State Administration of Foreign Exchange
Encyclopedia
The State Administration of Foreign Exchange of the People's Republic of China
is an administrative agency tasked with drafting rules and regulations governing foreign exchange market
activities, and managing the state foreign exchange reserves
, which at the end of July 2011 stood at $3.2 trillion for the People's Bank of China
. The current director is Yi Gang
.
SAFE created and controlled the Central Huijin Investment Company, but in September 2007, it ceded control to the newly formed sovereign wealth fund
, China Investment Corporation
.
With the burgeoning of China's reserves and amidst increasing rivalry between state agencies, there are signs of growing independence of and competition between the subsidiaries.
. Deng Xianhong, Fang Shangpu, Wang Xiaoyi, Li Chao
are Deputy Administrators.
Institutions affiliated with the SAFE
s and 10 per cent in other currencies, according to economist Brad Setser
. Most of China's currency reserves are invested in high grade U.S.-dollar-denominated debt, such as U.S. Treasuries
, though as early as 2007 it was estimated that SAFE held $100 billion worth of U.S. mortgage-backed securities, hoping to achieve higher returns than those on U.S. Treasuries.
"The Hong Kong subsidiary is notably taking more risk in managing reserves," according to an informed source. The Financial Times reported on 4 January 2008 that the Hong Kong branch had bought stakes of less than 1 percent in both Commonwealth Bank of Australia and Australia and New Zealand Banking Group, respectively Australia's second and third-biggest lender by assets, over the preceding two months. The ANZ purchase has been confirmed by the bank. SAFE also invested in BP
and Total
in April 2008.
, Royal Dutch Shell
, BP
, Barclays, Tesco
and RBS
.
Brad Setser
, speaking in March 2009 said losses as a result of this diversification at the peak of the market "would exceed US$80bn."
Brad Setser
said:"SAFE has built up one of the largest US equity portfolios of any foreign government entity investing abroad, including the major sovereign wealth funds....It appears SAFE began diversifying into equities early in 2007 and, rather than being deterred by the subprime crisis, it continued to buy."
told reporter:"China will continue investing in U.S. government bonds while paying close attention to possible fluctuations in the value of those assets.... Investing in U.S. Treasury bonds is an important component of China's foreign currency reserve investments..."
,
It has branches in Hong Kong
, Singapore
, London
and New York
.
The Hong Kong office (华安公司 SAFE Investment Company Ltd) was set up just in June 1997, before the transfer of sovereignty of Hong Kong
, and served an important role in defending the value of the Renminbi
and Hong Kong dollar
's peg
to the US dollar against international speculators. It was a minor outpost for SAFE for several years, with only about $20bn in funds under management.
People's Republic of China
China , officially the People's Republic of China , is the most populous country in the world, with over 1.3 billion citizens. Located in East Asia, the country covers approximately 9.6 million square kilometres...
is an administrative agency tasked with drafting rules and regulations governing foreign exchange market
Foreign exchange market
The foreign exchange market is a global, worldwide decentralized financial market for trading currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends...
activities, and managing the state foreign exchange reserves
Foreign exchange reserves
Foreign-exchange reserves in a strict sense are 'only' the foreign currency deposits and bonds held by central banks and monetary authorities. However, the term in popular usage commonly includes foreign exchange and gold, Special Drawing Rights and International Monetary Fund reserve positions...
, which at the end of July 2011 stood at $3.2 trillion for the People's Bank of China
People's Bank of China
The People's Bank of China is the central bank of the People's Republic of China with the power to control monetary policy and regulate financial institutions in mainland China...
. The current director is Yi Gang
Yi Gang
Yi Gang is the Director of the State Administration of Foreign Exchange and Deputy Governor of the People's Bank of China.-Biography:...
.
Role
SAFE's existence and role were initially closely guarded secrets, its subsidiaries were minor, but the funds under management have increased significantly in recent years. They were responsible for running SAFE's portfolio across the various time zones, replicating the investments of head office in Beijing.SAFE created and controlled the Central Huijin Investment Company, but in September 2007, it ceded control to the newly formed sovereign wealth fund
Sovereign wealth fund
A sovereign wealth fund is a state-owned investment fund composed of financial assets such as stocks, bonds, property, precious metals or other financial instruments. Sovereign wealth funds invest globally. Some of them have grabbed attention making bad investments in several Wall Street financial...
, China Investment Corporation
China Investment Corporation
China Investment Corporation is a sovereign wealth fund responsible for managing part of the People's Republic of China's foreign exchange reserves. CIC was established in 2007 with approximately US$200 billion of assets under management, making it one of the largest sovereign wealth funds...
.
With the burgeoning of China's reserves and amidst increasing rivalry between state agencies, there are signs of growing independence of and competition between the subsidiaries.
Management
The current Administrator of SAFE is Yi GangYi Gang
Yi Gang is the Director of the State Administration of Foreign Exchange and Deputy Governor of the People's Bank of China.-Biography:...
. Deng Xianhong, Fang Shangpu, Wang Xiaoyi, Li Chao
Li Chao
Li Chao is the name of:*Li Chao , Chinese professional golfer*Li Chao , Chinese chess grandmaster...
are Deputy Administrators.
Structure
- SAFE Head Office
- General Affairs Department (Policy and Regulation Department)
- Balance of Payments Department
- Current Account Management Department
- Capital Account Management Department
- Supervision and Inspection Department
- Reserves Management Department
- Human Resources Department (Internal Auditing Department)
- Science and Technology Department
Institutions affiliated with the SAFE
-
- Central Foreign Exchange Business Center
- Information Center
- General Services Center
- Editorial Office of the Foreign Exchange of China journal.
Functions
- drafting laws, standards, policies and reform of the forex administration system
- risk managementRisk managementRisk management is the identification, assessment, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities...
and monitoring of balance of paymentsBalance of paymentsBalance of payments accounts are an accounting record of all monetary transactions between a country and the rest of the world.These transactions include payments for the country's exports and imports of goods, services, financial capital, and financial transfers...
and the external credit and external debtExternal debtExternal debt is that part of the total debt in a country that is owed to creditors outside the country. The debtors can be the government, corporations or private households. The debt includes money owed to private commercial banks, other governments, or international financial institutions such... - development and supervision of the foreign exchange marketForeign exchange marketThe foreign exchange market is a global, worldwide decentralized financial market for trading currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends...
, foreign exchange reservesForeign exchange reservesForeign-exchange reserves in a strict sense are 'only' the foreign currency deposits and bonds held by central banks and monetary authorities. However, the term in popular usage commonly includes foreign exchange and gold, Special Drawing Rights and International Monetary Fund reserve positions...
, gold reserves, and other foreign exchange assets of the state. - setting RenminbiRenminbiThe Renminbi is the official currency of the People's Republic of China . Renminbi is legal tender in mainland China, but not in Hong Kong or Macau. It is issued by the People's Bank of China, the monetary authority of the PRC...
convertibilityConvertibilityConvertibility is the quality that allows money or other financial instruments to be converted into other liquid stores of value. Convertibility is an important factor in international trade, where instruments valued in different currencies must be exchanged....
/ exchange rateExchange rateIn finance, an exchange rate between two currencies is the rate at which one currency will be exchanged for another. It is also regarded as the value of one country’s currency in terms of another currency...
policy
Investments
The magnitude of China's reserves is disclosed, but not its composition. At the end of 2006, approximately 70 per cent of the reserves were in U.S. dollar assets, 20 per cent in euroEuro
The euro is the official currency of the eurozone: 17 of the 27 member states of the European Union. It is also the currency used by the Institutions of the European Union. The eurozone consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,...
s and 10 per cent in other currencies, according to economist Brad Setser
Brad Setser
Brad Setser is an American economist and blogger. A former staff economist at the United States Department of the Treasury, he worked at Roubini Global Economics Monitor, along with Nouriel Roubini...
. Most of China's currency reserves are invested in high grade U.S.-dollar-denominated debt, such as U.S. Treasuries
Treasury security
A United States Treasury security is government debt issued by the United States Department of the Treasury through the Bureau of the Public Debt. Treasury securities are the debt financing instruments of the United States federal government, and they are often referred to simply as Treasuries...
, though as early as 2007 it was estimated that SAFE held $100 billion worth of U.S. mortgage-backed securities, hoping to achieve higher returns than those on U.S. Treasuries.
"The Hong Kong subsidiary is notably taking more risk in managing reserves," according to an informed source. The Financial Times reported on 4 January 2008 that the Hong Kong branch had bought stakes of less than 1 percent in both Commonwealth Bank of Australia and Australia and New Zealand Banking Group, respectively Australia's second and third-biggest lender by assets, over the preceding two months. The ANZ purchase has been confirmed by the bank. SAFE also invested in BP
BP
BP p.l.c. is a global oil and gas company headquartered in London, United Kingdom. It is the third-largest energy company and fourth-largest company in the world measured by revenues and one of the six oil and gas "supermajors"...
and Total
Total S.A.
Total S.A. is a French multinational oil company and one of the six "Supermajor" oil companies in the world.Its businesses cover the entire oil and gas chain, from crude oil and natural gas exploration and production to power generation, transportation, refining, petroleum product marketing, and...
in April 2008.
2008 diversification and losses
As the reserves continue to grow, the central bank is aiming to boost investment returns on its foreign-exchange holdings by making somewhat riskier but higher-yielding investments. Pronouncements of Chinese officials are consequently closely scrutinised; each trade is reportedly up to US$1 billion. As part of diversification in 2008, SAFE acquired small stakes in dozens of companies including Rio TintoRio Tinto Group
The Rio Tinto Group is a diversified, British-Australian, multinational mining and resources group with headquarters in London and Melbourne. The company was founded in 1873, when a multinational consortium of investors purchased a mine complex on the Rio Tinto river, in Huelva, Spain from the...
, Royal Dutch Shell
Royal Dutch Shell
Royal Dutch Shell plc , commonly known as Shell, is a global oil and gas company headquartered in The Hague, Netherlands and with its registered office in London, United Kingdom. It is the fifth-largest company in the world according to a composite measure by Forbes magazine and one of the six...
, BP
BP
BP p.l.c. is a global oil and gas company headquartered in London, United Kingdom. It is the third-largest energy company and fourth-largest company in the world measured by revenues and one of the six oil and gas "supermajors"...
, Barclays, Tesco
Tesco
Tesco plc is a global grocery and general merchandise retailer headquartered in Cheshunt, United Kingdom. It is the third-largest retailer in the world measured by revenues and the second-largest measured by profits...
and RBS
Royal Bank of Scotland
The Royal Bank of Scotland Group is a British banking and insurance holding company in which the UK Government holds an 84% stake. This stake is held and managed through UK Financial Investments Limited, whose voting rights are limited to 75% in order for the bank to retain its listing on the...
.
Brad Setser
Brad Setser
Brad Setser is an American economist and blogger. A former staff economist at the United States Department of the Treasury, he worked at Roubini Global Economics Monitor, along with Nouriel Roubini...
, speaking in March 2009 said losses as a result of this diversification at the peak of the market "would exceed US$80bn."
Brad Setser
Brad Setser
Brad Setser is an American economist and blogger. A former staff economist at the United States Department of the Treasury, he worked at Roubini Global Economics Monitor, along with Nouriel Roubini...
said:"SAFE has built up one of the largest US equity portfolios of any foreign government entity investing abroad, including the major sovereign wealth funds....It appears SAFE began diversifying into equities early in 2007 and, rather than being deterred by the subprime crisis, it continued to buy."
2009 investment policy
On March 23 2009, deputy governor of China's central bank, Hu XiaolianHu Xiaolian
Hu Xiaolian is the Deputy Governor of the People's Bank of China and the former director of the State Administration of Foreign Exchange in China. Hu was ranked 23rd on The Wall Street Journals "The 50 Women to Watch 2007" list...
told reporter:"China will continue investing in U.S. government bonds while paying close attention to possible fluctuations in the value of those assets.... Investing in U.S. Treasury bonds is an important component of China's foreign currency reserve investments..."
,
Branches
SAFE has branches and offices in all provinces, autonomous regions and municipalities. As of 2005, it had 36 branch offices, 298 central sub-branches and 508 sub-branches.It has branches in Hong Kong
Hong Kong
Hong Kong is one of two Special Administrative Regions of the People's Republic of China , the other being Macau. A city-state situated on China's south coast and enclosed by the Pearl River Delta and South China Sea, it is renowned for its expansive skyline and deep natural harbour...
, Singapore
Singapore
Singapore , officially the Republic of Singapore, is a Southeast Asian city-state off the southern tip of the Malay Peninsula, north of the equator. An island country made up of 63 islands, it is separated from Malaysia by the Straits of Johor to its north and from Indonesia's Riau Islands by the...
, London
London
London is the capital city of :England and the :United Kingdom, the largest metropolitan area in the United Kingdom, and the largest urban zone in the European Union by most measures. Located on the River Thames, London has been a major settlement for two millennia, its history going back to its...
and New York
New York
New York is a state in the Northeastern region of the United States. It is the nation's third most populous state. New York is bordered by New Jersey and Pennsylvania to the south, and by Connecticut, Massachusetts and Vermont to the east...
.
The Hong Kong office (华安公司 SAFE Investment Company Ltd) was set up just in June 1997, before the transfer of sovereignty of Hong Kong
Transfer of the sovereignty of Hong Kong
The transfer of sovereignty over Hong Kong from the United Kingdom to the People's Republic of China, referred to as ‘the Return’ or ‘the Reunification’ by the Chinese and ‘the Handover’ by others, took place on 1 July 1997...
, and served an important role in defending the value of the Renminbi
Renminbi
The Renminbi is the official currency of the People's Republic of China . Renminbi is legal tender in mainland China, but not in Hong Kong or Macau. It is issued by the People's Bank of China, the monetary authority of the PRC...
and Hong Kong dollar
Hong Kong dollar
The Hong Kong dollar is the currency of the jurisdiction. It is the eighth most traded currency in the world. In English, it is normally abbreviated with the dollar sign $, or alternatively HK$ to distinguish it from other dollar-denominated currencies...
's peg
Fixed exchange rate
A fixed exchange rate, sometimes called a pegged exchange rate, is a type of exchange rate regime wherein a currency's value is matched to the value of another single currency or to a basket of other currencies, or to another measure of value, such as gold.A fixed exchange rate is usually used to...
to the US dollar against international speculators. It was a minor outpost for SAFE for several years, with only about $20bn in funds under management.
See also
- Foreign exchange reservesForeign exchange reservesForeign-exchange reserves in a strict sense are 'only' the foreign currency deposits and bonds held by central banks and monetary authorities. However, the term in popular usage commonly includes foreign exchange and gold, Special Drawing Rights and International Monetary Fund reserve positions...
- Foreign exchange reserve of the People's Republic of ChinaForeign exchange reserve of the People's Republic of ChinaThe Foreign exchange reserves of the People's Republic of China are mainly composed of US dollar in the forms of US government bonds and institutional bonds, and excludes reserves held by Hong Kong and Macau...
- List of countries by foreign exchange reserves