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Q: Recently there have been comments by scholars that since 2003 China has suffered a huge loss of USD271.1 billion in its foreign exchange reserves, due to the appreciation of the RMB against the US dollar. What is your comment on this? A: First, the appreciation of the RMB will not bring about losses in Chinas foreign exchange reserves. Foreign exchange reserves essentially are assets in foreign exchange, which use the USD as the recording currency. Variations in the RMB/USD exchange rate will result in changes in the book value of RMB converted from the foreign exchange reserves, which are not the actually realized gains or losses. The variation only means some differences in the book value of the reporting currency, be it RMB or USD, and does not have a direct impact on the effective purchasing power of the foreign exchange reserves. The changes in the exchange of currency will only occur when foreign exchange reserves are repatriated from overseas countries (regions) and converted into RMB. Presently, China has no need to repatriate and settle its foreign exchange reserves on a large scale. In addition, equivalent incomes in RMB were attained by banks, enterprises, and individuals when foreign currencies were sold; the appreciated RMB generated considerable benefits in lowering the costs of imports, increasing incomes from investment, and so forth. That is to say, the benefits have been retained within the country. Second, the book loss of foreign exchange reserves caused by the RMB appreciation is far less than the book surplus of Chinas financial assets. The book loss and surplus generated from the reporting currency are like two sides of a coin (in economics called duality). In contrast to book losses of RMB converted from foreign exchange reserves which are denominated in USD, if converted to USD China enjoys a book surplus of RMB financial assets held by citizens. As of the end of March 2011, Chinas balance of foreign exchange reserves reached USD3.04 trillion. Converted at the end-March 2011 exchange rate, the total scale of RMB financial assets, such as RMB deposits of enterprises and individuals, stocks, treasury bonds, and insurance assets during the corresponding period was more than five times that of Chinas foreign exchange reserve assets. This means that when the RMB appreciates, the book gains of RMB assets is over 5 times the book losses of the foreign exchange reserve assets. Furthermore, the book gains of RMB assets will become more substantial when property assets and other kinds of financial assets held by residents in forms of stocks, bonds, and so on are taken into account. Likewise, in essence the above losses or gains are variations in book values. That means the variations will not be realized as gains or losses if the currency is not exchanges. Third, the effective purchasing power of foreign exchange reserves depends on the yield of foreign exchange reserves and the inflation rate of the countries where the investments are made. China has maintained stable gains from its foreign exchange reserves operations over the years; the yields of operations far exceed the inflation rate of the countries (regions) where investments have been made, such as the U.S., Europe, or Japan, thereby ensuring the effective purchasing power of the foreign exchange reserves. During the 2000-2010 period, the consumer price index (CPI) in the U.S., Europe, and Japan increased at an annual rate of 2.4 percent, 2.1 percent, and -0.2 percent respectively. In the meantime, China has seen a far higher average annual operating yield from its foreign exchange reserves. 2011-05-06/en/2011/0506/995.html
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In order to facilitate individualshandling of foreign exchange settlement and sales and to promote banks business innovation, at the beginning of 2010 the State Administration of Foreign Exchange (hereinafter referred to as the SAFE) gave a green light successively to the Bank of China, China Merchants Bank, and the Industrial and Commercial Bank of China for pilot operations of foreign exchange settlement and sales for individuals through e-bank channels. Domestic individuals are allowed to handle foreign exchange settlement and sales on a self-service basis through the e-channels provided by the pilot banks. In view of the fact that the pilot operation has received widespread praise from the public, the SAFE recently promulgated the Interim Measures for the Administration of E-bank-based Foreign Exchange Settlement and Sales for Individuals (hereinafter referred to as the Interim Measures), which will come into force as of April 1, 2011. The Interim Measures mainly comprise four areas: (1) After being accepted by the SAFE, banks are allowed to connect their e-banking systems to the information system for the administration of foreign exchange settlement and sales for individuals, to handle e-banking-based foreign exchange settlement and sales for individuals, and to implement the national uniform regulations on the annual aggregate administration of foreign exchange settlement and sales for individuals; (2) Individuals both at home and abroad are allowed to use their own accounts to handle the purchase and settlement of foreign exchange within the annual aggregate and under the current account (exclusive of trade) via multiple e-banking channels such as online banking, self-service terminals, phone banking, and mobile banking; (3) Banks and individuals shall comply with the foreign exchange administration regulations for the handling of e-banking-based foreign exchange settlement and sales for individuals, and shall ensure that the data entered into the information system for the administration of foreign exchange settlement and sales for individuals are authentic, complete, and accurate; (4) The SAFE and the banks will keep a close eye on the e-banking-based foreign exchange settlement and sales for individuals, screen and identify illegal transactions and transactions in violation of the regulations, and place those individuals becoming involved in activities in violation of the regulations, such as splitting large sums of money into smaller parts, on a watch-list for intensified administration. The individuals on the watch-list shall be prohibited from foreign exchange purchases and settlement via e-banking for a certain period of time. By keeping up with the trend of e-banking development, the promulgation of the Interim Measures will further facilitate individuals handling of foreign exchange settlement and sales, lessen the burden on bank counters, and reduce the operational costs for banks. Placing individuals involved in activities in violation of the regulations on the watch-list and intensifying administration of those on the watch-list will be conducive to checking individualssettlement and sales of foreign exchange by splitting large sums of money into smaller parts and to preventing inflows and outflows of abnormal foreign exchange funds through e-banking channels. 2011-03-15/en/2011/0315/987.html
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The SAFE recently released the revised data on China's Balance of Payments Statement for the year 2010, as well as the revised data for each quarter of 2010 according to the latest situation, and the annual data from 2005 to 2009. The current account and the capital and financial account continued to post a "twin surplus" in 2010, and international reserves maintained a growing momentum. The surplus under the current account totaled USD305.4 billion, a rise of 17 percent compared with that in the previous year. Specifically, according to the statistical coverage of the balance of payments, the surpluses in goods, income, and current transfers reached USD254.2 billion, USD30.4 billion, and USD42.9 billion, respectively, whereas the deficit in trade in services amounted to USD22.1 billion. Meanwhile, China's surplus under the capital and financial account totaled USD226 billion, an increase of 25 percent. In particular, net inflows of direct investments, portfolio investments, and other investments amounted to USD124.9 billion, USD24 billion, and USD72.4 billion respectively. International reserves assets posted an increase of USD471.7 billion, a rise of 18 percent. Specifically, transactions in foreign exchange reserves assets registered an increase of USD469.6 billion (exclusive of the influence of changes in value due to non-transaction factors such as exchange rates and prices) and the reserve position in the IMF and special drawing rights registered a total increase of USD2.2 billion. In Q4 of 2010, the surplus under the current account was USD102.1 billion, a rise of 7 percent year on year; the surplus under the capital and financial account totaled USD118.9 billion, an increase of 88 percent; and international reserves assets posted an increase of USD185.7 billion, an increase of 49 percent. In addition, the BOP Analysis Team of the SAFE released the China's Balance of Payments Report for 2010 in order to facilitate understanding among all groups sin society about the data and analysis of China's balance of payments. 2011-04-01/en/2011/0401/989.html
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On April 1, 2011, RMB-against-foreign exchange trading was officially introduced into Chinas inter-bank foreign exchange market. On the first day of trading, the system operated smoothly in parallel with brisk quotations and enquiries by banks. The quotation covered all 13 standard terms. A total of 10 RMB-against-USD options trading were concluded on the first day, with trading terms ranging from 1 to 6 months. The nominal principal amounted to a total of USD49 million. Since Chinas reform of the mechanism for setting up RMB exchange rates in July 2005, the foreign exchange market has witnessed accelerated development and increased varieties of trading products. A broad array of RMB-against-foreign exchange derivatives, such as forward exchange transactions, foreign exchange swaps, and currency swaps, were successively introduced into the market where banks provide services to their clients and the inter-bank foreign exchange market. The introduction of RMB-against-foreign exchange options trading signals the initial formation of a complete system for the trading of fundamental exchange rate derivatives on the foreign exchange market, which will provide a solid foundation for innovation-oriented development of the foreign exchange market in the future. The SAFE will continue to promote the progressive development of the foreign exchange market by taking into account circumstances in market operations and market conditions and by complying with the principle of maintaining the initiative, controllability, and progression of development. 2011-04-06/en/2011/0406/990.html
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A meeting was recently held by the SAFE to review the investment quotas for qualified institutional investors. Total quotas of USD400 million were allocated to four qualified foreign institutional investors (QFIIs), including Aviva Investors Global Services Ltd., Bank Julius Baer & Co. Ltd., Schroder Investment Management Ltd., and PineBridge Investments LLC, and total quotas of USD1.585 billion were granted to three qualified domestic institutional investors (QDIIs), including Guosen Securities Co., Ltd., American International Assurance Company, Ltd., and Lion Fund Management Co., Ltd. As of April 29, 2011, the SAFE had approved investment quotas of USD20.690 billion to 103 QFIIs and investment quotas of USD72.646 billion to 92 QDIIs. Specifically, during the period from January to April 2011, investment quotas of USD970 million were allocated to 13 QFIIs, and quotas of USD2.985 billion were allocated to 8 QDIIs. Based on the changes and development in Chinas balance of payments, the SAFE will continue to examine and approve investment quotas for qualified institutional investors in a prudent and orderly manner. 2011-04-29/en/2011/0429/993.html
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According to the statistical data released by the State Administration of Foreign Exchange (SAFE), in February 2011 the amount of foreign exchange settlement and sales by banks on behalf of clients amounted to USD90 billion and USD65.1 billion respectively. The surplus of foreign exchange settlement and sales by banks on behalf of clients amounted to USD24.9 billion. For the first two months of 2011, the cumulative amount of foreign exchange settlement and sales by banks on behalf of clients amounted to USD240.3 billion and USD147 billion respectively. The surplus of foreign exchange settlement and sales was USD93.3 billion. In February 2011, foreign-related receipts and payments of domestic banks on behalf of clients amounted to USD129.9 billion and USD120.6 billion respectively; and the surplus of foreign-related receipts and payments reached USD9.3 billion. For the first two months of 2011, the cumulative foreign-related receipts and payments of banks on behalf of clients amounted to USD316.6 billion and USD271.3 billion respectively; and the surplus of the cumulative foreign-related receipts and payments reached USD45.3 billion. 2011-04-13/en/2011/0413/991.html
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According to statistical data released by the State Administration of Foreign Exchange (SAFE), in March 2011 the amount of foreign exchange settlement and sales by banks on behalf of clients amounted to USD135.4 billion and USD94.5 billion respectively. The surplus of foreign exchange settlement and sales by banks on behalf of clients amounted to USD40.9 billion. For the first three months of 2011, the cumulative amount of foreign exchange settlement and foreign exchange sales by banks on behalf of clients amounted to USD375.7 billion and USD241.5 billion respectively. The surplus of foreign exchange settlement and sales was USD134.2 billion. During March 2011 foreign-related receipts and payments by domestic banks on behalf of clients amounted to USD188.4 billion and USD157.7 billion respectively, and the surplus of foreign-related receipts and payments reached USD30.7 billion. For the first three months of 2011, the cumulative foreign-related receipts and payments by banks on behalf of clients amounted to USD505 billion and USD429 billion respectively; and the surplus of the cumulative foreign-related receipts and payments reached USD76 billion. 2011-05-03/en/2011/0503/994.html
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Q: The international credit rating agency Standard & Poors yesterday warned that it will revise downward its outlook on the U.S. sovereign credit rating. Since China is a big holder of U.S. Treasury bonds, is there any concern about the safety of its investments? A: We have noticed that the S&P has revised its outlook on the U.S. sovereign credit rating from stable to negative. As a major target of institutional investors in the U.S and throughout the world, Treasury bonds reflect the credibility of the U.S. government. We hope that the U.S government will take responsible measures to guarantee the interests of its investors. 2011-04-20/en/2011/0420/992.html
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Special Topic IV I. China has made active progress in terms of strengthening and improving supervision of cross-border capital flows In recent years, the foreign exchange authorities has been adhering to the risk limits and have continuously strengthened and improved supervision of cross-border capital flows. While adhering to balanced management, the foreign exchange authorities focused on guarding against hot money inflows, made it a priority to slow down the rapid increase in the surplus of foreign exchange settlement and sales by banks and foreign exchange reserves, combined thinning and blocking measures, focused on priorities, simultaneously took numerous measures, and carried out comprehensive policies in order to guard against the impact of cross-border capital flows. This mainly included the following: First, studying, formulating, and timely applying the pre-arranged policies to cope with large-scale cross-border capital inflows. In 2008, the Regulations on Foreign Exchange Administration were revised and implemented, providing legal basis for strengthening supervision of cross-border capital flows. In 2009 and 2010, the pre-arranged policies for coping with unusual outflows and inflows of cross-border capital respectively were formulated. In November 2010 and March 2011, the foreign exchange authorities applied the pre-arranged policies for coping with unusual inflows of cross-border capital, strengthened administration of the foreign exchange business of the banks’ foreign exchange settlement and sales positions, foreign exchange collections and settlement for export, and short-term external debt, and in 2011 further adjusted downward the total scale of the short-term external debt quotas of domestic financial institutions. Second, giving play to foreign exchange inspection methods to rigorously crack down on the arbitrage capital such as hot money. In recent years, the foreign exchange authorities have improved foreign exchange inspection methods and the accuracy and effectiveness of cracking down on hot money. In accordance with the idea of seizing the big and freeing the small, the special inspections on foreign exchange settlement of capital and short-term external debt carried out by the foreign exchange authorities focused on financial institutions and large enterprises. The foreign exchange authorities increased their efforts to circulate information on the irregular activities of market players and as well as information on punishments for irregular activities by some banks, enterprises, and individuals. From 2007 to 2011, the foreign exchange authorities investigated a total of 15,000 cases involved in activities in violation of the foreign exchange laws and regulations and imposed a total of RMB 1.27 billion in administrative fines. In particular, the foreign exchange authorities cooperated with the public security bodies to crack down on a total of 210 cases involving illegal banks, the illegal sale and purchase of foreign exchange, and on-line foreign exchange speculation. Involving an amount in excess of RMB 100 billion, more than 1,000 suspects were apprehended and a total of RMB 160 million in administrative fines was imposed. Third, adhering to the combining of thinning and blocking measures to guide the orderly flow of cross-border capital. While guarding against the inflow of hot money, the foreign exchange authorities continuously simplified and finally cancelled the compulsory foreign exchange settlement and sales system and encouraged foreign exchange purchases and payments with authentic demands for trade and investment. In 2010, the reform of the verification and writing-off system of foreign exchange payments for imports was carried out, making it unnecessary for most of the complying enterprises to handle on-site verification and writing-off procedures for their normal business of foreign exchange payments for imports, significantly reducing the operating costs for the banks and enterprises; a pilot program for overseas deposits of export revenue was launched to encourage enterprises to deposit export revenue overseas and to meet the normal demands of market players to hold and utilize foreign exchange. In 2011, the policy on overseas deposits of export revenue was generalized nationwide, and a pilot reform of the verification and writing-off system for imports and exports was launched. The foreign exchange authorities supported the “Going Out” strategy, lifted limits on the amount of foreign exchange purchased for overseas investments, and allowed outward remittances for early stage expenses for overseas investments. Fourth, improving the capability to analyze and supervise cross-border capital flows in domestic and foreign currency. The foreign exchange authorities strengthened statistics, monitoring, and early warning on the balance of payments, carried out statistics and monitoring of cross-border capital flows in domestic and foreign currency, established a comprehensive statistical system for the banks’ trade financing, and established and improved the monitoring and early warning system for the balance of payments. The foreign exchange authorities improved transparency by providing a comprehensive overview of the cross-border capital flow situation, circulated information on punishments for irregular activities in the handling of foreign exchange business by some banks, enterprises, and individuals, further deterred activities in violation of the laws and regulations, and correctly guided expectations. The foreign exchange authorities gave play to cross-departmental synergies, strengthened information sharing and policy coordination, and created a synergy to suppress the inflow of hot money. In general, the adjustment of the foreign exchange administration policy focusing on reducing the surplus played an active role in guarding against the impact of cross-border capital flows and safeguarding the economic and financial security of the country. From the second half of 2011, in particular the fourth quarter, the foreign exchange situation in China exhibited a noteworthy change, and the RMB exchange rate approached an equilibrium level. Due to early insight, the foreign exchange authorities required the banks to increase foreign exchange positions in advance, which not only relieved the pressures on the central bank to purchase foreign exchange for that period and reduced the currency mismatch risks for banks, but also made the process go smoothly such since the fourth quarter of 2011 the banks have proactively increased their positions and have avoided any significant market fluctuations that might have occurred. II. The new situation and the new stage raised the requirements for supervision of cross-border capital flows in domestic and foreign currency In accordance with increasing the level of opening to the outside and facilitating trade and investment, the pilot cross-border RMB trade settlement has continuously expanded and we have already reached a high level of economic opening. Comprehensively affected by such factors as changes in the economic situation both at home and abroad, the transformation of the pattern of economic development in China, and the fact that macro-control policies are gradually in place, China’s cross-border capital flows in domestic and foreign currency displayed new characteristics, raising the requirements for cross-border capital management during the next stage. (1) The balance of payments approaching a basic equilibrium means that balanced management of cross-border capital flows needs to be strengthened. The proportion of the current account surplus to GDP is an important indicator measuring external imbalances. Since the international financial crisis, the situation of China ’s current account surplus has been improving. According to preliminary estimates, in 2011 the proportion of the current account surplus to GDP will be further reduced to around 3 percent, a decrease of 7 percent since its historic high in 2007. The rapid momentum in the increase of China’s foreign exchange reserves has slowed down. At the end of 2011, China ’s foreign exchange reserves totaled about USD 3.2 trillion, an increase of USD 330 billion compared with the end of the previous year, with the increment decreasing by USD 110 billion compared with the same period of the last year. In general, the balance of payments approaching a basic equilibrium is a type of active change that is consistent with the macro-control direction. However, facing the present complicated and volatile economic and financial environments both at home and abroad, there are still uncertainties in the cross-border capital flow situation. This will require that the foreign exchange authorities accelerate the transformation of the concepts and methods of supervising cross-border capital flows in accordance with the requirements for balanced management, control the two gates for inflows and outflows of cross-border capital, comprehensively apply the economic, legal, and necessary administrative means to continuously improve supervision of cross-border capital flows, guard against massive cross-border capital flows, and safeguard the economic and financial security of China. (2) The increase in the level of financial opening-up in China means that the transformation of the supervisory mode for cross-border capital flows needs to be accelerated. Currently, China is a major economy with a high level of opening-up. In 2009, affected by the spread of the international financial crisis, the total scale of the balance of payments dropped to USD 4 trillion, and the scale of such major trade items as trade in goods and direct investments dropped. In 2010, China ’s foreign economic activities recovered to the same level as that before the financial crisis, the total scale of the balance of payments of the year reached USD 5.6 trillion, again a record high. As China ’s foreign economic exchange expands and foreign-related trade and investment become increasingly active, various economic entities will raise their requirements for relaxing the restrictions on cross-border capital flows, making full use of domestic and international markets and resources. In order to adapt to the development of the new situation, while facilitating trade and investment and steadily promoting convertibility under the capital account, the foreign exchange authorities need to accelerate the transformation of the foreign exchange administration mode by integrating the data and system resources and strengthening the monitoring of cross-border capital flows on the basis of the individual economic entities, to formulate pre-arranged policies for coping with the risks of bidirectional flows of cross-border capital; by utilizing the tools for pre-adjustments and fine adjustments, to reduce the pressures of massive cross-border capital flows; while not leaving any supervisory blind spots, to carry out classified management and to improve the effectiveness of the supervision of cross-border capital flows. (3) The expanding scale of RMB cross-border capital flows means that the capability to carry out fully covered monitoring and analysis of the cross-border capital flows in domestic and foreign currency needs to be further improved. In recent years, the confidence of the international market and the demands for RMB have been increasing, resulting in the scale of cross-border RMB capital flows promptly expanding. In 2011, the amount of RMB cross-border settlements exceeded RMB 2 trillion, a fourfold increase compared with the same period of the last year, and the proportion of RMB cross-border trade in cross-border capital flows increased notably. In light of this new situation, the foreign exchange authorities need to keep in mind the long-term interests, improve the system and mechanism for the supervision of cross-border capital flows in domestic and foreign currency, strengthen the monitoring, analysis, and early warning of cross-border RMB capital flows, strengthen information communication and supervisory cooperation between the regulatory departments, and create a new synergy. III. The main ideas of the supervisory framework for cross-border capital flows in domestic and foreign currency during the next stage The establishment and improvement of the supervisory framework for cross-border capital flows in domestic and foreign currency is a long-term process. For the next period, the foreign exchange authorities should focus on grasping well the following important aspects: First, strengthening analysis of the situation and improving the capability for scientific judgments. The foreign exchange authorities should keep a sharp eye on and closely follow changes in the situation in cross-border capital flows of domestic and foreign currency, place high priority on certain emerging and tendentious problems, deeply study the channels and transmission mechanisms that affect cross-border receipts and payments, search for the core indicators that are highly related to the trends in the cross-border capital flows and establish good predictability and make the judgments on cross-border capital flows more scientific and more accurate. Second, strengthening policy reserves and formulating well pre-arranged policies for coping with the risks of bidirectional flows of cross-border capital. The foreign exchange authorities should adhere to balanced management of cross-border capital flows, improve and enrich the pre-arranged policies that guard against massive net inflows of cross-border capital, do a good job in terms of implementing reserves that guard against central outflows of cross-border capital, and make supervisory policies relevant and forward-looking. Third, adhering to balanced management and focusing on guarding against unusual cross-border capital flows. The foreign exchange authorities should implement the concept of balanced management on the basis of promoting the facilitation of trade and investment, actively explore new ideas, new tools, and new mechanisms for supervising cross-border capital flows, comprehensively apply the economic means, legal means, and necessary administrative means, and limit the space for speculation and arbitrage. Furthermore, the foreign exchange authorities should begin by straightening out the relations between foreign exchange supply and demand, accelerate the cultivation and development of the foreign exchange market, improve the market-making mechanism of market-makers, enhance the capability of the foreign exchange market in terms of self-regulation and self-balancing, and give full play to the fundamental role of market mechanisms for the reasonable allocation of foreign exchange resources. Fourth, optimizing the system and mechanisms, and improving the capability to cope with the impact of cross-border capital flows. The foreign exchange authorities should place high priority on the development of the system and mechanisms for supervision of the cross-border capital flows in domestic and foreign currency, and should strengthen supervisory cooperation. The foreign exchange authorities should establish a transmission mechanism for enterprises, banks, and individuals to improve policy effectiveness. The foreign exchange authorities should strengthen guidance of financial institutions, pay attention to giving full play to the role of the designated foreign exchange banks in the conduct of policy, and improve the capability to control the foreign exchange receipts and payments of economic entities. The foreign exchange authorities should make good use of the inspection methods, maintain tough measures against illegal and irregular funds, such as hot money, rigorously crack down on illegal and criminal activities in regulatory areas, such as underground banks, increase efforts to disclose information on illegal and irregular activities, and improve the deterrent effect against illegal and irregular cross-border capital flows. 2012-03-26/en/2012/0326/1040.html
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According to statistical data released by the State Administration of Foreign Exchange (SAFE), in February 2012 the amount of foreign exchange settlement and sales by banks on behalf of clients amounted to USD114 billion and USD109.6 billion respectively. The surplus of foreign exchange settlement and sales amounted to USD4.4 billion. During the same period, the total amount involved in contracts for forward settlement of foreign exchange with banks on behalf of clients was USD16.5 billion, the total amount involved in contracts for forward sales of foreign exchange was USD10.7 billion, and the net forward exchange settlement was USD5.8 billion. For the first two months of 2012, the cumulative amount of foreign exchange settlement and sales by banks on behalf of clients amounted to USD237.6 billion and USD213.8 billion respectively. The surplus of foreign exchange settlement and sales was USD23.8 billion. During the same period, the cumulative amount in contracts for forward settlement of foreign exchange by banks on behalf of clients was USD27.6 billion, the cumulative amount in contracts for forward sales of foreign exchange was USD18.4 billion, and the cumulative net forward settlement of foreign exchange by banks on behalf of clients was USD9.2 billion. In February 2012, foreign-related receipts and payments of domestic banks on behalf of clients amounted to USD193.3 billion and USD179.6 billion respectively; and the surplus of foreign-related receipts and payments reached USD13.7 billion. For the first two months of 2012, the cumulative foreign-related receipts and payments of banks on behalf of clients amounted to USD376.5 billion and USD336.2 billion respectively, and the surplus of the cumulative foreign-related receipts and payments reached USD40.3 billion. Annex: Glossary and relevant definitions Balance of Payments refers to all economic transactions occurring between residents and non-residents in China , including all financial transactions and barter transactions resulting in changes in the assets and liabilities of residents and non-residents. Foreign Exchange Settlement and Sales by Banks refer to settlement and sales conducted by designated foreign exchange banks for their clients or for themselves, excluding data on inter-bank foreign exchange market transactions. Foreign exchange settlement and sales by banks on behalf of clients (including foreign exchange settlement and sales by the banks themselves) refer to those conducted by designated foreign exchange banks for their clients. The time of conversion between the RMB and the foreign currency is regarded as the time-point for the statistics on the foreign exchange settlement and sales by banks. Specifically, foreign exchange settlement refers to the sale of foreign exchange to designated foreign exchange banks by owners of foreign exchange; foreign exchange sales refer to the sale of foreign exchange by designated foreign exchange banks to users of foreign exchange. The difference between the foreign exchange settlement and sales is regarded as an offset balance. Such differences, which will be offset by the banks through transactions on the inter-bank foreign exchange market, function as a major force resulting in changes in the country’s foreign exchange reserves. However it is not equivalent to the net change in the foreign exchange reserves during the same period. The principle for transactions between residents and non-residents does not apply to the preparation of statistics on foreign exchange settlement and sales by banks on behalf of clients; such statistics only cover RMB and foreign currency transactions between banks and their clients, namely, exchange transactions between RMB and foreign currencies, which fall outside the category of the balance-of-payments statistics. Contracts for Forward Settlement and Sale of Foreign Exchange refer to contracts for forward settlement (sales) of foreign exchange executed between banks and their clients through consultation, in which the foreign currency, amount, exchange rate, and term for the forward settlement (sales) of foreign exchange are agreed upon; where the foreign exchange is due to be received (paid), the foreign exchange settlement (sales) is to be handled on the basis of the foreign currency, amount, and exchange rate specified in such contracts. The forward foreign exchange settlement and sales business enables enterprises to lock in the exchange rate in advance for future foreign exchange settlement or sales and to effectively avoid the risk of changes in the RMB exchange rate. In general, the banks will hedge the risk exposure arising from the forward foreign exchange settlement and sales business on the inter-bank foreign exchange market. For example, where the total amount involved in the contracts for forward settlement of foreign exchange executed by banks is more than that of the contracts for forward sales of foreign exchange, the banks will generally sell an equivalent amount of foreign exchange in advance on the inter-bank foreign exchange market, and vice versa. Therefore, the forward settlement and sales of foreign exchange business is also a factor that affects changes in China ’s foreign exchange reserves. Foreign-related Receipts and Payments by Banks on Behalf of Clients refer to receipts and payment occurring between domestic non-bank resident institutions/individuals (collectively referred to as the “non-bank sector”) and non-resident institutions/individuals through domestic banks, exclusive of receipts and payments in cash and foreign-related receipts and payments by the banks themselves. In particular, they include cross-border receipts and payments between non-bank sectors and non-residents through domestic banks (including RMB and foreign exchange), and domestic receipts and payments between non-bank sectors and non-residents through domestic banks (temporarily excluding receipts and payments in RMB between domestic individual residents and domestic non-resident individuals). Statistics are collected at the time the clients conduct the foreign-related receipts and payments at the domestic banks. Specifically, foreign-related receipts of banks on behalf of clients refer to funds collected by non-bank sectors from non-residents via domestic banks; external payments by banks on behalf of clients refer to funds paid by non-bank sectors to non-residents through domestic banks. Although the foreign-related receipts and payments of banks on behalf of clients are an integral part of the balance-of-payments statistics, the accounting method for the statistics, unlike the accrual basis of accounting required by the balance of payments statistics, is based on a cash basis. In addition, they merely reflect fund flows between non-bank sectors and non-residents, and do not include barter transactions and foreign transactions conducted by the banks themselves. The scope of the statistics on the foreign-related receipts and payments of banks on behalf of clients is smaller than the scope of the balance-of-payments statistics. 2012-05-15/en/2012/0515/1045.html