Chapter 5.2: Foreign Exchange Administration Systems in China

Xin Liu, Director of Investment Division, State Administration of Foreign Exchange (SAFE)

Overview

China has maintained a healthy condition in terms of foreign exchange payments and balance of payments in recent years . All the statistical ratios show that its external debts are in a safe condition. 2001 saw China achieving a surplus in foreign exchange payments on both capital and current accounts for the first time. China maintains a healthy condition in the foreign exchange payment and the balance of payment and all the ratios of the external debt are in a safe condition. Foreign exchange reserves increased by US$46.6 billion in 2001, the highest in history, and the figure surged to US$227.6 billion at the end of March 2002. The foreign exchange rate of renminbi (RMB) remains stable.

All these achievements are owed to reform in the Chinese Foreign Exchange Administration accompanying the reform and opening up process in the country over more than a decade . The following changes are featured in the reforms, especially the two major reforms of 1994 and 1996:

• From centralized control and unified receipts and payments of foreign exchange before 1979 and from dual exchange rates and foreign exchange retention in the early stage of reform to single exchange rate and RMB convertibility on current account;

• From planned distribution of foreign exchange sources in combination with market demand to distribution based mainly on market demand;

• The current nationwide unified inter-bank trading market has developed from a non-existent foreign exchange market and separated swap centres .

China's present foreign exchange administration system may be summarized as RMB current accounts made convertible at a single, managed floating rate based on market demand and supply, while control is still exercised over most items on capital account.