· Hu Kaihong:
Good morning, ladies and gentlemen. Welcome to the press conference of the State Council Information Office. Mr. Guan Tao, director of the Balance of Payments Department in the State Administration of Foreign Exchange (SAFE), has been invited to unveil data on foreign exchange receipts and payments for the first quarter of 2015 and to answer your questions. Now, let us welcome Director Guan.
April 23, 2015 09:27:53
· Guan Tao:
Good morning, ladies and gentlemen.
Welcome to the press conference this morning. Today I am going to unveil the foreign exchange receipts and payments data for the first quarter of 2015 and take your questions on behalf of the SAFE.
The economic and financial environment both at home and abroad have maintained complex since the beginning of 2015. The global economy sustains mild and unbalanced recovery, with major economies continuing to follow divergent monetary policies, and the global financial market keeps fluctuating. Domestically, China's economy is entering a new normal, featuring a slower but stable and progressive growth, and the bidirectional fluctuations of the RMB exchange rate are becoming more evident. Under such circumstances, China's cross-border capital flows are fluctuating more markedly, recently putting China under pressure from capital outflows, as a result of the domestic market players' efforts to optimize their structures of assets and liabilities denominated in the RMB and foreign currencies.
April 23, 2015 09:57:39
· Guan Tao:
In the first quarter of 2015, Banks settled foreign exchange of RMB 2.53 trillion (USD 412.0 billion) and sold foreign exchange of RMB 3.09 trillion (USD 503.5 billion) in 2015, with a deficit of RMB 561.9 billion (USD91.4 billion). Meanwhile, according to the data on foreign-related receipts and payments via banks, in the first quarter of 2015, banks registered cumulative foreign-related income of RMB 4.95 trillion (USD 806.8 billion) and made external payments of RMB 4.76 trillion (USD 775. 5 billion) on behalf of clients, with a surplus of RMB 190.9 billion (USD 31.2 billion)
April 23, 2015 09:58:53
· Guan Tao:
China’s foreign exchange receipts and payments for the first quarter show the following characteristics:
First, foreign exchange settlement and sales via banks and the balance of foreign-related receipts and payments via banks on behalf of clients presented divergent trends. Excluding the impact from foreign exchange rates (the same below), in the first quarter, the foreign exchange settled by banks was down 20 percent year on year and that sold by banks was up 41 percent year on year, with a deficit of USD91.4 billion, up 97 percent from that of the fourth quarter 2014; The foreign-related receipt via banks on behalf of clients was consistent with the figure for the same period of the previous year and the external payment was up by 1 percent year on year, thus achieving a surplus of USD 31.2 billion, down by 29 percent year on year, and reversing the persistent deficits in the past two quarters.
April 23, 2015 10:00:01
· Guan Tao:
Second, cross-border capital flows fluctuated more markedly. The foreign exchange settled and sold via banks recorded a deficit of USD 8.2 billion in January, which rose to USD 17.2 billion in February and further to USD 66 billion in March. The foreign-related receipts and payments via banks on behalf of clients recorded a surplus of USD 36.7 billion in January, which dropped to USD 18.3 billion in February and turned into a deficit of USD 23.8 billion in March. It should be noted that cross-border capital flows fluctuated sharply in March, due to the slump of the import and export surplus in the month against the previous two months.
April 23, 2015 10:01:28
· Guan Tao:
Third, letting the general public hold foreign exchange continues to take effect. As a measure of the foreign exchange settlement willingness of businesses and individuals, foreign exchange settlement via banks on behalf of clients as a percentage of foreign-related foreign exchange receipts (i.e., foreign exchange settlement rate) was 69 percent, down by 3 percentage points quarter on quarter and 8 percentage points year on year. As a result, the domestic foreign exchange deposits rose by USD 78.3 billion in the same period, a year-on-year increase of USD 39.4 billion.
April 23, 2015 10:02:43
· Guan Tao:
Fourth, companies accelerated repayment of foreign exchange loans and external debts. In the first quarter, foreign exchange sales via banks on behalf of clients as a percentage of foreign-related foreign exchange payments (i.e., foreign exchange sales rate) that measures the motivation to buy foreign exchange registered a quarter-on-quarter increase of 6 percentage points, and the foreign exchange sales rate gained 18 percentage points year on year. The domestic foreign exchange loans rose by USD 500 million only in the same period, representing a decrease in year-on-year growth by USD 62.4 billion. The balance of cross-border financing for imports such as import bill advance by overseas institution and forward letter of credit this year was down by USD 22.7 billion, compared with an increase of USD 24.1 billion for the same period of the previous year, but the monthly average decline rate was down by 48% from the figure for the second half of 2014.
Fifth, the forward settlement and sales of foreign exchange was in deficit, versus a surplus in the previous quarter. In the first quarter, the number of contracts signed between banks and clients for forward settlement of foreign exchange was down by 65 percent year on year, while the number of contracts signed for forward sales of foreign exchange was up by 34 percent, recording a deficit of USD 47 billion, compared with a surplus of USD 5.3 billion in the fourth quarter of 2014. To be specific, the forward settlement and sales of foreign exchange posted deficits of USD 5.9 billion, USD 15.4 billion and USD 25.8 billion respectively in January to March. As at the end of March, the outstanding net forward sales of foreign exchange was USD 16.1 billion, compared with net settlement of USD 12.5 billion as at the end of 2014, which suggested that banks purchased USD 28.6 billion in foreign exchange in advance from the interbank foreign exchange market in the period to hedge the exposure of forward settlement and sales of foreign exchange. In the first quarter, the spot and forward settlement and sales of foreign exchange by banks (or the total of the difference of foreign exchange settled and sold by banks and the changes in the balance of outstanding forward settlement and sales of foreign exchange), an indicator of the supply and demand for foreign exchange in the retail market, registered a deficit of USD 120 billion.
April 23, 2015 10:04:17
· Guan Tao:
These are the major statistical data I am going to disclose regarding foreign exchange receipts and payments during the first quarter of the year. You can also find the relevant data released on the SAFE's official website.
Now I would like to take questions you might have on China’s foreign exchange receipts and payments.
April 23, 2015 10:07:02
· Hu Kaihong:
Thank you, Director Guan. Now please ask your questions.
April 23, 2015 10:07:37
· Journalist from CCTV:
Chinese banks' settlement and sales of foreign exchange has recorded persistent deficits since the second half of 2014, and increased further in the first quarter of this year. Does this mean that China is under pressure from cross-border capital outflows? What would you say about the current situation and future trends?
April 23, 2015 10:09:23
· Guan Tao:
Achieving basic equilibrium in our balance of payments is a key task in macro control. The SAFE has been closely watching the impact of cross-border capital flows on the balance of payments. I would like to answer your questions in three aspects:
First, there are capital outflows at present. The Customs unveiled that the imports and exports recorded a surplus of USD 123.7 billion in the first quarter while the spot and forward settlement and sales of foreign exchange by banks posted a deficit of USD 120 billion, suggesting the full-scale balance of payments including those from banking and non-banking sectors must report "a surplus under the current account and a deficit under the capital account", which was consistent with what has been since the second quarter of 2014.
April 23, 2015 10:11:40
· Guan Tao:
Second, capital outflows are expected adjustments, which cannot be equated to illegal activities or secret capital flight. Firstly, such adjustments are expectable and show the pro-cyclical financial operation by market players. Given the greater downward pressure on the domestic economy, the global economy in profound adjustment, and the strengthening US dollar, domestic institutions and individuals continue to increase foreign currency assets and deleverage debts as they did last year, leading to the decreased spot and forward settlement of foreign exchange and increased purchases of foreign exchange. In March in particular, when the foreign trade surplus slumped, coupled with internal and external factors above-mentioned, the pressure from cross-border capital outflows for the period increased substantially. Moreover, the absolute majority of the transactions were in compliance with laws and regulations. In fact, the ratio of export income to export volume in China was 100% in the first quarter, 8 percentage points higher than the average rate of foreign exchange receipts in the previous two years, the peak season for capital inflows.
April 23, 2015 10:14:46
· Guan Tao:
Secondly, such adjustments can be explained and letting the general public hold foreign exchange and deleveraging debts remain the main channels for capital outflows. In the first quarter, after excluding the factor of the cross-border use of the RMB, foreign exchange receipts and payments by banks on behalf of institutions and individuals registered a deficit of USD 21.9 billion while the foreign exchange settlement and sales by banks on behalf of clients recorded a deficit of USD 79.5 billion, calculated on a comparable basis. The balance of USD 57.6 billion can be explained by the balance of USD 77.8 billion of the new foreign exchange deposits at bankshigher than the foreign exchange loans in the same period. This means that companies preferred depositing to selling foreign exchange they had, resulting in an increased deficit in foreign exchange settlement and sales. Meanwhile, companies accelerated payments for imports and repayments of debts. In the first quarter, the payments for imports both in RMB and other currencies as a percentage of the import value was 118 percent, 16 percentage points higher than the average rate for 2013 and 2014. In addition, the balance of cross-border trade finance for imports dropped by USD 22.7 billion, versus an increase of USD 24.1 billion in the same period last year. Further, as the forward settlement and sales of foreign exchange of companies changed from a surplus to a deficit, banks purchased USD 28.6 billion in foreign exchange in advance to hedge the exposure of forward settlement and sales of foreign exchange, thus further boosting the use of external assets by the banking sector for the period.
April 23, 2015 10:25:15
· Guan Tao:
Last but not least, such adjustments are tolerable. The foreign exchange market runs stably now and meets the control and reform targets. Equilibrium of the balance of payments, a target for macro control, does not mean balancing the budget or zero balance, but can be considered so even with some surplus or deficit. In fact, even if the preliminary transaction price of the RMB exchange rate was at or approaching the ceiling of the floating range, the supply of foreign exchange in the market would be sufficient, without triggering market panic. Although investments in funds outstanding for foreign exchange are on the decline, the central bank ensures the sufficient liquidity of the RMB through cutting interest rate and the reserve requirement, and targeted control, and therefore, the financing cost is declining. As the central bank drastically cut the required deposit reserve ratio on April 20, the interest rate has plummeted against the beginning of the year. Further, China has long been encouraging companies and individuals to hold and use foreign exchange as much as possible. Latest data show that official international reserve assets accounted for 61 percent of China's external financial assets by the end of 2014, down by 4 percentage points from the end of 2013, which also means that a growing amount of foreign exchange assets have been held by market players, an apparent shift from centralized holding by the state.
April 23, 2015 10:36:02
· Guan Tao:
Third, the cross-border capital flows in China will continue to fluctuate in the future. On the one hand, if the factors that led to capital outflows in the first quarter continue to take effect, this outflow trend will likely persist. On the other hand, as the reform and opening up policy pays more and more dividends and the national fine tuning measures take effect, China's economy will remain resilient, boasting strong potential and large room of maneuver, with no fundamental changes in the fundamentals to sustain a rational impetus for growth and big room for improvement in the overseas demand for the RMB assets allocation, which will be strong support to a stabilized RMB exchange rate and equilibrium of the balance of payments. Externally, although the US economy maintains a strong momentum for recovery, yet the recent uncertain performance of some economic indicators indicates that there will likely be large uncertainties in the monetary policy adjustment in the US and the trends in the USD exchange rate. Further, the recent rapid growth in the purchases of foreign exchange in China is a result of purchasing foreign exchange in advance to avert foreign exchange rate risks, or preventative purchases of foreign exchange, by some enterprises. Given their future demand for external payments, they unleashed it in advance and may not buy foreign exchange again in the future. To sum up, if positive changes occur to both domestic and international market environment, cross-border capital outflows will slow down, or even be replaced by net inflows. In fact, as the domestic and international environment have become more favorable since the end of March, the shortfall of foreign exchange between supply and demand in China has been made up quickly and the spread in the RMB exchange rate both at home and abroad has dropped significantly.
April 23, 2015 10:50:21
· Guan Tao:
Generally speaking, the key takeaways are as follows: first, there are capital outflows in China now; second the capital outflows are expected sequenced adjustments, which cannot be simply equated to illegal activities or secret capital flight; third, the future cross-border capital flows in China will continue to fluctuate.
April 23, 2015 11:04:14
· Journalist from China News Service:
The IMF pointed out at its recent annual spring meeting that the US dollar has grown dramatically recently, hitting a new high since 1981, and warned that the interest rate increase by the FED will likely trigger super taper tantrum. What's your idea of this? What impact will this have on China's cross-border capital flows?
April 23, 2015 11:06:11
· Guan Tao:
This spillover effect mentioned by the IMF does exist at present and is an alert to the emerging economies that have borrowed heavily in the global market, especially in US dollars. We have been closely watching, tracking and assessing the impact of this on China's cross-border capital flows, especially on the security of its external debts. So far we have concluded in three aspects as follows:
April 23, 201511:09:43
· Guan Tao:
First, the impact of the normalization of the US' monetary policy and the appreciation of the US dollar on China's cross-border capital flows is becoming more evident but limited on the whole. In the past, interest rate rise in the US and USD appreciation were the key causes of debt crisis and monetary crisis in emerging markets. In mid-2013, the FED aroused the expectations of QE tapering, triggering capital outflows and currency depreciation in emerging markets, while China witnessed massive capital inflows and significant growth in foreign exchange reserves. In 2014, the FED exited the QE policy and successfully stopped buying bonds by the end of the year, thus impacting the emerging markets again, including China where cross-border capital inflows at the beginning of the year were replaced by outflows but net inflows of capital and growth in foreign exchange reserves were sustained for the whole year. Since the beginning of this year, the interest rate rise by the FED and the accelerated USD appreciation, among other things, have somehow facilitated the cross-border capital outflows in China, but this is still the expected sequenced adjustment.
April 23, 201511:13:23
· Guan Tao:
Second, China is fully confident in and capable of resisting external impacts, but could not ignore related risks. Featuring a large economic size, a large surplus in trade in goods, sufficient foreign exchange reserves and increased elasticity of the RMB exchange rate, China has large room of maneuver. According to the indicators for risks associated with China's external debts in foreign currencies, all the external debt security indicators except the percentage of short-term external debts are below the international warning level, suggesting China's external debts are secure. Further, to adapt to the changes, domestic enterprises have recently begun actively adjusting their assets and liabilities structures to reduce external debts. The latest statistical data show that China's balance of external debts in foreign currencies amounted to USD 895.5 billion as at the end of 2014, down by USD 11.8 billion from the end of June 2014, or up by 2.5 percent year on year, which was down by more than 10 percentage points from the average growth rate for 2009-2013. This was positive adjustment by enterprises, with no widespread difficulty in solvency in the process. But it was true that some enterprises were heavily burdened with external debts and mismatch between durations and currencies, with their solvency highly related to their financial positions. We have reiterated that overall debt security does not mean zero debt risks to individuals and requires that enterprises should make external borrowings based on their needs and take appropriate measures to hedge exchange rate exposures.
April 23, 201511:19:27
· Guan Tao:
Third, China should work domestically and externally to actively respond to challenges. The impact of the FED's normalization of the monetary policy diverges by countries in the emerging markets, i.e., limited impact on those with good fundamentals while heavy impact on those with poor fundamentals. The reason why the impact of the adjustment is tolerable on the whole in China is that with stable economic growth and domestic prices, current account surplus, and sufficient foreign exchange reserves, China is regarded as an emerging market with good performance. The key to responding to the challenges from the likely interest rate rise and adjustment of the USD exchange rate is that China should focus on its domestic business by ensuring the economy runs stably within a rational range, and possible risks and problems arising from an economic downturn be properly addressed, so as to keep enhancing and strengthening the confidence in China's economy in the market. Foreign exchange authorities should focus on three aspects of work: First, promoting the reform by continuing to press ahead with trade and investment facilitation to accelerate the cultivation and development of external markets; second, guarding against risks by accelerating the building of an external debt and capital flow management system under the macro-prudential management framework and improving relevant plans to actively respond to the risks arising from cross-border capital flows; third, consolidating the foundation by improving the statistical monitoring of cross-border capital flows, keeping enhancing the data transparency and intensifying education to market players to guide them to control risks rationally.
April 23, 201511:29:17
· Journalist from the Economic Daily:
The foreign exchange settlement and sales in the first quarter of this year presented a deficit. In the context of cross-border capital outflows, will the SAFE take some measures to control the outflows?
April 23, 201511:40:30
· Guan Tao:
This is a question of wide concern. We introduced some temporary measures in face of the pressure from capital inflows but currently will not adopt new measures to control outflows, but actively respond to the challenges from abnormal fluctuations of cross-border capital flows in the following three aspects:
First, enhancing monitoring and keen observation. The capital outflows, mainly through channels such as letting people hold foreign exchange and payments of external debts, are expected sequenced adjustments at present. As the balance of payments and the RMB exchange rate are balanced and rationalized, cross-border capital may sometimes flow out and sometimes flow in, which will be a new normal, with changes becoming more and more frequent. We should look at it in a rational way and not overanalyze it. Based on the real situation, foreign exchange authorities will further enhance monitoring and analysis of cross-border capital flows, streamline the new situation of and the new changes in cross-border capital flows to immediately assess the situation and provide warnings for reference by decision makers.
Second, attaching equal importance to streamlining and controlling and promoting balanced management. On the one hand, by capturing the opportunity arising from the equilibrium of the balance of payments and the supply and demand of foreign exchange, the temporary measures preliminarily introduced to control inflows should be promptly adjusted and the foreign exchange system reform should be deepened further. Since the end of last year, the foreign exchange authorities have introduced a policy that decouples the foreign exchange loan-to-deposit ratio from the overall position of foreign exchange settlement and sales to expand the floor of the overall position of foreign exchange settlement and sales of banks, promoted across the country the reform on voluntary settlement of foreign exchange by foreign-invested enterprises and increased the overall scale of the quotas for outstanding short-term external debts of domestic financial institutions, among other things. These measures are objectively favorable for hedging the pressure from capital outflows. On the other hand, the current situation has triggered the regulatory policy for the direction of capital outflows, which is based on existing policies, not new measures. For example, the special inspection regarding export without receiving foreign exchange is conducted to intensify regulation of splitting purchases and payments of foreign exchange by individuals and crack down on foreign exchange irregularities like underground banks.
April 23, 201511:41:44
· Guan Tao:
Third, improving plans and increasing tools. Cross-border capital flows will possibly continue to fluctuate in the future due to many uncertainties and instabilities. Under such circumstances, scenario analysis and stress test should be conducted to design policies for different situations and to respond to various possibilities. Efforts should also be made to actively guard against the impact from cross-border capital flows, stick to the bottom line to ensure no systematic and regional financial risks occur, accelerate building the external debts and capital flow management system under the macro-prudential framework and keep increasing the policies and tools relating to counter-cyclical adjustment. Thank you.
April 23, 201511:53:08
· Journalist from China Financial and Economic News:
You said just now that the current changes in foreign exchange situation reflected the optimization of the assets and liabilities structures of market players. Could you recount what has been optimized? And what would you say about the commentary of the press that the "one belt one road" strategy may lead to changes in China's foreign exchange strategy?
April 23, 201512:03:01
· Guan Tao:
For your first question, the assets and liabilities structures of market players are optimized in the following two ways: First, letting people hold foreign exchange. Enterprises used to sell their foreign exchange to banks, which then sold the foreign exchange in the interbank foreign exchange market to increase foreign exchange reserves. Currently, however, market players hold and use foreign exchange themselves. For example, according to the international investment position data, the official international reserve assets as a percentage of external assets dropped last year, suggesting a growing proportion of foreign exchange assets is held by market players, not the central bank. Second, paying debts. In the past, as the RMB exchange rate appreciated unilaterally and the positive carries between the domestic currency and foreign currencies remained large, many enterprises borrowed heavily. But now as the situation changes, the bidirectional fluctuation of the RMB exchange rate has become more evident and the interest rate spread between the domestic currency and foreign currencies has been adjusted, many enterprises are accelerating payments of external debts.
April 23, 201512:04:06
· Guan Tao:
As for the second question, I would like to clarify that, first, the "one belt one road" strategy is not a one-way but a bidirectional opening up strategy, encouraging both "going global" and "bringing in". While supporting SOEs to expand overseas investments through the strategy, China encourages overseas capital to invest in China; and while encouraging driving exports of homemade products through overseas investments, China actively promotes imports from other countries, which are a key part of Chin's new open economy system. By capturing this opportunity, foreign exchange authorities should keep facilitating trade and investments. Second, foreign exchange reserve management should be aligned with the implementation of the "one belt one road" strategy. China has made some beneficial attempts in expanding the channels to use foreign exchange reserves. Of the USD 10 billion in initial capital for the Silk Road Fund, launched at the end of last year, foreign exchange reserves contributed 65%. In the future, new measures will be introduced for diversified use in foreign exchange reserve management to coordinate with the implementation of the national strategy and enhance the benefits from using foreign exchange reserves.
April 23, 201512:18:27
· Journalist from NHK:
In terms of the ownership of US treasury, Japan has recently surpassed China as the largest creditor of the US. What would you say about this? My second question is what's your view on the RMB internationalization according to the recent cross-border capital flows, such as the impact of cross-border capital outflows and the RMB depreciation against the USD?
April 23, 201512:28:57
· Guan Tao:
I would like to answer your first question in three aspects: First, the US treasury bonds held by foreign exchange reserves are just a part of the US treasury bonds held by China that have been released by the US Department of the Treasury. Since we don't know the statistical methods and coverage used by the US, we cannot comment on the data. Second, it is a normal investment behavior that the foreign exchange reserves operating organs buy or sell the US treasury bonds based on the market. Third, the US treasury bonds, the key investment and trading category in the global bonds market, feature a large market capacity, strong liquidity and high risk return, and therefore, the US treasury bonds market is a key investment destination for countries to operate and manage foreign exchange reserves.
April 23, 201512:31:31
· Guan Tao:
For your second question, I would like to say, first, the RMB exchange rate is fluctuating bidirectionally, with no tendency adjustment. Despite the bidirectional fluctuation of the RMB against the USD, the overall adjustment is limited and the RMB is appreciating against other currencies, so the RMB is still a strong currency. Second, based on the data we have monitored, the RMB has become China's top-2 settlement currency for cross-border trade over the euro since 2011, which will continue in the future. In 2014, the cross-border receipts and payments of the RMB in the non-banking sector accounted for 24 percent of cross-border capital flows, up by 7 percentage points from the previous year, and the figure was 27% in the first quarter of this year. A growing number of domestic enterprises are using the RMB for cross-border settlement. Therefore, the RMB internationalization has not slowed down, but is accelerating, in terms of either the market or the policies.
April 23, 201512:36:04
· Reporter from Reuters
What's your idea about trends in RMB exchange rate? China is facing the pressure from capital outflows while witnessing the constant appreciation of the RMB against non-USD currencies. Will this affect China's exports and macro economy?
April 23, 201512:45:16
· Guan Tao:
Thank you for your question. Premier Li Keqing talked about the RMB exchange rate in his interview with the British Financial Times on March 31, which was focused on three aspects: First, the bidirectional fluctuation of the RMB against the USD is a result of the strengthening USD; second, China does not want to see continued depreciation of the RMB, which may affect China's economic restructuring; third, China expects major economies to enhance the coordination of their macro policies to avoid depreciation of their currencies.
April 23, 201512:46:51
· Hu Kaihong:
This is the end of today's conference. Thank you for coming.
April 23, 201512:52:05
(The original text is available at www.china.com.cn)
