Q: The State Administration of Foreign Exchange (SAFE) recently released China’s International Investment Position. Could you please say something about China’s external financial assets and liabilities?
A: The statistics reveal that due to the fact that the domestic and international economies have entered a stage of deep transformation, the increase in China’s external financial assets and liabilities has decelerated to some extent. As of the end of 2012, China’s external financial assets and liabilities totaled USD5.1749 trillion and USD3.4385 trillion respectively, an increase of 9 percent and 13 percent year on year, a decline of 6 and 12 percentage points compared with the same period in 2011. Net external financial assets amounted to USD1.7364 trillion, a rise of 3 percent year on year.
The structure of external financial assets was optimized. As of the end of 2012, China’s foreign direct investments, securities investments, other investments. and reserve assets amounted to USD502.8 billion, USD240.6 billion, USD1.0437 trillion, and USD3.3879 trillion respectively, accounting for 10 percent, 5 percent, 20 percent, and 65 percent respectively of the external financial assets. The share of reserve assets fell to the lowest level since the beginning of 2008. Among the new external financial assets in 2012, the contribution of reserve assets declined to 30 percent, which is far below the average annual contribution of 65 percent since the beginning of 2004.
The structure of external financial liabilities remained stable. Foreign direct investments, securities investments, and other investments amounted to USD2.1596 trillion, USD336.4 billion, and USD942.6 billion respectively, accounting for 63 percent, 10 percent, and 27 percent of external financial liabilities, which is basically unchanged from the 2011 level. Foreign direct investments still contribute primarily to China’s external financial liabilities. New foreign direct investments and re-investments of foreign profits contributed 64 percent of China’s new external financial liabilities in 2012, an indication of the confidence of foreign capital in the growth potential of the Chinese economy. The large proportion of direct investments in liabilities is conducive to alleviating the impact of short-term cross-border capital flows and to promoting the development of the real economy, while it is also a manifestation of China’s high costs of foreign capital utilization which primarily contribute to the structural problems of the deficit in investment income.
From a global perspective, China’s structure of external assets and liabilities is similar to that of most emerging economies. In terms of external assets, securities investments and direct investment assets constitute a larger portion of total liabilities in the developed countries in Europe and North America. Meanwhile the emerging economies have a higher proportion of reserve assets among their total liabilities. For instance, the proportion of reserve assets in the total liabilities of the emerging economies, such as South Korea, Russia and Brazil, are in excess of 40 percent; in India the figure has even reached 73 percent. In terms of external financial liabilities, most countries in the developed world have a higher proportion of securities investments in liabilities, in excess of 50 percent, whereas in the BRIC countries such as Russia, Brazil and India, direct investments account for over 30 percent of total liabilities.
Q: We’ve noticed that the SAFE has made revisions to China’s International Investment Position in 2011. How do we properly use the revised data?
A: Both the Balance of Payments and the International Investment Position are subject to regular revisions. The SAFE makes revisions to the BOP data for various periods in the previous year after releasing the BOP data at the end of the year. This time we made revisions to China’s International Investment Position at the end of each quarter of 2011 based on the latest acquired and compiled data for China’s International Investment Position at the end of 2012. Meanwhile, the data for the previous three quarters of 2012 have not been revised. So the data for the previous three quarters of 2012 are temporarily not comparable to the revised data in 2011 and the end of 2012 data. We will release the revised data at the end of each quarter of 2012 in parallel with the release of China’s International Investment Position at the end of 2013.
Using foreign direct investment as an example, when revising China’s International Investment Position at the end of 2011 and compiling China’s International Investment Position at the end of 2012, we updated the data on stocks of foreign direct investment based on the annual inspection of FDI that was completed in 2012. After the revision, the stock of foreign direct investment in 2011 amounted to USD1.9069 trillion, an increase of USD102.7 billion from the pre-revision level. The data on stocks of foreign direct investment at the end of 2012 are the sum of the data on flows of foreign direct investments in 2012 and the revised data on stocks at the end of 2011. The data on stocks of foreign direct investment at the end of the previous three quarters of 2012 have not been revised; they will be revised in China’s International Investment Position at the end of 2013 which will be released at the beginning of 2014.
