Facilitating Current Account Transactions

— Liu Bin, director general of the Current Account Management Department of the State Administration of Foreign Exchange,gives his views on policy objectives in an exclusive interview.

China Forex: What are the key objectives for the Current Account Department in 2018?

Liu Bin: In 2018, the Current Account Department will earnestly study and implement the spirit of the 19th National Congress of the Communist Party of China as well as the National Financial Work Conference and the Central Economic Work Conference. It will adhere to the general guideline of facilitating and liberalizing crossborder trade and investment, while enhancing a new pattern of reform and opening up to the outside world.It will also seek to safeguard the stability of the foreign exchange market and guard against risks from crossborder capital flows in order to ensure China's economic and financial security. In so doing it will also safeguard the authority of the Communist Party's Central Committee with its centralized and unified leadership and impose strict Party discipline. Ensuring regulatory compliance and the authenticity of transactions will be key tasks. The goals will be to uphold transaction convenience, maintain strict supervision and improve regulatory capabilities. This means further enhancing trade facilitation and serving the real economy as authorities seek to prevent risks from cross-border capital flows.

China Forex: The Communist Party's 19th National Congress put forth proposals for pushing ahead with a new pattern of opening up to the outside world and implementing policies that promote a high level of trade and investment liberalization. Maintaining currency convertibility under the current account and facilitating trade and investment have long been key themes of foreign exchange management on the current account.What measures will be introduced this year to continue these general policies?

33 agencies had been approved for crossborder payments since the launch of a pilot program in 2013

Liu Bin: In recent years,management of current account foreign exchange transactions has adhered to the principle of maintaining convertibility and facilitating trade and investment.Serving the real economy has been the starting point. Additionally, there have been continuous improvements in the effort to facilitate transactions under the current account and thereby create a more open and convenient business environment. In the past year, the State Administration of Foreign Exchange (SAFE) focused on areas such as electronic customs declarations in order to facilitate the authenticity of bank business in the area of trade payment remittances.It has jointly published documents with the Ministry of Commerce and other arms of the government to support comprehensive pilot areas for cross-border e-commerce, comprehensive trade services enterprises and other new business developments. Another area where progress has been made is in simplifying operational procedures in order to facilitate banks'foreign exchange business and the submission of statistics. Furthermore, SAFE has been working to support the Ministry of Public Security in the upgrading of ID cards for foreigners with permanent residence status to facilitate bank foreign exchange settlements. It has also been formulating policies to facilitate the management of foreign exchange rate exposure in the leasing business for large-scale equipment and setting policies for overdue payments related to wage disbursement problems faced by multinational

In 2018, on the premise of guaranteeing the authenticity and compliance of transactions, SAFE will study new measures to adapt to supporting supervision methods of cross-border e-commerce, market procurement, foreign trade involving comprehensive service enterprises and foreign exchange transactions linked to commodity exchanges. It will formulate policies regarding payment agencies in cross-border foreign exchange fund movements to further standardize and support the development of new types of foreign exchange payments. It will achieve this by learning from international regulatory practices and observing developments in cross-border foreign exchange payments. It will study ways to simplify foreign exchange policies pertaining to capital of insurance companies in order to facilitate foreign exchange exposure risk management in the sector. At the same time it will work with the Ministry of Commerce and other departments to promote the steady growth of foreign trade.

China Forex: What are the specific considerations in supporting and fostering the development of new trade formats?

Liu Bin: New trade formats include cross-border e-commerce, market procurement, foreign trade comprehensive service enterprises, and foreign exchange settlements for forwards on commodity exchanges among other services. In recent years, new foreign trade formats and new models have thrived along with the deepening of reform and the rapid development of the"Internet Plus" concept and other innovations.

Compared with traditional methods, these new forms of trading differ significantly in the manner of operation as well as logistics and settlement requirements. This puts greater demands on foreign exchange regulators in the supervision of the current account.

In the recent past, we have seen some positive results from experimentation on the regulatory side.SAFE steadily promoted agency cross-border foreign exchange collection and payment services and vigorously supported the development of cross-border e-commerce and Internet payments. It extended the scope of the pilot programs for cross-border foreign exchange payment services on a nationwide scale,removing regional restrictions and decentralizing audit powers, while relaxing single transaction limits and expanding the scope of payments. As of November 2017, a total of 33 agencies had been approved for cross-border payments since the launch of a pilot program in 2013. These agencies had total cross-border revenue and expenditures of US$40.8 billion, greatly supporting a thriving new business environment for cross-border e-commerce.

Liu Bin, director general of the Current Account Management Department

The Circular on the Promotion of the Healthy Development of Foreign Trade Comprehensive Service Enterprises (issued by the Ministry of Commerce in 2017, document No.759) and the Proposal on Promoting Mature Experience Formed in the Cross-border E-commerce Comprehensive Pilot Area(issued by the Ministry of Commerce in 2017,document No. 840) were jointly issued by the Ministry of Commerce and other departments, extending the pilot programs of foreign trade comprehensive service enterprises across the entire country. These documents collated the experience of foreign exchange management in crossborder e-commerce pilot areas and sought to promote innovation and the upgrading of foreign trade.

In addition, the management of the current account will continue to adhere to the principles of encouraging innovation while being inclusive as well as prudent.This will help support regulatory measures that suit the development of new forms of trade, support and standardize the development of cross-border foreign exchange payments through third-party payment agencies, and improve services and the regulatory environment overall.

China Forex: What plans have been made for strengthening inspections and supervision this year?How will risks from cross-border capital flows be reduced?

Liu Bin: In 2018, current account management will continue to enhance regulatory capacity building.This effort will be comprised of prior, mid- and posttransaction supervision and monitoring. Current account transactions need to be processed in an open but prudent manner with the integration of policies and risk-prevention measures. Specifically, our regulatory efforts will start from strengthened analysis and judgment so that we can improve the monitoring and verification mechanism. In view of the economic and financial situation at home and abroad, SAFE will pay close attention to the changes in the current account balance of payments, focusing on key channels for fund flows and issues that affect the balance. There is a need to conduct in-depth studies and make up for shortcomings of the system, regularly summarizing the verification results in a timely manner. SAFE will further improve the accuracy of analysis and use flexible indicators to detect abnormal transactions. It will also improve business system functions and data usage, optimizing and upgrading the existing system for the trade in goods and service as well individual foreign exchange business. In this effort it will exchange data with Customs and tax authorities, enhancing the effectiveness of joint supervision and strengthen the monitoring of individual foreign exchange sales and foreign currency transactions. It will also step up special inspections of unusual transactions, focusing on key countries and regions, key banks and enterprises, and large transactions. Moreover, it will boost policy training and strengthen market awareness of compliance requirements, risk factors and potential penalties for violations.

It also will improve the quality and effectiveness of joint supervision. On the basis of summarizing the experience of information exchange and mutual supervision with Customs,industrial, commercial and taxation departments, it will strengthen internal communication regarding the monitoring of enterprises engaged in abnormal business activities, and increase the effectiveness of joint supervision efforts.

China Forex: What new measures in foreign currency cash management can we expect this year?

Liu Bin: Cash transactions are invisible and difficult to trace. Large cash transactions are often closely linked with various types of criminal activities, such as money laundering, terrorist financing,tax evasion, corruption and the like. Strengthening the management of cash foreign currency dealings is a shared objective of the international community.China has a responsibility in fighting corruption and criminal behavior. By taking on these responsibilities,the dignity and authority of the state will be enhanced.In 2017, China improved the individual foreign exchange business system and implemented real-time management of foreign currency deposits and daily limits on withdrawals. It set up a routine verification system for large transactions at the nation's banks, interviewing key banks and publishing accounts of individual foreign exchange irregularities on the government website.This has achieved had a deterrent effect. Meanwhile,the domestic institution foreign currency cash deposit and withdrawal system was formally launched on the Internet. As of June 1,2017, financial institutions were required to report institutional foreign currency cash deposit and withdrawal data through the online system. SAFE has thereby achieved comprehensive monitoring and management of foreign currency cash data of institutions. Through the above measures, while meeting the daily compliance needs of individuals, the scale of foreign currency deposits and withdrawals by individuals decreased 22%and 15% respectively. Cash deposits and withdrawals of foreign currencies in large amounts decreased by 53%and 49%, respectively.

In 2018, China will continue to standardize the management of individual cash deposits and withdrawals in foreign currency, urging banks to earnestly perform the role of authenticating and combating money laundering.