· Hu Kaihong:
Good morning, ladies and gentlemen. Welcome to the press conference of the State Council Information Office. Today we have with us Ms. Wang Chunying, spokesperson of the State Administration of Foreign Exchange (SAFE), to release the foreign exchange receipts and payments data for the first half of this year and answer your questions. This is the first time Ms. Wang has met with you. Now let us invite Ms. Wang for some opening remarks.
July 23, 2015, 09:46:58
· Wang Chunying:
Good morning, ladies and gentlemen, and friends from the press. I am delighted to attend today's press conference and meet with you. First, I would like to unveil the foreign exchange receipts and payments data for the first half of 2015 and then I will take your questions.
Since the beginning of this year, the economic and financial environment both at home and abroad have remained complicated. The world economic recovery has been sluggish, chiefly due to the continued divergence of the major economies' monetary policies. The domestic economy has been running slowly but stably and within a reasonable range. Recently, the major economic indicators have changed for the better, the economic structure has been optimized, and deepening the reform has produced further positive results, thus leading to a stable RMB exchange rate. Under such circumstances, China has witnessed bidirectional fluctuations of the cross-border capital flows, and recently balanced supply and demand of foreign exchange.
July 23, 2015, 09:55:54
· Wang Chunying:
Banks settled foreign exchange of RMB 5.31 trillion (USD 866.5 billion) and sold foreign exchange of RMB 5.96 trillion (USD 971.9 billion) in the first half of the year, with a deficit of RMB 647.4 billion (USD 105.4 billion). Meanwhile, banks registered cumulative foreign-related income of RMB 10.09 trillion (USD 1.6461 trillion) and made external payment of RMB 9.82 trillion (USD 1.6016 trillion) on behalf of clients, with a surplus of RMB 271.6 billion (USD 44.5 billion), according to the data on foreign-related receipts and payments via banks.
July 23, 2015, 09:57:42
· Wang Chunying:
China's foreign exchange receipts and payments were characterized by the following in the first half of the year:
First, foreign exchange settlement and sales by banks registered a deficit while foreign-related receipts and payments for clients recorded a surplus. In the first half of 2015, in US dollar terms, the foreign exchange settled by banks was down by 10% year on year, while the foreign exchange sold, up by 25% year on year, leading to a deficit of USD 105.4 billion. Meanwhile, the foreign-related income received via banks on behalf of clients was up by 1% year on year while the external payment made through banks was up 3% year on year, leading to a surplus of USD 44.5 billion. This changed the double deficits of foreign exchange settlement and sales and foreign-related receipts and payments through banks on behalf of clients in the second half of the previous year. The deficit between foreign exchange settled and sold was USD 62.5 billion and that between foreign exchange received and paid through banks on behalf of clients was USD 49.1 billion in the second half of the previous year.
Second, the cross-border capital flows remained volatile but have been stabilized recently. The deficit between foreign exchange settled and sold by banks amounted to USD 91.4 billion in the first quarter of 2015, or USD 30.5 billion per month on average, and shrank significantly to USD 13.9 billion in the second quarter. In April, the deficit fell to USD 17.3 billion and became a surplus of USD 1.3 billion and of USD 2.1 billion in May and June respectively. The foreign-related receipts and payments through banks on behalf of clients registered a monthly average surplus of USD 27.5 billion in January and February, a monthly average deficit of USD 22.3 billion in March-April and then rebounded to a monthly average surplus of USD 17 billion in May and June.
July 23, 2015, 09:59:08
· Wang Chunying:
Third, market players' willingness to settle foreign exchange was enhanced while their motive to buy foreign exchange was weakened. In the first quarter, foreign exchange settled by banks into RMB on behalf of clients as a percentage of foreign-related foreign exchange income (or foreign exchange settlement rate), the measurement of the willingness of enterprises and individuals to settle foreign exchange, was 69%, down by 3 percentage points quarter-on-quarter, while in the second quarter, the rate was 74%, up by 5 percentage points quarter-on-quarter. In the first quarter, foreign exchange sold via banks to clients using RMB as a percentage of foreign-related foreign exchange payments (or foreign exchange sales rate), which measures the motivation to buy foreign exchange, was 79%, up by 6 percentage points quarter-on-quarter, while the rate was 75% in the second quarter, down by 4 percentage points quarter-on-quarter. These suggest that enterprises have adjusted their foreign-related receipts and payments behaviors along with the market changes since April.
Fourth, forward settlement and sales of foreign exchange by banks registered a deficit that showed a significant decline. In the first half of 2015, the number of clients contracting for forward foreign exchange settlement with banks was down by 47% year on year, while that of clients contracting for forward foreign exchange sales with banks was up by 31%, leading to a deficit of USD 68.6 billion in forward foreign exchange settlement and sales contracted with banks, compared with a surplus of USD 50.4 billion for the same period last year. The forward foreign exchange settlement and sales contracted with banks registered a deficit of USD 47 billion in the first quarter, which dropped to USD 21.5 billion in the second quarter, suggesting market expectations of the RMB exchange rate has been stabilized since the second quarter.
July 23, 2015, 10:02:16
· Wang Chunying:
Fifth, the supply and demand of foreign exchange moved towards equilibrium. In the first half of 2015, the balance of spot and forward foreign exchange settled and sold by banks (or the balance of foreign exchange settled and sold by banks and the change in the outstanding net forward foreign exchange settled combined), an indicator of the supply and demand of foreign exchange in the retail market, fluctuated sharply, registering a deficit of USD 120 billion in the first quarter, indicating a monthly deficit of USD 40 billion, which dropped significantly to USD 32.6 billion in the second quarter, and further to USD 18.5 billion, USD 7.1 billion and USD 7 billion in April to June respectively.
These are the major statistical data I want to unveil regarding foreign exchange receipts and payments in the first half of this year. You can find out relevant data at the SAFE's official website.
Next, I will take your questions on the foreign exchange receipts and payments.
July 23, 2015, 10:04:39
· Hu Kaihong:
Thank you, Ms. Wang. Now we will take your questions and please remember to tell us where you are from before raising your questions.
July 23, 2015, 10:05:53
· China Daily:
Expectations of interest rate rise by FED have been increasing recently and the US' monetary policy will be normalized in the future. Although the threat from Greece's exit from the euro zone is removed for now, yet Europe will still face great uncertainties in the future. What impact will the dramatic changes in the international environment have on China's cross-border capital flows? What policies will the SAFE adjust in response to such changes?
July 23, 2015, 10:06:18
· Wang Chunying:
Thank you for your questions. The changes and impacts of the FED's monetary policy have drawn wide concern from society, such as from the SAFE, who has made real-time assessment of this issue's impact on China's cross-border capital flows. On behalf of the SAFE, we have elaborated on this issue at the previous data dissemination press conferences, and still can make the following judgments based on the current situation:
Firstly, the impact from the normalization of the FED's monetary policy has become evident, but is within control for the time being. The FED's winding down of the QE monetary policy in 2014 has impacted most of the emerging economies. China reported further bidirectional fluctuation of its cross-border flows, but still witnessed net inflows of cross-border capital and increase in foreign exchange reserve assets under balance of payments throughout the year. In the first quarter of this year, due to expectations of interest rate rise by the FED, the US dollars appreciated rapidly, with the DINI up by 9% and exceeding 100 in the upper-middle of March, thus significantly driving China's cross-border capital outflows. But as both domestic and international macro-environment changed, capital outflows slowed down and the supply-demand of foreign exchange was basically balanced in the second quarter, indicating the impact from the normalization of the FED's monetary policy is still acceptable for the moment.
July 23, 2015, 10:07:53
· Wang Chunying:
Secondly, the normalization of the FED's monetary policy means both challenges and opportunities for China's cross-border capital flows. With respect to challenge, the interest rate rise by the FED and the appreciation of the US dollars may affect financial operation by domestic enterprises, thus increasing the fluctuation of China's cross-border capital flows and the uncertainties in the market and threatening the RMB exchange rate policy. Meanwhile, the normalization can bring the following opportunities. First, stimulating external demand. The normalization of the FED's monetary policy will take effect step-by-step, with the impact felt gradually. Further, this shows an optimistic outlook of the US' economic recovery, which is favorable for increasing China's external demand. Second, promoting reforms. The pressure from the normalization can be regarded as an impetus for deepening the reform and opening up and accelerating the building of an open economic system in China. For example, the normalization may diverge the expectations of the RMB exchange rate, which is conducive to the reform of the RMB exchange rate formation mechanism, and may increase the outflows of cross-border capital, which is a correction of the massive and long-term inflows in the early stage, thus helping promote balance of payments towards equilibrium, and may lead to shrinks in global liquidity, which will help force domestic enterprises to pay more attention to risk management and to reduce currency mismatch. The financial adjustment of "holding assets denominated in foreign currencies and deleveraging liabilities", for example, kicked off in the second half of 2014, suggesting people are more willing to hold assets denominated in foreign currencies and expect to service debt as soon as possible or have less external debt.
July 23, 2015, 10:19:09
· Wang Chunying:
Thirdly, China is confident in and capable of tackling the impacts, but could not ignore relevant risks. Given the large economic size, a surplus of trade in goods, abundant foreign exchange reserves, and enhanced elasticity of RMB exchange rate, China is able to fend off the impact from cross-border capital flows. However, even if macro risks are within control, China must pay close attention to micro risks faced by individuals. In case of heavy debt burden, and serious term or currency mismatch, individual enterprises should make active adjustments based on their own situations.
Fourth, the key to rising to the challenge of the normalization of the US' monetary policy is to handle China's own business well. Efforts should be made to make sure the economy runs within a reasonable range and the risks and problems are properly addressed, so as to consolidate and enhance the confidence in China's economy. Foreign exchange authorities are required to: first, continue to develop the foreign exchange market and expand the width and depth of the market to better mitigate both domestic and external impacts; second, further intensify the monitoring and warning of cross-border capital flows, speed up establishing and improving an external debt and capital flow management system under the macro-prudential management framework, increase policy tools for countercyclical adjustment and improve relevant response programs; third, step up efforts to educate market players about risk mitigation, urge and guide enterprises to better manage their risks by various means and require enterprises to actively use the existing tools and channels in the market; fourth, continue to increase data transparency by improving the data dissemination and information disclosure system to further help the market assess and analyze changes more comprehensively and accurately.
July 23, 2015, 10:30:23
· Wang Chunying:
As for Greece, its debt has not severely impacted China's cross-border capital flows. Recently, the Greek government has reached an agreement with international creditors on the new round of bailout, thus temporarily easing the pressure from Greece's exit from the euro zone. Nevertheless, the economic and financial conditions both at home and abroad remain complex at present, and if there is any change to Greece's debt crisis, the international foreign exchange market will be affected, thus indirectly influencing China's cross-border capital flows, indicating further observation is needed with other factors such as EUR ad USD taken into consideration. In the future, China will continue to track the development and evolution and the external transmission channels of Greece's debt crisis, pay close attention to responses from the international financial market and assess their impacts on China's cross-border capital flows in a timely manner to make response plans. Thank you.
July 23, 2015, 10:43:19
The data recently released by the central bank show that the balance of foreign exchange reserves shrank as at the end of June by USD 150 billion from the end of the previous year. Does this mean that China came under heavy pressure from capital outflows in the first half of the year? But you said just now that the foreign-related receipts and payments hit a surplus in the period. How to understand this?
July 23, 2015, 10:49:08
· Wang Chunying:
This is a very good question. Currently many data can reflect capital flows, such as BOP, foreign exchange sales and settlement, foreign-related receipts and payments, as well as foreign exchange reserves and International Investment Position. These data show different aspects of capital flows, and sometimes even indicating surplus or deficit, the opposite directions, making it difficult to understand. I would hereby like to make a clarification to help you better understand it.
Foreign-related receipts and payments refer to the cross-border capital receipts and payments by companies and individuals via banks, excluding cross-border capital flows of banks. As overseas deposits have not been fully liberalized, foreign-related receipts and payments reflect the fundamentals of cross-border capital flows. Foreign exchange sales and settlement refer to exchanges between the RMB and foreign currencies by enterprises, individuals, banks and other financial institutions, representing full-scale data on the exchanges between RMB and foreign currencies. By looking at foreign exchange sales and settlement, foreign-related receipts and payments as well as foreign exchange deposits and loans combined, one can understand whether a client's foreign exchange income is converted into RMB or becomes foreign exchange deposits, and whether a client's external payment is made using his/her foreign exchange deposits, or foreign exchange purchased with RMB, or foreign exchange loans borrowed from a bank.
July 23, 2015, 10:51:20
· Wang Chunying:
The balance of foreign exchange sales and settlement is closely related to the changes in foreign exchange reserves, which may result from changes in banks' foreign exchange position, income from reserves, prices of assets invested using reserves and exchange rate. For example, in the case of a surplus in banks' foreign exchange sales and settlement, if banks are willing to hold more foreign exchange positions, foreign exchange reserves will not rise. On the contrary, in the case of a deficit, if banks are willing to cut its foreign exchange positions, which means direct provision of sources of foreign exchange to clients, foreign exchange reserves will not drop. Moreover, the SAFE releases the Balance of Payments Statement and International Investment Position, which combined can fully reflect China's foreign-related economy, including trade in goods, trade in services, primary and secondary income under the current account, as well as direct investment, portfolio investment, other investments and financial derivatives under the capital and financial account.
July 23, 2015, 11:11:30
· Wang Chunying:
According to the data available, sustained and massive capital outflows did not occur in the first half of the year, and the pressure from capital outflows was weakened and balanced in the second quarter, compared with the first quarter. The changes in the balance of foreign exchange reserves show that foreign exchange reserves dropped by USD 113 billion in the first quarter and USD 36.2 billion in the second quarter, which was much lower than the former. The foreign exchange sales and settlement registered a deficit of USD 91.4 billion in the first quarter, which dropped significantly to USD 13.9 billion in the second quarter. The foreign-related receipts and payments by banks on behalf of clients hit a surplus of USD 31.2 billion in the first quarter and USD 13.2 billion in the second quarter. Despite the drop, there was still a net inflow of foreign-related receipts and payments by banks on behalf of clients. The supply-demand of foreign exchange in the retail market registered a deficit of USD 120 billion in the first quarter, which dropped significantly to USD 32.6 billion in the second quarter. These data show that the pressure from capital outflows was eased and the foreign exchange receipts and payments became more balanced in the second quarter.
July 23, 2015, 11:20:39
· Wang Chunying:
Why were foreign-related receipts and payments in surplus while the balance of foreign exchange reserves dropped? First, foreign-related receipts and payments refer to the cross-border receipts and payments in domestic and foreign currencies in the non-banking sector. The cross-border RMB-denominated receipts and payments were in surplus while the cross-border foreign currency-denominated receipts and payments were in deficit in the first half. Foreign exchange reserves will change after the cross-border foreign currency-denominated receipts and payments are sold or settled. If a company receives foreign exchange and deposits it, foreign exchange reserves will not rise; if a company buys foreign exchange and deposits it at a bank rather than making payments, foreign exchange reserves will drop, which is a reflection of "encouraging people to hold more foreign exchange". The foreign exchange deposits of enterprises rose by USD 38.4 billion in the first half. Second, the changes in foreign exchange reserves are also related to the changes in asset prices and exchange rate, or the changes in book value. For example, as the euro depreciated against the US dollars in the first half, if China's foreign exchanges reserves in euro were converted to US dollars with the price remaining unchanged, the foreign exchange reserves in US dollars would fall, which means that even if foreign-related receipts and payments and foreign exchange sales and settlement are in surplus, foreign exchange reserves are likely to fall. In addition, the changes in the balance of foreign exchange reserves include the operating income of foreign exchange reserves, which is usually a factor for the increase in foreign exchange reserves. Thank you!
July 23, 2015, 11:25:49
· Bloomberg:
Could you explain why the exchange rate of RMB against USD has been falling since the second quarter?
July 23, 2015, 11:33:00
· Wang Chunying:
The RMB exchange rate remained stable in the first half, with the middle rate of RMB against USD appreciating by 0.09%, the CNY appreciating by 0.05% and the CNH appreciating by 0.16%. According to the fluctuation trends, the CNY against USD and the CNH against USD depreciated by 1.05% and 1.1% respectively in January and February, recovered by 1.13% and 1.29% in March and have stayed stable since April. The first half witnessed narrowing of the spread between CNY/USD and CNH/USD after expansion: the daily average spread between CNH/USD and CNY/USD was 98 basis points in the first quarter, suggesting it was cheaper to buy foreign exchange in the domestic market than in the overseas market; the spread was 37 basis points in the second quarter, much lower than the first quarter. But this was consistent with the changes in foreign exchange sales and settlement, foreign-related receipts and payments, foreign exchange reserves and the supply-demand in the foreign exchange market in the second quarter, indicating the pressure from cross-border capital outflows was eased significantly and balanced in the second quarter.
July 23, 2015, 11:33:56
· China National Radio:
The Mutual Fund Connect scheme was launched in July, indicating China's RMB capital account convertibility is accelerating. Will there be massive cross-border capital inflows and outflows as the bidirectional fluctuation of RMB exchange rate is becoming ever serious? How would the SAFE respond?
July 23, 2015, 11:45:02
· Wang Chunying:
First, as the capital account is liberalized, China will witness inflows and outflows of cross-border capital and normalized bidirectional fluctuations. The capital account convertibility itself is a neutral policy for bidirectional liberalization. Like the Shanghai-HK Stock Connect, the Mutual Fund Connect is another example of bidirectional liberalization. After the official launch of the Mutual Fund Connect, mainland investors can buy HK public funds in the mainland and mainland public funds can be traded in Hong Kong, which is sure to cement the financial and economic ties between China and overseas markets, spur cross-border financing and investment activities, and promote the normalization of bidirectional flows of cross-border capital. Furthermore, no historical experience could prove that the capital account liberalization will surely lead to only inflows or outflows of capital.
July 23, 2015, 11:46:30
· Wang Chunying:
Second, in the context of bidirectional fluctuation of the RMB exchange rate, China's cross-border capital flows have become more balanced recently. The deficit of spot and forward foreign exchange sales and settlement was below USD 10 billion in May and June respectively, which was much lower than the previous four months, and no deteriorated fluctuations and massive inflows or outflows of cross-border capital were seen. It is certain that the liberalization of the capital account is set to increase the factors contributing to cross-border capital flows, thus intensifying the fluctuation and complexity of capital flows. We should adapt to and tolerate capital fluctuations in a reasonable and controllable range while actively responding to and guarding against relevant risks.
July 23, 2015, 11:51:02
· Wang Chunying:
Last but not least, the best way to respond to the impact from cross-border capital flows is to sustain healthy and stable economic development, safeguard the stability of financial market and deepen reforms. The SAFE will adapt to the liberalization of the capital account and keep improving its capability of discharging its responsibilities. One the one hand, the SAFE will continue to boost administration streamlining and power delegation in foreign exchange administration, further promote the trade and investment facilitation and actively foster the foreign exchange market. On the other hand, the SAFE will make sure systematic and regional financial risks are averted, which is its bottom line, and enhance monitoring and warning analysis of cross-border capital flows, accelerate the building of an external debt and capital flow management system under the macro-prudential administration framework and flesh out policy scenarios, so as to make good preparations.
July 23, 2015, 11:54:28
· Japanese NHK:
China is now into the tenth year of its RMB exchange rate reform. RMB has been appreciating over the past decade, and the level of RMB internationalization will rise as China's economy becomes stronger. What would you say about RMB exchange rate in the future? Will the RMB become an international currency? When will the RMB exchange rate exceed that of Japanese Yen?
July 23, 2015, 11:58:25
· Wang Chunying:
This question is not very relevant to today's conference. But as you say, this year is the tenth year of the foreign exchange reform and many people are reviewing the past decade in various forms, so I would like to share with you the many changes in the past decade, a fruitful decade, but my summary is not exhaustive. With respect to the RMB exchange rate formation mechanism, the market supply-demand-based floating exchange rate system that conducts adjustment and management by referring to a basket of currencies has been established, the RMB exchange rate elasticity has improved and the foreign exchange market has also achieved tremendous development. For example, the trading products have been diversified from simply spot and forward products to foreign exchange swaps, currency swaps and options products; the management of the positions in foreign exchange sales and settlement by banks has been improved from the original positive range management to both positive and negative range management, so that financial institutions can better manage exchange rate risk and provide better services. Moreover, the infrastructure construction in the market has achieved tremendous progress.
July 23, 2015, 11:59:43
· Wang Chunying:
Enormous changes also have occurred in foreign exchange management. Transaction-by-transaction verification under trade in goods has been replaced by aggregate verification; document review for nearly 150 million transactions of foreign exchange receipts and payments that involve an equivalent of less than USD 50,000 per transaction under trade in services has been canceled. Since the implementation of the direct investment reform, both domestic and foreign investors can go through registration of foreign exchange under direct investment with banks and voluntary settlement of foreign exchange capital has been adopted for foreign-invested enterprises, allowing enterprises freely choose the time for foreign exchange settlement. Since the kickoff of the cross-border guarantee reform, a domestic parent company can help its overseas subsidiaries seek loans from local banks through providing guarantee, and a foreign-invested company can apply for loans from domestic banks through cross-border guarantee from its overseas parent company. In e-commerce, it has become easier for companies and individuals to conduct cross-border receipts and payments for overseas online shopping. It has been more convenient for individuals to use foreign exchange, with channels more diversified. As the electronic technology and internet platforms emerge, individuals can conduct foreign exchange sales and settlement through online banking, self-service terminals and telephone banking, which accounts for more than 50% of the total volume of foreign exchange sales and settlement to individuals.
This is just an inexhaustive summary of the tremendous changes resulting from the foreign exchange reform in the past decade. I expect to make a more systematic streamlining in the future, which will be favorable for us to deliver a better performance. Thank you!
July 23, 2015, 12:26:14
· The People's Daily:
You said just now that the foreign exchange sales and settlement by banks registered a high deficit in the first quarter and dropped significantly in the second quarter. Could you explain why there were such changes? Does it mean the heavy capital outflow pressure on China in the first quarter was eased? What will be the future trends?
July 23, 2015, 12:39:25
· Wang Chunying:
The cross-border capital flows were balanced in the second quarter, indicating the adjustment of the RMB and foreign currency-denominated asset and liability structure by domestic market players. First, companies were more willing to settle foreign exchange in the second quarter, with the rate of settlement rising by 5 percentage points from 69% in the first quarter to 74%. Companies' willingness to hold foreign exchange was weakened, with the balance of foreign exchange deposit held by companies up by USD 73 billion in the first quarter and down by USD 34.5 billion in the second quarter. Second, companies were less willing to buy foreign exchange, with the rate of purchase dropping by 4 percentage points from 79% in the first quarter to 75% in the second quarter. The application for foreign exchange loans accelerated, with the balance of foreign exchange loans in China up by USD 500 million in the first quarter and by USD 6.6 billion in the second quarter. Last but not least, deleveraging of external debt by market players slowed down. The balance of cross-border financing such as import bill advance by overseas institution and usance L/C fell by USD 18.5 billion in the second quarter, compared with a drop of USD 22.7 billion in the first quarter. These data show that companies' adjustment of their financial behaviors helped relieve the pressure of cross-border capital outflows in the second quarter, versus the first quarter.
July 23, 2015, 12:40:04
· Wang Chunying:
These adjustments were the results of the changes in the environment both at home and abroad. Domestically, China's GDP grew by 7% in the first quarter, down by 0.3 percentage points from the fourth quarter last year, while PMI remained around 50. In the second quarter, some economic indicators showed a sign of stabilization, and China's GDP sustained a growth of 7%, better than the market expectations. PMI stayed at 50.2 in June, and remained for four consecutive months above the critical point of 50%, suggesting China's economic growth slowed down but became stabilized and changed for the better. Internationally, due to the expectations of interest rate rise in the US and introduction of QE policy in the euro zone, the US dollar index rose rapidly by 9% in the first quarter and exceeded 100 in the upper-middle of March, while the EUR, Japanese Yen and currencies in the emerging markets remained under pressure. In the second quarter, the US dollar index changed its momentum for rapid growth as it achieved in the first quarter and made a correction. Under such circumstances, the cross-border capital outflows slowed down toward equilibrium in the second quarter.
These changes indicated that China has not seen massive inflows or outflows, but bidirectional fluctuations of cross-border capital, which will continue in the future. On the one hand, with the implementation of policies for stabilizing growth, China's economy will be stabilized to enhance market confidence, which will help attract cross-border capital to flow in, and Customs will post a big surplus in import and export. On the other hand, the uncertainties and instabilities both at home and abroad, the divergent monetary policies adopted by major economies and recent debt default by Greece and how to dispose of it are likely to stir the international financial market. Given these, we should continue to intensify monitoring, analysis and early warning of cross-border capital flows, and increase tools for countercyclical adjustments so as to make good plans and preparations.
July 23, 2015, 12:50:14
· The Economic Daily:
The SAFE has recently released the International Investment Position (IIP) for the first quarter of 2015, which was prepared by the latest international standards. According to the IIP, net assets dropped significantly, but the data were incomparable with those historical data. Could you tell us how to assess the real changes in China's external assets and liabilities? Do the changes include massive withdrawal of FDI?
July 23, 2015, 13:12:40
· Wang Chunying:
Since the beginning of 2015, the SAFE has prepared and published China's IIP as required by the IMF's Balance of Payments and International Investment Position Manual (Sixth Edition, BPM6). Based on the latest standards, China used the market capitalization method to collect statistics on and prepare the data in the IIP, rather than the historical flow accumulation method, which was previously used to prepare individual items. However, as the statistical system for some key data has been just implemented, more historical data are inaccessible and previous data could not be retroactively adjusted, leading to incomparableness of the data before 2014 with those after 2014. We have noted and explained this when disseminating data. For example, after using the market capitalization method instead of the historical data accumulation method, the total equity and debt under portfolio investment grew by about USD 300 billion from the previous data.
To have a general idea of the changes in external asset and debt in the first quarter, we prepared major items under the IIP for 2014 using the new method. Overall, according to the comparable coverage, China's external asset dropped slightly, and its external debt remained almost unchanged in the first quarter, while net external asset was down by USD 117.7 billion from the end of 2014.
The stock of external asset dropped by USD 113.6 billion in the first quarter, chiefly due to the changes in the transactions and non-transactions of reserve asset, which combined fell by USD 114.4 billion, while ODI and portfolio investment combined grew by USD 38.3 billion, whose percentage in total asset was up by one percentage point from the end of the previous year, suggesting China's external asset structure has been improved, benefiting from the loosening of China's policy on outbound investment, and the policy of encouraging people to hold more foreign exchange is playing its role. The stock of external debt grew by USD 4.1 billion in the first quarter, including USD 65.4 billion in FDI and USD 81.5 billion in portfolio investment, which indicate that foreign investors are still optimistic about the long-term outlook of China's economic development. But other investments dropped by USD 150.4 billion, revealing that domestic enterprises have actively adjusted their asset and liability structure based on the changes in exchange rate and interest rate both at home and abroad.
July 23, 2015, 13:13:23
· Wang Chunying:
We also have paid close attention to the withdrawal of foreign investments that has concerned you. In the first half of the year, China witnessed net growth in the inflows of FDI, rather than massive withdrawal. China's FDI is characterized by a long cycle and strong stability. As shown by the IIP for the first quarter with comparable coverage, FDI in China posted a net growth of USD 65.4 billion in the first quarter. With respect to foreign-related receipts and payments under FDI, the inflows of capital and funds raised of newly established foreign-invested companies in the non-banking sector totaled USD 67 billion in the first half, up by 6.1% year on year; the outflows of capital due to withdrawal strategies and capital reduction by foreign directly-invested enterprises in the non-banking sector totaled USD 10.3 billion, up by 22% year on year, or 0.4% of the stock of FDI equity investment as at the end of the first quarter. Since the stock of FDI was large and absolute inflows were higher than outflows, net inflows of FDI capital sustained a growth momentum.
July 23, 2015, 13:30:06
· Hu Kaihong:
This is the end of today's conference. Thank you, Ms. Wang! Thank you all!
July 23, 2015, 13:42:21
(The original text is available at china.com.cn)
