenging as pointed out in the annual Central Economic Work Conference. Lying ahead is an unstable and unbalanced recovery combined with various types of derivative risks arising from the pandemic. On the one hand,expansionary fiscal policies from major economies may cause spillover effects,which leads to risks generated by fluctuations in dollar exchange rate,capital markets or commodity,all of which should not to be underestimated. On the other hand,the pandemic forced a layout adjustment of global industrial and supply chains,which could impact China’s industrial and supply chains and thus increase the vulnerability of cross-border capital flows. To stand up to these potential risks,the National Working Conference on Foreign Exchange Management accentuated the following points: departments responsible for foreign exchange supervision and inspection should focus on preventing abnormal cross-border capital flows while improving the “macro-prudential and micro-supervision” regulatory framework for the foreign exchange market. At the same time,those departments should strengthen the monitoring and assessment of the foreign exchange environment and pay close attention to the effects of external shocks including the pandemic. In addition,it is expected to guide that financial institutions and enterprises adhere to the principle of risk neutrality while continue to crack down on fraudulent and deceptive transactions,illegal cross-border financial activities and other substantive violations. Moreover,it is necessary to strengthen the management of market expectations and macro and micro prudential management.

Based on the situation mentioned above,supervision and inspection departments will take steady steps in 2021 while enhancing offsite supervision. We will take a zero-tolerance attitude on illegal activities such as the operation of underground banks and cross-border gambling,and rigorously deal with deceptive transactions. We will also continue to prevent and resolve major financial risks in order to foster an environment adaptive to a new development pattern whereby domestic and foreign markets can boost each other,with the domestic mar