FX ADMINISTRATION POLICY ADJUSTMENT AFTER THE LIBERATION OF FOREIGN TRADE OPERATION

China's revised Foreign Trade Law was passed by the Standing Committee of the National People's Congress in April this year. The new law allows individuals and enterprises of any ownership to operate import-export businesses after registering with the administration. A great advance in facilitating foreign trade, this new law will diversify import-export participants, expand the size of import-export, and broaden channels for FX capital utilization. It will also constitute a challenge for China's existing FX administration policies.

The liberalization of import-export rights has advantages for FX administration. First, it will promote import-export, thus strengthening the capacity for foreign exchange earning. Second, it will help regulate abnormal agency for foreign trade. Third, it can improve digital and network-based management. However, granting of the rights will also exert negative pressures on foreign administration. First, the relative ease of foreign trade will pump up FX income and expense, thus breaking through the current pattern of FX administration and greatly affecting such systems as FX accounts, import-export verification, and FX sale and purchase. Second, the significantly lower launching costs in import-export will affect the effectiveness of FX administration, and chances might increase for illegal activities such as arbitrage, deceitful FX purchase, and money laundering, etc. Third, the soaring of small volume import and export will increase the costs of the existing managing mode, thus requiring modification in the mode and means of FX administration. There is a vacuum of supervision by the FX administration for foreign enterprises and non-resident individuals, the would-be operators of import-export according to the new law. And a striking situation exists where a non-resident account works for enterprises' settlement or residents' remittance.

Regarding the reform of allowing individuals to operate import-export, relevant departments have adjusted some policies, including those of upper-reach departments and of the FX administration. The policy tuning of the former is primarily devoted to two problems, how domestic individuals handle concrete procedures in various departments, and how non-resident individuals can be granted the right to operate foreign trade. The FX administration modified its policies to manage foreign trade-related FX of self-employed individuals, and it also put forth policy suggestions corresponding to the tendency to endow non-resident individuals with the right of foreign trade.

In the future, China needs to deepen its FX administration reform. To start with, the State Administration of Foreign Exchange should transform its function and reform its mode and means of FX management, shifting its supervision focus to compliance examination of the business of designated FX banks. Furthermore, management should be gradually relaxed on foreign trade-related capital accounts of private enterprises and individuals, and the right of trade financing and investment abroad should be granted to individuals at an appropriate time. Management should be strengthened on non-residents' capital flow and FX purchase and sale. Non-residents' FX purchase and sale for foreign trade could be forbidden on the pretext of their lack of right of distribution. Instead, non-residents can be required to make foreign trade related settlement by means of offshore accounts. Different departments should cooperate with each other in information and supervision. Laws and regulations should be revised and modified to improve legal measures for strong management of individuals' operating import-export; for instance, the law against money laundering should be set up as quickly as possible. Exchange rate flexibility should be enhanced by promoting forward FX purchase and sale as well as other FX derivative transactions. Direct supervision costs can be lowered via economic approaches. The systems should be further integrated to perfect electronic measures. And a step-by-step project should be carried out for the active and steady development of an account management information system combining individuals' special accounts for foreign trade settlement.