Title: Deepen Reform and Opening-Up in the Foreign Exchange Field to Support the Chinese Path to Modernization

 

The year 2024 was a pivotal year for achieving the objectives and tasks outlined in the 14th Five-Year Plan. Confronted with a complex and severe situation characterized by intensified external pressures and increased internal difficulties, the Central Committee of the Communist Party of China (CPC) with Comrade Xi Jinping at its core united and led the whole Party and the Chinese people of all ethnic groups to respond calmly and take comprehensive measures. As a result, the overall economy remained stable with signs of improvement and encouraging achievements. The year 2024 was also a crucial year for further deepening reform. The Third Plenary Session of the 20th CPC Central Committee outlined a blueprint for advancing comprehensive reforms in the new era, marking an important milestone for both honoring past achievements and moving forward into the future.

 

Since the 18th CPC National Congress, China has comprehensively deepened reforms across its economic, political, cultural, social, and ecological civilization systems, and institutional reforms related to Party building as well. The foreign exchange administration authority has consistently planned and promoted the foreign exchange administration work within the broader context of the Party and the country's reform and opening-up policy. The reform and opening-up efforts have been continuously deepened in the foreign exchange field. Steady progress has been made in the high-standard opening-up of capital account. Reforms have been constantly deepened in cross-border trade , investment and financing facilitation. The foreign exchange administration system has been progressively perfected to align with the requirements for the modernization of China's system and capacity for governance. Comprehensively deepening of reform has laid a solid foundation for securing stability in the foreign exchange market, and China's foreign exchange market has demonstrated resilience against multiple external shocks, securing the stability and overall balance of international payments. The current account has always remained within a reasonable and balanced range, and cross-border investment and financing activities have been carried out in a stable and orderly manner. The scale of foreign exchange reserves has stabilized at more than US$3 trillion. The market-based RMB exchange rate formation mechanism has been constantly improved. By becoming increasingly flexible, the exchange rate has enhanced its role significantly as an automatic stabilizer for adjusting balance of payments.

 

Looking back on 2024, new steps were taken and new achievements were made in the reform and opening-up in the foreign exchange field. Firstly, more foreign exchange facilitation policies were introduced. Trade facilitation policies were optimized for high-quality enterprises, and efforts were made to boost the healthy development of new forms of trade. Pilot projects were promoted for the high-standard opening-up of cross-border trade and investment. More banks were encouraged to participate in foreign exchange business reforms, and more market entities benefited from the dividends of reform policies. Secondly, high-standard opening-up was promoted in the foreign exchange field. The securities and futures investment funds of qualified investors were better managed in the domestic market. The policies on the integrated capital pool for multinational corporations' domestic and foreign currencies were upgraded and expanded. The foreign exchange services were improved for overseas visitors to China, and the opening-up of key areas was supported based on local conditions. Thirdly, external shock risks were effectively prevented. This was achieved by strengthening macro-prudential management and expectation guidance, striving to enhance the effectiveness of foreign exchange regulation, intensifying the crackdown on illegal foreign exchange activities, including underground banking and cross-border gambling, and maintaining rational and orderly trading in the foreign exchange market. Fourthly, the management of foreign exchange reserves was refined to ensure the safety, liquidity, and preservation and appreciation of foreign exchange reserve assets.

 

Looking forward to 2025, with intensified headwinds against economic globalization, rising geopolitical risks, and increasing challenges in global governance, China will face with many difficulties and challenges in economic operation. It is also important to note that China's economy enjoys a stable footing, numerous advantages, strong resilience, and great potential, and will accumulate positive factors and favorable conditions in its operation. China's foreign exchange market will also become increasingly resilient, and the further diversification of foreign trade development will play a fundamental role in stabilizing cross-border capital flows. Market entities will become more mature, demonstrating increasing exchange rate risk-neutral awareness and risk management capability. Steady and solid progress will be made prudently in RMB internationalization. The exchange rate adjustment mechanism will be further improved to support the autonomous balance of international payments. On the whole, the stable operation of the foreign exchange market and the basic balance of international payments will remain the prevailing trend of developments in China.

 

In his important address at the Central Economic Work Conference, General Secretary Xi Jinping provided a profound analysis of the current economic landscape, summarized and refined the Party's understanding of the laws governing economic work, and outlined fundamental guidance and an action plan for economic work in 2025. The foreign exchange administration authority will thoroughly learn and implement the spirit of the Third Plenary Session of the 20th CPC Central Committee and the Central Economic Work Conference, steadfastly adhere to the path of financial development with Chinese characteristics in accordance with the deployment and requirements established at the National Financial System Work Conference, and anchor on the establishment and improvement of a “more convenient, more open, and more secure” foreign exchange administration system and mechanism. The SAFE shall implement more proactive and effective foreign exchange administration policies, and support the Chinese path to modernization through high-quality development of foreign exchange administration.

 

Adhering to the principle of serving the real economy, greater facilitation will be promoted in cross-border trade, investment and financing. Efforts will be intensified to improve the quality and expand the scope of bank foreign exchange business reform. Consisting of ex-ante due diligence, in-process differentiated review, and ex-post monitoring and reporting, the management framework will be improved comprehensively with business reform as the key focus and in accordance with the requirements of both "flexibility in deregulation" and "effectiveness in regulation". More banks will be incorporated into the policy scope, and a foreign exchange policy environment will be created for the purpose of "greater integrity leading to greater convenience". The foreign exchange facilitation policy system will be upgraded in an iterative and integrated manner, and the quality and efficiency of policies will be improved for the facilitation of foreign exchange receipts and payments in trade, and the capital pool for multinational corporations. New forms of trade will be supported for their healthy development, and more facilitation measures will be explored and introduced to stimulate the vitality of business entities.

 

Adhering to the guiding principle of high-standard opening-up, the capital account liberalization quality will be improved steadily. The foreign exchange administration reform related to foreign direct investment will be promoted in an orderly manner to attract and utilize more foreign investment. "Bringing in" and "going out" will be coordinated to support high-quality joint construction of the Belt and Road Initiative. Connectivity will be enhanced prudently for the financial markets, and policies will be continuously improved for qualified foreign investors to support the growth of patient capital. Foreign exchange administration policies will be innovated and optimized for pilot free trade zones, and pioneering and integrated exploration will be encouraged. The Shanghai International Financial Center will be supported to elevate its status. Hong Kong’s position as an international financial center will be consolidated and enhanced. High-level security will be followed as a cornerstone, and the bottom line will be kept to prevent systemic risks. The two-pronged management, i.e. "macro-prudential + micro-regulation", will be strengthened in the foreign exchange market. On the macro level, the monitoring, early warning, and response mechanism will be enhanced for cross-border capital flows, macro-prudential management and expectation guidance will be reinforced. On the micro level, foreign exchange regulation will be strengthened and improved, off-site supervision capacity building will be enhanced, and a severe crackdown on illegal foreign exchange activities will be conducted to maintain the healthy order of the foreign exchange market.

 

Heaven rewards hard work, and hard work always pays off. Under the strong leadership of the CPC Central Committee with Comrade Xi Jinping at its core, promising prospects will be realized for the Chinese path to modernization through reform and opening-up. Guided by Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, the foreign exchange administration authority will remain committed to the "inevitable path" of further comprehensively deepening reform, promote deep-level reform and high-standard opening-up in the foreign exchange field, contribute to the sustained recovery and improvement of the economy.

 

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