Counteracting Cross-Border Capital Flow Risks to Better Stabilize Foreign Exchange Market
CHINA FOREX: The year 2025 stands as both the concluding year of China's 14th Five-Year Plan(FYP) and a critical, transitional juncture paving the way for the rollout of the 15th FYP. In this context, could you please elaborate on the core tasks of the Supervision and Inspection Department (hereinafter referred to as the Department) for 2025, as well as outline the overarching guiding principles and work approach for 2026 in alignment with national development planning?
HU Chunyu: In 2025, under the guidance of Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, the Department studied and implemented the guiding principles of the Fourth Plenary Session of the 20th Central Committee of the Communist Party of China (CPC) and the Central Economic Work Conference. Focusing closely on the core tasks of preventing risks, strengthening regulation, and promoting high-quality development, the Department conducted foreign exchange inspection and enforcement in an orderly manner and took tough action against illegal cross-border financial activities. In 2025, the Department addressed more than 1,100 foreign exchange violation cases, with total fines and confiscations exceeding 1.3 billion yuan. These efforts helped maintain the stability, efficiency and sound development of the foreign exchange market.
Firstly, the Department took strong action against illegal cross-border capital activities. It strengthened inter-departmental collaboration, worked closely with public security authorities to crack down on illegal foreign exchange underground banks, and rigorously investigated and penalized foreign exchange violations including unauthorized foreign exchange trading and fictitious or fraudulent transactions. In 2025, the Department addressed nearly 500 cases involving underground bank counterparties, with fines and confiscation totaling 600 million yuan. The Department and the Supreme People's Procuratorate have jointly released typical cases on coordination mechanism between criminal and administrative law enforcement in the foreign exchange sector. This initiative promoted the development of a closed-loop governance system for foreign exchange violations integrating criminal and administrative penalties.
Secondly, the Department intensified the inspection of financial institutions' foreign exchange operations. All types of financial institutions conducting foreign exchange business, including banks, insurance companies, and securities firms, were included in special inspection coverage. In 2025, special inspections were conducted at the headquarters of more than 20 financial institutions. These inspections supervised financial institutions in effectively fulfilling their responsibilities for reviewing cross-border fund flow and performing their role as the "first line of defense" in cross-border capital flow management. Targeted "case-based retrospective investigations" were launched for banks involved in processing funds linked to underground banks, and "dual penalties" were imposed on both the violating bank and its responsible personnel.
Thirdly, the Department leveraged digital technologies to enhance monitoring and identification capabilities. It established a framework of "five national research and analysis centers + five regional research and analysis centers" and fully utilized the functions of these centers. It organized centralized research and analysis as well as off-site competitions to uncover new types of foreign exchange violations. Additionally, the Department expanded the categories and scope of analytical data, optimized off-site inspection indicator models, and enhanced risk monitoring and analysis of abnormal channels and key entities, thereby giving full play to the supporting role of off-site research and analysis for on-site inspections.
Fourthly, the Department steadily advanced the reform ofbanks' foreign exchange operations (hereinafter referred to as the "Reform"). Since the launch of the Reform, the number of participating banks increased from 16 at the end of 2024 to 30 by the end of 2025, covering most major cross-border business banks. A total of 42,000 category-one customers, including small and medium-sized private enterprises, were included, and cumulative transaction volumes processed based on payment instructions exceeded US$1 trillion. The Department assessed and guided banks to enhance the effectiveness of their monitoring systems, promoting the establishment of a sound and end-to-end management framework for foreign exchange operations.
Fifthly, the Department enforced inspection and penalties in a strict and standardized manner. It continued to improve internal control management, strictly followed inspection and penalty procedures, standardized workflows, and raised the quality of administrative law enforcement and the level of law-based administration. The Department also exercised its authority in accordance with laws and regulations, strengthened oversight of law enforcement activities, ensured the appropriateness of inspections and penalties, and effectively prevented law enforcement risks.
In line with the overall arrangements of the National Foreign Exchange Administration Work Conference, the Department will continue to deepen the reform of banks' foreign exchange operations in 2026, enhance off-site regulatory capacity, intensify efforts to combat various foreign exchange violations, effectively prevent cross-border capital flow risks, and safeguard a sound and stable foreign exchange market.
CHINA FOREX: As you mentioned, the reform of banking foreign exchange operations will be advanced in a steady orderly manner in 2026. Could you elaborate on the specific measures and implementation plans for advancing this key reform?
HU Chunyu: The reform of foreign exchange operations in the banking sector constitutes a key measure and strategy taken by the State Administration of Foreign Exchange (SAFE) to steadfastly advance high-level institutional opening-up in the foreign exchange field. In 2026, the SAFE will continue to deepen the reform by further increasing the number of participating banks, integrating policies, extending facilitation measures, and strengthening risk monitoring. The goal is to foster an enabling environment where "greater integrity followed by greater convenience" is realized, striking an effective balance between facilitation and risk prevention.
Firstly, expanding the scope of the reform in an orderly manner. The Department will strengthen professional training and Q&A services, guide newly interested banks to participate in the reform, and support already qualified banks to gradually include their branches, so as to steadily expand the coverage of the reform. Banks will be guided to improve customer classification and identification mechanisms, continuously optimize their customer structure, and extend the benefits of facilitation policies to a broader range of enterprises.
Secondly, promoting the integration of foreign exchange facilitation policies through the reform. In recent years, the SAFE has actively explored differentiated regulatory approaches for enterprises and rolled out a series of facilitation policies, yielding positive results. Going forward, on the basis of the ongoing reform of banking foreign exchange operations, further integration will be pursued with facilitation policies under both the current account and the capital account. This will advance the systematic integration of policies and support banks in providing more tailored and demand-oriented cross-border settlement products and services for enterprises.
Thirdly, further guiding banks in clarifying their operational boundaries. The Department will leverage model cases to "interpret regulations through sp