Achieving Coordinated Opening-Up and Security in Foreign Exchange Management...

Title:Achieving Coordinated Opening-Up and Security in Foreign Exchange Management in 2024

2023 was the first year of fully implementing the spirit of the 20th National Congress of the Communist Party of China, and it was a year of economic recovery and development following the transition period of COVID-19 prevention and control in the past three years. Over the past year, under the strong leadership of the Party Central Committee with Comrade Xi Jinping at its core, China has withstood external pressures, overcome internal difficulties, and achieved a recovery in the economy. High-quality development has been steadily promoted, and solid steps have been taken in building a socialist modern country in an all-round way.

The foreign exchange situation is a barometer of an open economy. In 2023, faced with a complex external environment, China's foreign exchange market remained stable and showed strong resilience. The Balance of Payments achieved a basic equilibrium. In 2023, the current account surplus was US$264.2 billion, accounting for 1.5% of GDP for the same period, which continued to be within a reasonable and balanced range. The overall operation of the foreign exchange market was stable, with basically balanced cross-border capital flows, stable market expectations, and rational foreign exchange transactions. The RMB exchange rate fluctuated in both directions, generally maintaining basic stability at a reasonable and balanced level, performing steadily among global currencies, and functioning as an automatic stabilizer for macroeconomy and the Balance of Payments. The overall scale of foreign exchange reserves remained stable. As of the end of December 2023, China's foreign exchange reserves stood at US$3.238 trillion, an increase of US$110.3 billion from the end of December 2022.

In 2023, there were many significant events and reforms in the financial field. Deepening the reform of Party Central Committee institutions, establishing the Central Financial Commission and the Central Financial Work Commission, strengthening the centralized and unified leadership of the Party Central Committee over financial work. The Central Financial Work Conference systematically expounded the basic principles of China's financial development path with Chinese characteristics and the main connotations of China's modern financial system with Chinese characteristics for the first time, clearly putting forward the goal of speeding up the building of China into a nation with a strong financial sector, and setting the direction and overall layout for financial work in the new era and on the new journey. The Central Economic Work Conference had a high-minded and broad vision, comprehensively analyzed the current economic situation, scientifically interpreted the laws governing economic work in the new era, systematically deployed economic work in 2024, and had a high degree of strategic, political, ideological, and guiding significance.

Coordinating opening-up and security is the inherent requirement for successfully walking the path of financial development with Chinese characteristics in the new era, an important lever for promoting high-quality economic development, an effective way to achieve high-level security, and a work focus forforeign exchange management for the current and future periods. Firstly, promoting high-quality development should be the fundamental goal of high-level opening-up. High-quality development must be upheld as the hard truth of the new era. We must adhere to the organic combination of deepening supply-side structural reforms in the foreign exchange field and expanding effective demand in the foreign exchange market, enhance the quality and level of cross-border trade and investment cooperation with high-level opening-up, optimize resource allocation, and continuously inject impetus and vitality into high-quality economic development. Secondly, institutional opening-up should be the fundamental essence of high-level opening-up. It is necessary to continuously liberate and develop social productive forces, take institutional opening-up as a key point to improve the quality and level ofinternational circulation, promote the in-depth reform of foreign exchange management in a overall way, stimulate market vitality, and enhance endogenous motivation. We should think from the perspective of others, strengthen market rules, create a foreign exchange market environment with unified rules and coordinated supervision, enhance scientific, rational, transparent, and efficient regulation, promote modernization of the governance system and capacity in the foreign exchange field, introduce more open policies conducive to stabilizing expectations, stabilizing foreign trade, and stabilizing foreign investment, continuously enhance the transparency and stability of foreign exchange management, effectively improve market perception, and boost market confidence. Thirdly, security should be the inherent requirement of high-level opening-up. High-level opening-up should be an independent and controllable opening-up process, adhere to the principle of promoting stability through progressive opening-up. We should carefully summarize the lessons from the Asian financial crisis and the 2008 international financial crisis, deepen our understanding of the laws of doing a good job in foreign exchange management, truly achieve early identification, early warning, early exposure, and prompt handling achieve being able to let go, having control and manage well strengthen the management of the foreign exchange market, pay more attention to counter-cyclical adjustments, effectively improve the effectiveness of foreign exchange regulation, prevent the resonance of risks across regions, markets, and borders, accelerate the formation of a benign interactive pattern of opening-up and security, promote high-level security with high-level opening-up, ensure high-level opening-up with high-level security, and realize the transformation from "secure opening" to "open security".

The new era calls for a new atmosphere. 2024 marks the 75th anniversary of the founding of the People's Republic of China and is a crucial year for achieving the goals of the 14th Five-Year Plan. The foreign exchange management department should be guided by Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, fully implement the spirit of the 20th CPC National Congress, the Central Economic Work Conference, and the Central Financial Work Conference, adhere to and strengthen the overall leadership of the Party over financial work, unswervingly follow the path of financial development with Chinese characteristics, fully, accurately and comprehensively implement the new development concept, adhere to seeking progress while maintaining stability, promoting stability through progress, establishing new things before abolishing the old ones, scientifically plan the focus of policies in 2024 around the central work of economic construction and the primary task of high-quality development, better coordinate high-level opening-up and high-level security in the foreign exchange field, help consolidate and enhance the momentum of economic recovery and growth, and continue to promote efficient qualitativeimprovement and reasonable quantitative growth in the economy.

Firstly, we must uphold and strengthen the Party's overall leadership over foreign exchange work. We must firmly establish political consciousness, give top priority to the Party's political construction, implement the decisions and arrangements of the Party Central Committee on economic and financial work uncompromisingly,resolutely, swiftly, truthfully, and pragmatically. We must consolidate and expand the achievements of thematic education, and transform them into the effectiveness of promoting high-quality development. Secondly, we must expand the high-level institutional opening-up in the foreign exchange field in an orderly manner. We must steadily expand the pilot areas for high-level opening-up of cross-border trade and investment, focus on improving the quality of capital account opening-up, attract more foreign financial institutions and long-term capital to China for development purposes, continuously improve enterprise exchange rate risk management services, and encourage banks to establish and improve long-term mechanisms for serving enterprise exchange rate risk management. We must support the construction of Shanghai and China's Hong Kong as international financial centers and regional opening and innovation. Thirdly, we must continue to promote the facilitation of cross-border trade, investment and financing. We must increase the supply of foreign exchange facilitation policies and services, effectively benefit enterprises and the people, support the standardized development of new forms and models of trade, help to accelerate the cultivation of new drivers for foreign trade, strengthen the foundation of foreign trade and investment, optimize the centralized operation and management of cross-border funds for multinational companies, and support the development of headquarters economy. Fourthly, we must strengthen comprehensive supervision and regulation in the foreign exchange sector. We should improve the cross-border trade administration mechanism, which includes substantive authenticity checks, diverse approaches, and exemption from liability on the grounds of due diligence, safety and high efficiency. We should carry out reforms in the foreign exchange operations of banks and promote the reengineering of the foreign exchange business processes of commercial banks. We should vigorously crack down on illegal activities such as underground banks and cross-border gambling, maintain a healthy order in the foreign exchange market. Fifthly, we need to effectively mitigate and manage the risks of external shocks. We must strengthen the two-pronged administration of the foreign exchange market, integrate macro-prudential management with micro-regulation, and enhance macro-prudential countercyclical adjustments. We should reasonably guide the expectations of foreign exchange market, prevent the risk of abnormal cross-border capital flows, maintain basic stability of RMB exchange rate at a reasonable and balanced level, maintain stability of the Balance of Payments, and remain vigilant against the potential occurrence of systemic financial risks. Additionally, it is critical to improve the operation and management of foreign exchange reserves with Chinese characteristics to ensure the security, liquidity, and value preservation and appreciation of the foreign exchange reserves.

The blueprint has been drawn, and hard work wins the future. In 2024, the foreign exchange management department will closely unite around the Party Central Committee with Comrade Xi Jinping at its core, profoundly comprehend the decisive significance of the "Two Establishes", resolutely uphold the "Two Upholds", deeply implement the spirit of the Central Financial Work Conference, diligently implement the decision-making and deployment of the Party Central Committee on economic work, effectively coordinate domestic and international, current and long-term perspectives, as well as opening-up and security, grasp well the timing, extent and effectiveness, always bear in mind the "Matters of National Significance", take initiative and assume responsibility, promote high-quality development of foreign exchange management to serve Chinese path to modernization.

ZHU Hexin, Deputy Governor ofthe People's Bank of China, and Administrator of the State Administration of Foreign Exchange