Hu Kaihong (host):

Ladies and gentlemen, good morning. Welcome to the weekly policy briefing of the State Council. The State Council executive meeting on Oct 21 discussed the preferential policy of cost deductions for research and development, the financial opening-up and innovation of the China (Shanghai) Pilot Free Trade Zone, and the accelerated construction of the Shanghai International Financial Center.

To better understand the situation, we are glad today to have with us Wang Jianfan, director of the tax policy department at the Ministry of Finance, Zhang Xin, deputy director at the Shanghai branch of the People’s Bank of China, Lu Lei, head of the research bureau at the PBOC, and Zheng Yang, director of the Shanghai Financial Service Office. Please let them introduce the new updates and answer your questions.

First, please welcome Mr Wang.

Wang Jianfan:

Thanks. Good morning, friends from the media. The State Council has paid great attention to scientific and technological innovation, an engine for economic development, making it an important national strategy. To better implement the strategy to create a favorable environment for innovation and entrepreneurship, the State Council executive meeting on Oct 21 decided to further improve and expand the preferential policy of cost deductions for research and development, which will encourage enterprises to beef up investments in scientific and technological innovation, and drive growth and structural adjustment.

The cost deduction policy was clearly prescribed in 2008’s new corporate income tax law and its enforcement regulations. According to the law, enterprises’ costs on research and development can be deducted from at a rate of 150 percent.

Compared with other countries, the rate of 150 percent is relatively high. In recent years, we have also noticed that some countries are improving their policies and raising the ratio to a higher level than our country, to stimulate continuous research and development activities of enterprises. But in general, our policy of 150 percent is still pretty high worldwide.

Wang Jianfan:

The cost deduction policy, starting in 2008, has helped enterprises enormously in recent years. According to the Ministry of Science and Technology, China’s spending on research and development in 2013 accounted for 2 percent of GDP, a rapid progress for us. Certainly, compared with developed countries, our support of research and development remains to be strengthened.

During the implementation of this preferential policy, some enterprises requested adjustments, mainly because the policy cannot perfectly match the new demands from enterprises on advancing research and development. In addition, the accounting and auditing procedures of this policy are relatively complicated. Therefore, adjustments in the preferential policy, in the face of pressures from the economic downturn and structural upgrades, can bring more benefits to enterprises, which is in fact a positive stimulus. The more enterprises invest in research and development, the more preferential tax breaks they will enjoy, which is significant in terms of structural transformation for enterprises.

Wang Jianfan:

Our adjustments this time focus on the following aspects:

First, expand the scope of research and development activities that are entitled to enjoy the policy. The former policy prescribed that only research and development activities in certain industry fields, listed on two state-released catalogues, can benefit from the policy. Now, we chose to list the opposite following other countries’ examples. In other words, we have listed certain research and development activities that do not apply, while the rest are all included to enjoy the benefits. The policy also applies to some emerging industries, if not excluded from the scope.

Second, expand the scope of costs that can enjoy the policy. In the former policy, research and development spending were restricted to only the costs by professional researchers, on materials, equipment depreciation and the amortization of intangible assets, not including the service charges of external research staff. Thus, some research and development costs, including some jointly shared by several enterprises, could not be counted in entirely to enjoy the preferential tax. The newly adjusted policy has added new items such as service charges by external research staff, inspection fees on trial products, expert consulting fee, insurance fee, as well as travel and meeting expenses directly related to research and development.

Wang Jianfan:

Third, simplify collection and calculation of the costs on research and development. In the past, enterprises had to set up special accounts for research and development costs in order to enjoy the benefits, but in fact, many enterprises did not have such accounts. Consequently, they could not enjoy the preferential tax. This time, we only require enterprises to set up a subsidiary account for research and development costs on the basis of their current ledgers, much more simplified than the special accounts.

Fourth, enterprises can apply for tax deductions on their former research and development costs. It is possible that some enterprises, in accordance with regulations, did not apply for preferential tax before. However, this year during audits, they find some activities fall within the policy scope. In this situation, enterprises can apply to the tax authority for preferential cost deductions, dating back three years at most.

Fifth, reduce inspection procedures. In the past, enterprises that wished to enjoy the policy had to present the tax authority with all valid certificates, and when the authority had objections over the projects handed in by enterprises, enterprises would have to provide appraisal certificates by a scientific and technological agency, which increased the workload for enterprises and made it difficult for them to enjoy the policy. Not all enterprises could fully provide such materials.

Now after improvement, we simply put the procedures into record management. Enterprises should keep related materials for possible inspection, instead of presenting them all to the tax authority. If the tax authority disagrees with certain projects, they will consult with scientific and technological agencies, which will provide appraisal certificates. The policy now becomes more convenient, direct and efficient.

Major adjustments in the cost deduction policy for research and development are as such. Currently, we are working with related departments to draft implementation manuals in the spirit of the State Council executive meeting. Enterprises can read our new manuals soon.

Thank you.

Hu Kaihong:

Thank you Mr Wang. Now Mr Lu, please.

Lu Lei:

Good morning, media friends. I am very happy to attend today’s policy briefing. First of all, on behalf of the People’s Bank of China (PBOC), I would like to express my heartfelt thanks to all of you who have supported the financial work for a long time.

As we know, the State Council executive meeting presided by Premier Li Keqiang on Oct 21 discussed a plan to further promote the pilot program of financial opening-up and innovation in the Shanghai Free Trade Zone. Here I would like to share with you some related information.

First of all, I would like to introduce the background of the pilot financial program. Launching a pilot free trade zone in Shanghai is a strategic plan by the State Council and also an important measure to further implement the policy of reform and opening-up. The State Council attaches great importance to the work of promoting financial reform in pilot free trade zones. China should further accelerate the financial opening-up and innovation in order to promote the healthy development of the real economy, said Premier Li in Shanghai on Sept 19, 2014. On April 8, 2015, the State Council issued a circular on further expanding the opening-up and innovation of the pilot free trade zone in Shanghai. China should step up efforts to promote financial reform and strengthen coordination with international financial center in Shanghai, according to the circular. PBOC has also launched a plan to further promote the pilot financial program in Shanghai FTZ and accelerate the building of Shanghai’s international financial center. Here I would like to give you a simple introduction.

Lu Lei:

The plan consists of two parts: the overall requirement and the tasks and measures.

In line with requirements, the pilot program should support the real economy, promote trade and investment, and boost coordination of the pilot program and building Shanghai’s international financial center. We should also explore new ways to provide beneficial experience for the country to carry out financial reform.

There are five aspects of the major tasks and measures.

First, take the lead in making the RMB convertible under capital accounts. We will actively and prudently promote the RMB capital account convertibility while taking consideration of the real situation and avoiding risks.

Second, further expand cross-border use of RMB. RMB and capitals should be encouraged to go out through trade, industrial Investment and financial investment.

Third, further expand the opening-up of the financial service sector. We are trying to adopt a “negative list” approach to regulate financial market access in the free trade zone. Meanwhile, we support private capital to enter the financial industry.

Lu Lei:

Fourth, accelerate building an international financial market. Shanghai is the financial hub of China, with a series of platforms such as China Foreign Exchange Trade System, Shanghai Gold Exchange and Shanghai Stock Exchange. We hope to launch related financial opening-up and innovation measures for the aforementioned financial markets to create more platforms for foreign investors to enter the domestic financial market.

Fifth, strengthen financial regulation to prevent risks. The reform of the financial markets needs a sound and safe environment.

Meanwhile, PBOC will take the lead to carry out all the work related to financial opening-up and innovation in the Shanghai Pilot Free Trade Zone.

That’s all, thank you.

Hu Kaihong:

Now let’s welcome Mr Zhang to give us a brief introduction of the financial reforms in the Shanghai Free Trade Zone.

Zhang Xin:

Shanghai has undergone major financial reforms over the past two years. Several innovation financial systems have been established and the real economy has been effectively supported.

Generally speaking, enterprises and the real economy have gained great benefits from the financial reforms.

The financial reform is carried out in accordance with the principle of using finance to support the free trade zone. Under the leadership of the State Council, the People’s Bank of China, together with the China Banking Regulatory Commission, China Securities Regulatory Commission, and China Insurance Regulatory Commission, have put forward 51 specific measures, building a complete system to implement financial reform in the free trade zone.

We have built a solid information management system, which is called an information monitoring system of free trade account management, to regulate during and after the reform. The monitoring system will enable us to carry out financial reform with risks being under control.

We have established a convertibility regulation system. RMB convertibility will only be open to the financial services that are significant to the development of the real economy, and regulations are strengthened to monitor the process.

Cross-border use of RMB has been greatly promoted and business processes have been simplified.

We have released control on the deposit interest rate of a small amount of foreign currency to advance marketization of interest rates.

Control and regulation of foreign exchange management have been released to create convenience for trade and investment.

Innovations in bank industry regulations have been made and securities industry is expanding.

After two years of work, a financial security management system has been established. Despite the fact that we have carried out a lot of new policies, regional financial risks never occurred in the Shanghai Free Trade Zone.

These are the developments of financial reform in the Shanghai Free Trade Zone.

What experience can we learn from financial reform in the Shanghai Free Trade Zone?

On the one hand, we should figure out what kind of measures can be carried out quickly given the potential risks. We should carry out first the measures that are low-risk and beneficial to the real economy.

On the other hand, experience of risk management systems in the Shanghai Free Trade Zone, including financial security system, regulation system, and information monitoring system, can be promoted across the country.

Many practices, such as streamlined settlement process of RMB, yuan-settled individual cross-border trade, and cross-border ecommerce, have been promoted across the country.

The State Administration of Foreign Exchange also made great efforts to support the construction of the Shanghai Free Trade Zone. Several administrative measures related to foreign exchange settlement, bulk commodities, and foreign exchange management have been promoted across the country.

In fact, innovative and pioneering financial reform in the Shanghai Free Trade Zone offers valuable experience to strengthen national financial reform.

Our next tasks are to put forward detailed measures to carry out solid implementation of the plan mentioned by Mr Lu and keep the risks under control.

Thank you!

Hu Kaihong:

Thank you, Mr Zhang. Next, Mr Zheng, please.

Zheng Yang:

Friends from the press, good morning. First, I’d like to thank you for your support and attention to the Shanghai FTZ. Since the establishment of the Shanghai FTZ, significant progress has been made in the pilot programs of financial opening-up in the area. On Oct 21, the executive meeting of the State Council discussed and approved a package of policies to press ahead with financial reforms in the Shanghai FTZ. The new measures are of higher levels compared with previous ones, as they are approved at the State Council’s executive meeting, are related to China’s overall financial reform and opening up plan, and have put forward higher requirements.

The approved package of policies is, on the one hand, an improvement on the previous one. For example, it has put forward five specific tasks, including improving the convertibility of RMB under capital accounts, promoting cross-border use of the currency and strengthening financial supervision. This is consistent with the financial opening up and innovation of the FTZ, and enables financial services to adapt to the development of the real economy. On the other hand, it has raised new tasks and measures. For example, it required efforts to explore the management pattern of foreign investment in the financial service sector, and improve financial asset trading rules and mechanisms.

The approval of the package not only reflects China’s current efforts in deepening financial reforms, expanding financial opening-up, and speeding up financial innovation, but also defines the specific tasks to further promote financial opening-up and innovation in the Shanghai FTZ.

The Shanghai authorities will continue to take active efforts in the trials and reforms, and honestly put into practice various tasks and measures, under the guidance of the Party and central government.

First, we will do what is required by the executive meeting of the State Council and relevant documents, to promote the trials of financial reform and innovation, thus making greater contribution to China’s deepening financial reforms and sustainable economic development.

Second, we will make all-out and step-by-step efforts in implementing the package of policies. We will speed up the implementation of tasks and measures in the package by winning support from national financial departments. At the same time, the process will be done step-by-step and the easiest will be done first.

Third, our efforts will serve the need of stable economic development and better serve the real economy. Priority will always be given to the needs of the real economy. We will learn about the demands of enterprises and listen to the opinions of financial institutions, to ensure that market entities are satisfied with the implementation of financial innovation policies and measures.

Fourth, we will gradually sum up experience that could be replicated and promoted. Some policies in the package are particular to Shanghai. But we will also work to sum up replicable experience based on the practice in the Shanghai FTZ to better serve the need of FTZ establishment across the country.

Fifth, we will try to create a better financial environment. The package has put forward new requirements for the financial environment in Shanghai. We will improve the environment through efforts, including setting up a credit information system, cracking down on illegal activities, and enhancing personnel training, in order to provide good conditions for financial opening up and innovation.

Sixth, we will earnestly prevent possible risks. We will coordinate with national financial departments to guard against financial risks and improve the risk-control mechanism that connects departments and local governments. We will also strengthen monitoring and early warning of illegal financial activities to avoid systematic and regional financial risks.

That’s all, thank you.

Hu Kaihong:

Thank you, Mr Zheng. Now, questions, please.

Reporter:

When will the QDII2 (a policy allowing qualified domestic institutional investors to invest overseas) be launched in the Shanghai Free Trade Zone?

Lu Lei:

QDII2 is a nation-level regulation in financial reform and opening up. In accordance with the State Council, the central bank is conducting studies and working on detailed plans. As I mentioned just now, we must abide by the principles when setting up measures, by taking a prudent attitude, making them safe and risk-controllable, and implementing them step by step. Mr Zhang also stressed that the precondition for financial reform in the Shanghai FTZ is to prevent any regional or systematic financial risk, therefore, we cannot issue the policies until a serious analysis is finished.

China National Radio (CNR):

My question goes to Mr Wang. Besides the plus deduction policy you introduced just now, are there any other preferential tax policies to encourage innovation? As we know, the value-added tax reform (a tax reform that replaces the business tax with a value-added tax) has taken effect, but the speed of the reform seems slower than expected this year. Could you tell us why?

Wang Jianfan:

Thank you for your questions.

It’s a common practice in tax laws for governments to offer tax preferences to boost research and development (R & D), and innovation. R & D activities generate spillover effects, and tax preferences are aimed at specially encouraging such efforts.

China has formulated a relatively complete set of tax preferential measures to boost innovation and R & D. But for sure, we should also improve it in accordance with the changing situation in the process of implementation.

Here, let me highlight the following measures:

First, the latest version of the Law on Enterprises’ Income Tax stipulated that, with respect to a high and new technology enterprise that needs key support by the State, the tax levied on its income shall be reduced at a rate of 15 percent.

There is a specific regulation to identify “high and new technology enterprise that needs key support by the State”, which is chiefly generated by the Ministry of Science and Technology. The key requirement in the regulation sets a threshold for enterprises in terms of constant R & D activities.

Enterprises are categorized by different levels. Enterprises at the top level, with a large size, shall make R & D expense at least 3 percent of its revenue, and the basic ratio for medium- and small-sized enterprises is 4 percent and 6 percent, respectively.

Besides that, the R & D activities here are referred to constant input, which means that an enterprise will only enjoy the tax preference by maintaining its R & D input at the required level for three consecutive years, not a one-off whim for merely one year.

The statutory tax rate is 25 percent, whereas for a “high and new technology enterprise that needs key support by the State” it is only 15 percent, which signals the country’s support for innovative enterprises.

The second is about the preferential policies we mentioned earlier today, so I will not repeat it here.

The third is on policies toward application of technologies. In the field of turnover taxes, we exempt value-added tax for the development, transfer, consultancy and service of technologies.

As for the enterprise income tax, technology transfers below 5 million yuan will be exempt for an enterprise, and those above 5 million yuan will be reduced by half.

Wang Jianfan:

There are special policies to encourage small and medium-sized high and new technology enterprises to innovate. And investment companies supporting startup businesses that invest in small and medium-sized high-tech firms enjoy preferential tax policies.

And university technology parks and incubators are exempt from business tax, property tax and urban land use tax. And imported scientific equipment for scientific institutions are exempt from import tariffs and value-added tax.

Based on the current tax rules and policies, we also run tax policy trials in the national innovation demonstration zones, especially Zhongguancun national innovation demonstration zone, to support enterprises’ research and development and innovation. New policies can be tested and existing policies can be improved through trial runs in these zones. The executive meeting also decided to extend two corporate tax policies and two personal income tax policies that have been tested in Zhongguancun and several other innovation demonstration zones to the entire country.

And next we will put into practice the two policies decided by the State Council and further improve the policies for high-tech enterprises, which is led by the Ministry of Science and Technology. And we will conduct further studies to improve the policies supporting angel investments and innovation of startup businesses. And we will make continuous efforts to support innovation through favorable tax policies. We will continue to push forward the implementation and improvement of these polices.

You are all concerned about the replacement of the business tax with a value-added tax, which started its trial run in Shanghai on Jan 1, 2012. And it has also been on trial runs in the transportation, postal service industry, telecommunication, and some modern service industries across the country. It is also on trial runs in four other industries, including finance.

We will put forward plans in this area after conducting further studies and going through a decision-making process.

Thank you.

China Central Television:

Quite a few specialists believe that opening China’s capital account will incur new risks for the country’s economy, and that the financial reform in the Shanghai Free Trade Zone will make it easier to do short-term speculation and arbitrage, which will in turn pose a macroeconomic challenge. What will the free trade zone do to prevent such risks from spreading to the outside? Thank you.

Lu Lei:

I would like to say something first. The Shanghai Free Trade Zone has made efforts in this regard. I suggest Mr Zhang Xin take on this question.

Zhang Xin:

Having come this far, the financial reform in the free trade zone has become very important and very risky. When implementing the reform, we always give priority to preventing risks. We have made efforts in two areas: designing a system that meets the needs and setting up an information system to supervise transactions.

We are doing eight things in designing the system.

First, we have made it clear that we don’t allow free convertibility in all kinds of transactions. Instead, we allow managed convertibility in certain kinds of transactions. We give priority to allowing convertibility in transactions that have great significance for the real economy. “Managed” means that even for those kinds of transactions where the yuan is convertible, the authorities don’t leave them unrestrained. There is a macroscopic system designed discreetly for them.

Second, we are discreet in adopting measures to implement the reform. We have a very specific framework for the scale of offshore financing, currency mismatch and short-term capital inflow. The fundamental idea is to set up a discreet macroscopic management system for offshore financing, at the core of which is a mechanism to control capital.

In other words, the kinds of investment and financing a company can do offshore is related to the amount of capital it owns. It can invest or finance abroad freely for an amount of money that is within certain times as much as its capital. If the amount of financing or investment exceeds the limit, they will be restrained by the macroscopic system.

Zhang Xin:

Third, if all companies conduct capital transactions in the same direction, though such activities are in line with the amount of their capital and their risk management ability, there will be a macroeconomic impact. We will initiate a toolbox to control the quantity of capital flow and conduct other emergency measures if such an impact disrupts the stability of the renminbi and our country’s financial market.

There are very specific regulations in this regard, which we have already made known to the market.

Fourth, we are establishing a system of anti-money laundering, anti-terrorist financing and anti-tax evasion. Internationally speaking, risk management of free trade zones focuses on these three areas and have little intervention in other areas. In our country, we not only have a discreet macroscopic framework to manage other areas, but also have a system of “three antis” that is as powerful as those in mature markets.

Our system of “three antis” will make sure financial activities in the free trade zone are orderly and legal.

Fifth, we are trying to set up a full-aperture framework in Shanghai to count and monitor international balances of payment. The framework covers renminbi and foreign currencies, thus we will have a complete and timely knowledge of all the international financial activities in Shanghai.

Sixth, we set up a monitoring system that covers renminbi and foreign currencies. You know that the renminbi and foreign currencies used to be managed by different departments. The central bank and the foreign exchange authorities worked together closely to set up an information management system in Shanghai that is run by a single team and covers both renminbi and foreign currencies. Information is shared in this system. This way we can manage the international flow of renminbi and foreign currencies together.

Seventh, maybe some of you don’t know yet, but we believe it’s very important to set up a “long arm” system. We have set up such a system in the free trade account of the Shanghai Free Trade Zone, thus can monitor offshore financing activities under this account, including the destination of capital flow and the purpose of investment, as well as provide services to these activities.

Eighth, as Mr Zheng Yang has mentioned, Shanghai has set up a unit to coordinate the financial reform and managing risks and emergencies, which is led by the Shanghai municipal government and joined by the central bank, the authorities supervising banking, securities and insurance.

Each of the eight things we have done will influence financing under the capital account, thus can guarantee institutionally that the reform is carried out in an orderly manner.

Zhang Xin:

The second aspect is about the establishment of a powerful information and supervision system. A good mechanism is not enough without a matched information system. In terms of system design, our basic idea is easing restrictions. That is to say, enterprises should be allowed to engage in a series of legal cross-border financing activities that meet market demands according to their capital strength. However, the authorities should ensure the management system and follow-up supervision, to avoid the unregulated activities of a very few companies. For example, we have regulated that the overseas financing of an enterprise should be no more than twice of its capital base. How do we know? In Shanghai, we have a very powerful information system that manages free trade accounts behind the financial reform. One function of the system is to show every transaction of every individual company for 24 hours every day. This information system enables us to monitor the financial activities of enterprises while easing restrictions on them.

Also, we have set up a pre-warning information system. You are welcome to visit our special real-time monitor room in the central bank’s Shanghai headquarters. Our staff will intervene once the transaction capital exceeds a certain percentage and the system shows risks. The automatic pre-warning system will dial my telephone if the risks are especially high. This will bring huge convenience to enterprises, and also ensure our follow-up supervision. Currently, the system has already covered all financial institutions in Shanghai and enterprises within the Shanghai FTZ. Another function of the system is to form an electric net that separates the financial activities within the FTZ with those out of the area, so that we could see the activities within the zone in a timely manner and control the in-and-out of capital.

We are confident to steadily put forward Shanghai’s financial reforms, especially the high-risk ones through institutional improvement and a powerful information and supervision system.

Thank you.

Nihon Keizai Shimbun:

Mr Lu, I also want to ask something about the QDII2 plan. Chinese government has studied the plan for about two or three years, and plans to launch it in the Shanghai Free Trade Zone. Why do you think the government cannot launch it now, and what are the obstacles and risks? Thank you!

Lu Lei:

I have to state clearly that the government’s financial target of launching the QDII2 initiative and capital account convertibility to promoting financial reform and innovation will not change. I will mention again that any financial reform process, including capital account convertibility, has a timetable, and that is an international consensus.

So in terms of renminbi capital account convertibility, 37 aspects out of the 40 and seven classifications of the International Monetary Fund has totally, basically or partly completed the conversion. Any reform has two sides, and under this circumstance, it needs not only a timetable, but also opportunities to push such a scheme, and that is also an international consensus.

We will continue to promote financial openness and capital account convertibility on one hand, and pay attention to development direction of the financial market and real economy on the other hand. I particularly want to mention that the whole target of financial openness is to serve the real economy and facilitate investment and financing.

I will stress again that we have our considerations, so the goal will be achieved without regional or systematic financial risks, and under controllable risks.

In the end, the central bank will conduct thorough research on the QDII2 plan under the leadership of the State Council, as we know that any measures on the financial market should be seriously taken, and that is also an international consensus, thanks.

China Business News:

I’d like to ask Mr Zheng a question. How is the financial opening up and innovation of the pilot free trade zone related to the construction of the Shanghai financial center? Thanks.

Zheng Yang:

Thanks. The construction of the pilot free trade zone and the international financial center in Shanghai correlates to and promote each other. They are highly consistent and coordinated in targets and development ideas. It is also a significant initiative of the CPC Central Committee and the State Council to construct the Shanghai Pilot Free Trade Zone. Its target is consistent with our goal of basically completing the construction of an international financial center in line with the economic strength of our country and the international status of the RMB by 2020.

Second, the construction of the Shanghai Pilot Free Trade Zone provides more momentum and opportunities for stepping up the construction of the Shanghai international financial center. The various reform measures for the Shanghai Pilot Free Trade Zone are all beneficial for the development of the financial industry in Shanghai; they can continually improve the financial market system and gathering of financial institutions in Shanghai, and can gradually promote the formation of a financial operation aligned with international practices.

Finally, the construction of the pilot free trade zone and the international financial center in Shanghai is promoted jointly. They are two major strategies for our country. We must improve the joint development of the pilot free trade zone and the international financial center by focusing on such aspects as financial market construction, aggregation of financial institutions and financial talents, opening up in the financial sector and construction of a financial development environment, endeavoring to construct the Shanghai Pilot Free Trade Zone into an area with the highest degree of openness. We will tap into our full potential to achieve the goal of constructing the Shanghai international financial center as soon as possible, in order to better serve the financial reform and opening up and economic development of the whole country.

China Daily:

The plan for the first time mentioned the real time exchange system for free trade accounts. What is the condition of free trade accounts at the moment? What are the central bank’s recent work? Are there any other functions of free trade accounts that will be expanded? Thank you.

Zhang Xin:

As I told you just now, the free trade account management system is the core infrastructure construction of financial reform. You are all welcome to have a look at the head office of the People’s Bank of China in Shanghai. We have a real-time monitor system in which all the financial operation and capital flow in Shanghai Free Trade Zone can be seen.

Regarding free trade accounts, I’ll answer your question from the perspective of enterprises and individuals. When real economy enters the system, many new policies can be applicable. In the past, a company had many special accounts for different businesses. Now we combined all into one to reduce the companies’ costs. All the financial institutions in Shanghai have entered the system. Financial institutions that account for 87 percent of our total financial operation can directly enter the system and connect with the free trade account of the People’s Bank of China. These institutions include banks, securities and insurance companies. Other small financial institutions can connect to the system through the platform of those big financial institutions. There are 35,000 free trade accounts open for companies now. The function of the account is comprehensive - when it was first introduced in June 2014, only renminbi service was available. Now foreign currency service is also available with no extra account needed.

Zhang Xin:

Regarding the businesses of free trade accounts: settlement of renminbi and foreign currency in current accounts and direct investments, and overseas financing. Meanwhile, the system will connect with the financial transaction platform established in the Shanghai Free Trade Zone. The account actually provides all kinds of services based on national treatment.

The new plan released by the State Council further expands the functions of the account in the following aspects.

First is that we will support enterprises to participate in innovative cross-border investment and financing.

Second is that the system should support Chinese financial institutions to compete in a global market. Various financial services can be provided by the system in overseas markets, which is a great advantage.

Zhang Xin:

Third is to promote cooperation with supervision departments and support reform and innovation. We use the system in the free trade zone as reform as well as risk control.

Fourth is to guarantee an E-fence for the accounts and prevent risks, so that financial reform can be promoted in a stable environment.

Fifth is the People’s Bank of China and the State Administration of Foreign Exchange should monitor cross-border revenue and expenditure and other operations. Thus, the system not only can benefit companies, it is also an administration system. Thank you.

Hu Kaihong:

That’s all for today’s policy briefing. Thank you all.