STRENGTHEN ADMINISTRATION OF INDIVIDUAL FOREX
The administration of individual forex has experienced continuous reform and improvement with the deepening of China's reforms and opening up. It has three characteristics. Firstly, the principle and objective of the administration basically comply with the reality in China, but is still far from being perfect. Some reasonable individual forex demands cannot be satisfied, while some illegal income and expenses flow via individual channels. As a result, the goal of preventing the illegal and facilitating the legal has not been fully realized. Secondly, policies, laws and regulations are still under constant adjustment and are not yet systematic. The current 20 laws and regulations and notices are in different forms and offer incomplete coverage. Thirdly, the management modes and instruments, though being improved continuously, are still behind the requirements. In 2002, a series of administration systems were put forth successively, such as the private forex purchase system and the wholesale reporting-and-filing system, indicating the initial upgrade of management instruments. However, the management modes and instruments in many other respects do not coordinate with them.
Problems
In the first place, the policy approach to private forex deviates from its objective. According to the requirements of convertibility on the current account, the reasonable individual forex income and expenses under the current account should be guaranteed, while the illegal capital flow via individual channels should be banned. Nevertheless, the management of income is excessively free, and the forex inflow under the name of individual is nearly "all accepted". On the other hand, it is relatively rigorous on expenses, resulting in some reasonable demands being unable to be satisfied. Secondly, the principle of foreign currency cash management is inconsistent with reality. By its nature and status, foreign currency cash cannot circulate in China, and the drawing of it in China is an unreasonable demand unless residents need to use forex abroad or to transfer funds among their domestic forex accounts of the same nature (including forex cash accounts). However, the current administration of foreign currency cash deposit and withdrawal is the same as that of RMB. Thirdly, the phenomenon of some enterprises taking advantage of personal savings accounts to perform unqualified trading activities or settlements should be prevented. Fourthly, there exists an obvious distinction between the forex administration policies for residents and non-residents. Compared to the forex administration for residents, the administration for non-residents is almost a virgin land with only a few provisions on wholesale drawing and forex bearing. Enjoying super national treatment, non-residents stand in sharp contrast with residents. Lastly, individual forex investment and financing channels have been broadened, but the administration of them still has a long way to go. The B share market has been opened to residents, and individual forex transactions have been developed quickly. Nevertheless, due to the lack of sound laws and regulations, the forex supervision and administration still does not operate as required.
Suggestions
The legal system of administration of individual forex should be improved. The administration of individual forex applicable to both residents and non-residents should be formulated to provide a secure basis for the effective supervision of the State Administration of Foreign Exchange (SAFE) and for banks' legal operation. Foreign exchange cash management should be reformed and strengthened. A credible proof should be provided for a wholesale withdrawal or deposit in China. The supervision over personal forex accounts should be reinforced. The reporting-and-filing system of wholesale forex income and expense should be improved to realize the organic combination of reporting and recording in designated forex banks with the inspection by the SAFE. The scope of individual forex investment and financing should be expanded within the permit of regulations. The administration of individual forex investment and financing should be regulated and improved. The laws and regulations on B share trading and individual forex trading should be perfected for their further development. Responsibilities should be clarified and cooperation be enhanced. The relevant laws and regulations should provide a clear description of the responsibilities of various authorities such as the administration of forex, public security, maritime customs, border inspection and the administration of individual forex, thus ensuring that each authority assumes its own responsibility. The cooperation between the authorities should be strengthened to establish an information communication system and a joint execution system.
(by Lu Feng, Vice President, PBOC Qingdao Br.)