In September 2011 the State Administration of Foreign Exchange (SAFE), the State Administration of Taxation (SAT), and the General Administration of Customs (GAC) jointly issued an announcement in which they decided to implement a pilot reform of the foreign exchange administration system for trade in goods in seven provinces (cities), such as Jiangsu and Shandong, beginning from December 1, 2011. Recently, an official from the SAFE accepted an interview by journalists on relevant issues.

I. Under the current situation, what are the main concerns of the three departments such as the SAFE for introducing the pilot reform of the foreign exchange administration system for trade in goods?

Answer: Before the reform of the foreign exchange administration system for trade in goods, the core of the foreign exchange administration for trade in goods consisted of the verification and writing-off management for imports and exports. The verification and writing-off management system, since its establishment in the early 1990s, involved the matching of the macro-economic situation and the balance of payments status. This played an important role in promoting the balance of payments equilibrium and guarding against the risks of cross-border capital flows.

In recent years, the foreign economy of China has developed rapidly and the scale, method, and participants in foreign trade have changed greatly, therefore, the verification and writing-off management method based on a “one-to-one correspondence, case-by-case examination” needed to be changed. For this purpose, the SAFE actively adapted to the changes in the situation, transformed the concepts and methods of foreign exchange administration, and on the basis of adequate investigation and research, introduced the pilot reform of the foreign exchange administration system for trade in goods jointly with the SAT and the GAC to establish a new management mode featuring aggregate screening, dynamic monitoring, and classified management, and made relevant adjustments to the management method for export rebates and export custom declarations. The reform of foreign exchange administration system for trade in goods is helpful to further enhance the level of trade facilitation, to improve the means of foreign exchange administration, and to guard against the risks from foreign exchange receipts and payments.

II. How should one understand the new administration mode combining facilitation and risk management established by the pilot reform of the foreign exchange administration system for trade in goods?

Answer: The so-called combination of facilitation and risk management means simplifying the formalities and business handling procedures for receipts and payments of foreign exchange from trade and guiding and encouraging enterprises to operate their businesses according to the law, as well as improving the means for foreign exchange administration for trade in goods and guarding against risks from foreign exchange receipts and payments.

The reform of the foreign exchange administration system for trade in goods, on the basis of confirmation by the enterprises of the knowledge of the relevant policies and regulations as well as the related rights and obligations, simplified the management procedures and implemented convenient policies with respect to the handling of the foreign exchange receipts and payments for trade in goods for most enterprises.  This included further simplifying the requirements on document examination of foreign exchange payments for imports, cancelling the procedures for the verification and writing-off of foreign exchange collections from exports and online inspections of foreign exchange collections and settlements from exports, and significantly reducing the number of administrative licensing items under trade in goods.

Furthermore, the SAFE will implement comprehensive inspections and the classified management in terms of foreign exchange receipts and payments from trade in goods, classify the enterprises in accordance with their business compliance and make dynamic adjustments to the classification, screen out the very few unusual and suspicious economic entities, and focus the supervision thereon to change the institutional arrangements of the past, i.e., “feeding the medicine to all in the case of only one being sick”.

III. The reform of the foreign exchange administration system for trade in goods will be beneficial for foreign exchange held individuals.  However, will it weaken state control of hot money?

Answer: The reform of the foreign exchange administration system for trade in goods represents a major move by the SAFE to proactively adapt to developments and changes in the situation, to accelerate the transformation of the concepts and methods of foreign exchange administration, and to timely adjust the management methods. The reform, while providing facilitation for the market players such as enterprises and banks, further improves management and strengthens supervision of the risks of foreign exchange receipts and payments, by such means as improving the management methods, the efficiency of on-site verifications and dynamic classified management, and strengthening information sharing and regulatory cooperation among departments. This is mainly embodied in the following areas: First, the regulatory departments such as the foreign exchange authorities will have timely and comprehensive knowledge of the data on the flow of imported and exported goods and the flow of capital from receipts and payments of foreign exchange by enterprises. Second, the foreign exchange authorities will carry out fully covered monitoring to match the flows of goods and the flows of capital from the foreign trade of enterprises, will screen out through technical means those enterprises with suspicious and irregular activities, and will carry out on-site verifications. Third, the foreign exchange authorities will strengthen supervision of the enterprises with suspicious and irregular activities by examining the documents from receipts and payments, the business types, the modes of settlement and the handling procedures. Fourth, the foreign exchange authorities will carry out dynamic classified management of the enterprises, and may make adjustments to the classification of the enterprises based on their compliance.

IV. It has been reported that the reform of the foreign exchange administration system for trade in goods will significantly reduce the burdens on enterprises and will simplify examination of the daily business of banks. How will this be carried out?

Answer: This mainly involves the following: First, the enterprises’ foreign exchange collections from exports will not be required to be inspected online, the foreign exchange refunds for exports will not be required to undergo prior approval procedures on a case-by-case basis, and the documents required to be submitted to the banks for examination with respect to foreign exchange payments for imports will be significantly simplified; furthermore, the paper Export Verification Form for Foreign Exchange Collections will not be required in the application to the tax authorities for export rebates. Second, the verification and writing-off procedures will not be required to be handled by the foreign exchange authorities after the enterprises’ foreign exchange collections from exports. Third, real-time information interaction platforms will be established between the enterprises and the foreign exchange authorities, and most of the information submission and business reports of the enterprises will be handled online. Fourth, the verification system for the collection and payment of foreign exchange from trade and the online inspection system for foreign exchange collections and settlements from exports will be integrated into the Foreign Exchange Monitoring System for Trade in Goods, in order to facilitate bank business operations. Fifth, the number of administrative licensing items will be reduced from 6 to 2, i.e., list registration and registration administration of Category-C enterprises.

V. We note that the Announcement on the Pilot Reform of the Foreign Exchange Administration System for Trade in Goods provides that enterprises are classified into A, B, and Categories based on dynamic classified management. What are the issues involved?  What should the enterprises do in order to benefit from this policy?

Answer: After the pilot reform, the foreign exchange authorities will carry out classified management of the imports and exports of enterprises. According to past experience of foreign exchange supervision of trade in goods, most of the import and export enterprises operate according to the law. Therefore, the foreign exchange authorities will classify the enterprises with normal and lawful operations into Category A, which will enjoy the facilitation policies and measures. Meanwhile, the foreign exchange authorities, by comprehensively realizing the off-site monitoring and on-site verifications and investigations, will classify the enterprises with suspicious and irregular activities into Category B or C, and will focus their supervision thereon. In this way, the limited supervision resources of the foreign exchange authorities will be focused on a few management targets. Strict management of a few enterprises will serve as a deterrent to guide and encourage the enterprises to operate their businesses according to the law.

After the reform of the foreign exchange administration system for trade in goods, most enterprises operating according to the law will enjoy maximum facilitation when handling foreign exchange receipts and payments for trade in goods. As long as the enterprises have authentic and lawful trade bases for their foreign trade activities, can provide necessary evidentiary materials in accordance with the requirements of the relevant regulations, and report any trade which may result in a mismatch between the foreign exchange receipts and payments and the imports and exports in a timely manner, they will fully enjoy the benefits of the policy brought about by the reform.