The State Administration of Foreign Exchange (SAFE) held a press conference on the foreign exchange receipts and payments for the first half of 2017 in the State Council Information Office on Thursday, July 20, 2017 at 10 am and answered press questions.
Moderator Xi Yanchun:
Good morning, ladies and gentlemen. Welcome to the press conference of the State Council Information Office. Today we are very glad to have with us Ms. Wang Chunying, press spokesperson and director of the Department of Balance of Payments of the SAFE. She will brief us on the foreign exchange receipts and payments for the first half of 2017 and take your questions. Now let's invite Ms. Wang for some opening remarks.
2017-07-20 10:00:50
Wang Chunying:
Good morning, everyone. Welcome to today's press conference. Now I would like to disseminate China's foreign exchange receipts and payments data for the first half of 2017 and then I will be taking your questions.
In the first half of this year, the global economy continued to recover and the global financial markets remained stable. China's economy performed stably with stronger momentum for growth. Its economic development becomes more stable, coordinated and sustainable, and the RMB exchange rate stayed stable. The SAFE was committed to enhancing the cross-border trade and investment facilitation and boosting the two-way opening of the financial market in a proper and orderly manner to serve the development of the real economy on the one hand; and on the other hand, it tightened the monitoring of cross-border capital flows, enhanced the building of regulatory capability, and cracked down on foreign exchange irregularities to safeguard the health and stability of the foreign exchange market and China's economic and financial security. Overall, China's cross-border capital flows remained sound with good momentum for growth, and the supply and demand in the foreign exchange market found a basic equilibrium in the first half, which proved to be the best equilibrium over the past three years.
2017-07-20 10:01:52
Wang Chunying:
Banks settled foreign exchange of RMB 5.31 trillion (USD 772.7 billion) and sold foreign exchange of RMB 5.95 trillion (USD 866.5 billion) in the first half, with a deficit of RMB 644.3 billion (USD 93.8 billion). Meanwhile, banks registered cumulative foreign-related income of RMB 9.55 trillion (USD 1.39 trillion) and made external payment of RMB 10.12 trillion (USD 1.47 trillion) for their customers, with a deficit of RMB 577.9 billion (USD 84.2 billion), according to the data on banks' foreign-related receipts and payments for customers.
2017-07-20 10:03:59
Wang Chunying:
China's foreign exchange receipts and payments for the first half present the following characteristics:
First, banks' foreign exchange sales and settlements as well as foreign-related receipts and payments registered drastic falls in deficits. In the first half, in dollar terms, foreign exchange settlements by banks were up by 6% year on year, and foreign exchange sales by banks, down by 4% year on year, resulting in a deficit of USD 93.8 billion, down by 46% year on year; the foreign-related receipts by banks for customers were up by 3% year on year, while the payments were down by 3%, leading to a deficit of USD 84.2 billion, representing a decrease of 50% year on year; in particular, the foreign-related foreign exchange receipts and payments recorded a deficit of USD 14.3 billion, down by 45% year on year.
Second, the supply and demand of foreign exchange were moving towards a basic equilibrium. According to the foreign-related foreign exchange receipts and payments for customers, a surplus was registered between January and February, and a monthly average deficit of USD 5.9 billion from March to June. As for the foreign exchange settlement and sales for customers, a deficit of USD 15.6 billion was recorded in January, and the monthly average deficit fell to USD 11.2 billion from February to June, compared with the monthly average deficit of USD 26.6 billion in 2016. Considering the spot and forward foreign exchange sales and settlements as well as options, China's foreign exchange supply and demand has found a basic equilibrium since February.
2017-07-20 10:04:27
Wang Chunying:
Third, the foreign exchange sales rate dropped drastically while foreign exchange financing of enterprises grew steadily. In the first half, this rate that measures enterprises' motives to buy foreign exchange, or the ratio of customers' purchases of foreign exchange from banks to customers' foreign-related foreign exchange payments was 68%, down by 9 percentage points year on year. In particular, the ratio was 68% and 67% for the first and second quarters respectively, indicating that enterprises are more reasonable in buying foreign exchange, and their willingness for foreign exchange financing is recovering, while they are less willing to buy foreign exchange to service debt. In the same period, China's outstanding foreign exchange loans rose by USD 7.1 billion, down by USD 58.3 billion year on year. The balance of cross-border financing for imports such as refinancing and forward L/C climbed by USD 13.8 billion, and the balance of financing in foreign currencies went up by USD 26.2 billion.
Fourth, the foreign exchange settlement rate climbed, indicating domestic resident individuals were less willing to hold foreign exchange. In the first half, the foreign exchange settlement rate that measures taxpayers' willingness to settle foreign exchange, or the ratio of foreign exchange sold to banks by customers to their foreign-related foreign exchange receipts was 62%, up by 1 percentage point year on year. To be specific, the ratio was 62％ and 63％ respectively for the first and second quarters, indicating market participants are more willing to settle foreign exchange. The domestic foreign exchange deposits of individuals went down by USD 1.7 billion in the first half, up by USD 12.9 billion year on year.
2017-07-20 10:09:01
Wang Chunying:
Fifth, the differential of forward foreign exchange settlement and sales turned from a deficit into a surplus. In the first half, the value of foreign exchange contracted for forward settlement by banks for customers was up by 94% year on year, while that of foreign exchange contracted for forward sales was down by 18%, leading to a surplus of USD 9.5 billion in forward foreign exchange settlement and sales contracted with banks, compared with a deficit of USD 37 billion for the same period last year. To be specific, a deficit of USD 3.4 billion was registered for the first quarter, and a surplus of USD 13 billion for the second quarter, indicating the recent expectations of RMB depreciation has declined markedly.
Sixth, the supply and demand of the foreign exchange market were being increasingly balanced, boosting the continuous recovery of the balance of foreign exchange reserves. As at the end of June 2017, the balance of China's foreign exchange reserves was USD 3.0568 trillion, up by USD 46.3 billion from the level of the end of 2016. The balance of foreign exchange reserves registered recovery for 5 consecutive months from February to June.
These are the major statistical data I want to unveil regarding foreign exchange receipts and payments for the first half. Now I will answer your questions.
2017-07-20 10:11:25
Moderator Xi Yanchun:
Thank you, Ms. Director. Now let's move on to the Q&A session. As many foreign journalists are present today, we arrange for simultaneous interpreting service here. As usual, please identify yourself before raising your questions. Now let's begin.
2017-07-20 10:13:31
Market News International (MNI):
Ms. Director, China's cross-border capital flows for the past few months have changed for the better. Will this momentum continue in the second half? What possible disturbances will be guarded against by the competent authority in the near future? The recent reports say that the overseas investment projects of some major companies have been suspended as they violated relevant investment regulations. My second question is whether these reports are true. Is China tightening reviews of outbound investments? Will cross-border capital flows that have taken a turn for the better as you said just now enable the regulators to relax their regulation? Thank you.
2017-07-20 10:17:56
Wang Chunying:
Let me answer you first question first.
Since the beginning of this year, China's cross-border capital flows have changed for the better in all respects, which can be obviously seen in the various data indicators. First, a twin surplus was posted under the current and capital and financial accounts in the balance of payments. In the first quarter, the current account registered a surplus of USD 18.4 billion, and the non-reserve financial account recorded a surplus of USD 36.8 billion, compared with a deficit of USD 103.1 billion for the fourth quarter of last year, thus ending the deficits that have continued for 11 consecutive quarters. Second, the domestic supply and demand of foreign exchange are moving towards an equilibrium. According to the data just unveiled, banks' deficit in foreign exchange settlement and sales for the first half had dropped by an astonishing 46% year on year. If other factors that impact the foreign exchange supply and demand such as the surplus in the foreign exchange contracted for forward settlement and sales are taken into account, the supply and demand of foreign exchange has remained in balance since February. Third, non-banking sectors such as enterprises posted remarkably lower outflows of cross-border capital. The data just released also show that the deficit in foreign-related receipts and payments dropped by 50% year on year in the first half. Fourth, the balance of foreign exchange reserves has risen for five months straight.
2017-07-20 10:18:33
Wang Chunying:
There are also diverse factors that boost the turnaround of China's cross-border capital flows. Internally, first, the domestic economic fundamentals become more supportive. Recently, China's momentum for steady economic growth has become more evident, thereby strengthening market confidence. China's economic growth hit 6.8% last quarter, higher than the previous three quarters, and reached a higher level of 6.9% in the first half, with many economic indicators continuing changing for the better. For example, China's official manufacturing purchasing manager's index (PMI) has remained in the expansion cycle for 11 consecutive months; the added value of industries above designated size grew by 6.9% year on year, 0.9 percentage point higher than the same period last year. Second, domestic market participants' expectations of the market are being further stabilized. In the first half, the two-way fluctuations of the RMB exchange rate against the USD became more obvious, growing by 2.4% accumulatively. At the same time, the formation mechanism for the central parity of the RMB against the USD was further refined, and the impact of the counter-cyclical adjustments took shape. Under such circumstances, domestic market participants were increasingly reasonable in making outbound investments and China's external debt continued its stable recovery.
2017-07-20 10:32:26
Wang Chunying:
Externally, the global financial markets are relatively stable. Despite the Fed's interest rate hikes in March and June, and the proposal of shortening the balance sheet for the first time, the US Dollar Index dropped from 102 at the beginning of the year to around 96 as at the end of June, and the USD exchange rate depreciated by 6.4% accumulatively in the first half. In Europe, the euro zone posted a more stable momentum for economic recovery, no black swan event was witnessed in French presidential election, and the subsequent progress of Brexit did not make a stir, suggesting lower uncertainties in the market.
2017-07-20 10:39:31
Wang Chunying:
Going forward, there will be a more solid foundation for China's cross-border capital flows to stay stable. In particular, recently collected statistics and information have further built our confidence. First, the domestic economy will have a more solid and sustainable momentum for stable growth. The Report on the Work of the Government, published early this year, points out that the target for this year's economic growth is around 6.5%, while the real growth for the first half hit 6.9%, making it certain that the economy will achieve the target and continue to stay within the reasonable range. In June, the IMF upped its projection of China's economic growth for 2017 to 6.7%, which is the second time that the expectations of China's economic growth has been upgraded this year, representing an objective judgment of the international community. Moreover, China's economic structure is being optimized and the quality of its economic growth is stably improved. Second, the domestic market will be further liberalized. The recent National Financial Work Conference and the Conference of the Central Leading Group on Finance and Economic Affairs studied the issues of improving investment and market environments and expanding opening up, and more work or policies will be introduced in the future. For direct investments, China has recently adopted a series of measures favorable for foreign investments, such as the newly revised Catalogue for the Guidance of Industries for Foreign Investment, and the early and pilot implementation policy for deepening foreign investments in free trade zones, so as to provide better services and build a better environment for the entry of foreign investments into China. As relevant measures are implemented one after another, foreign direct investments will continue stable growth. As for portfolio investment, the connectivity of HK and mainland bond markets indicates the Bond Connect has been launched. The inclusion of A shares in the MSCI Emerging Markets Index shows that this will play a positive role in actual capital inflows and market confidence, which will help enhance the attractiveness and international impact of RMB assets. For example, the European Central Bank announced in June to hold more RMB assets that are the equivalent of EUR 500 million as the foreign exchange reserves.
2017-07-20 10:42:49
Wang Chunying:
In addition, the impact from external environment will be milder. According to the real economy, the world economy at large will continue to recover. The IMF projection shows that the global economic growth will be 3.5% this year, 0.4 percentage point higher than the previous year. As for the financial markets, the Fed has raised interest rates for four times since the US exited from the QE policy, and its impact on the market, especially on the increase of the USD exchange rate, has been declining. On the one hand, this shows that the market has strengthened its capabilities of understanding, adapting to and digesting policies, and on the other hand, this indicates the hedging effect of other factors, such as the market expectations of the long-term growth of the US economy, the economic performance as well as the orientation of monetary policies in the Euro Zone and Japan.
Therefore, China's cross-border capital flows will remain stable in the future, and the risk arising from the significant outflows of capital will become much lower. The SAFE will certainly continue to closely watch the impact of various factors and tighten its monitoring and analysis.
2017-07-20 10:55:25
Wang Chunying:
As for your second question, I am sorry I have no such information at hand.
As for the ODI policies, we have also noticed that the NDRC and the Ministry of Commerce and other relevant departments have given responses, supporting capable domestic enterprises who meet the conditions to conduct true ODI activities in compliance with regulations, and supporting enterprises to make market-oriented outbound investments in accordance with business principles and international practices, especially to make investments and conduct operating activities under the Belt and Road Initiative and to get involved in international production capacity cooperation. At the same time, departments concerned will continue to watch the tendency of irrational outbound investments in real estate, hotels, cinemas, entertainment, and sports clubs to guard against the risks associated with outbound investments and recommend relevant enterprises to be prudent in making decisions. The SAFE will cooperate closely with departments concerned with regard to ODI, to ensure capable enterprises that meet the conditions to carry out true outbound investing activities in compliance with regulations and encourage domestic enterprises to participate in the construction projects under the Belt and Road Initiative and in international production capacity cooperation. On the other hand, the SAFE will take measures to effectively guard against risks arising from outbound investments and boost the healthy, stable and sustainable development of China's outbound investments.
2017-07-20 11:07:28
Wang Chunying:
I would like to stress again that the SAFE's foreign exchange administration policies for outbound investments have been consistent and stable. We will keep to several "unchangeds": the going global strategy, the guideline of utilizing domestic and foreign markets and resources, the direction of supporting ODI that is in compliance with laws and regulations, and the principle of guarding against risks arising from outbound investments in pushing for trade and investment facilitation will remain unchanged. Thank you for your questions.
2017-07-20 11:13:59
Phoenix Satellite Television:
We have noticed that the SAFE has introduced relevant documents since the end of last year to raise the requirements on declaration of foreign exchange information, especially on enterprises. Some enterprises say many materials and documents are required to be submitted for cross-border remittances, which leaves them very confused. What would you say about this? How to look at the impact of relevant requirements on the normal operating activities of enterprises? Thank you.
2017-07-20 11:16:44
Wang Chunying:
Thank you for your questions. As for the declaration of foreign exchange information, the SAFE released at the end of 2016 the Circular of the State Administration of Foreign Exchange on Optimizing the Information System for Individual Foreign Exchange Business, which came into force on January 1. This Circular imposes the authenticity review requirements on the individual foreign exchange business, improves the declaration form for individuals' buying of foreign exchange from banks, refines what to be declared and emphasizes the quality and authenticity of data. In fact, the policies for individuals' buying of foreign exchange remain unchanged, except for the information declaration newly required to purchase foreign exchange.
Since the implementation of the policy, individuals' awareness of using foreign exchange in compliance with regulations has been markedly raised, given the survey results and feedback, while false declaration to purchase a large amount of foreign exchange in violation of regulations, and lending foreign exchange quota for split purchases of foreign exchange have declined drastically. The individual sales and settlements of foreign exchange across the country are normal, suggesting a remarkable outcome of standardizing the order in the individual foreign exchange sales and settlements market.
The monitoring data of the SAFE show that in the first half, foreign exchange purchased by individuals went down by 4% year on year from a growth of 14% in the same period last year. Also in the first half, the balance of foreign exchange deposits of residents fell by USD 1.7 billion, versus an increase of USD 12.9 billion in the same period last year, indicating residents' desire to purchase and hold foreign exchange is stable.
2017-07-20 11:18:25
Wang Chunying:
For enterprises, we did not impose any requirement on information declaration, and the SAFE's principle of enhancing trade and investment facilitation to better serve the real economy and deepen the opening up remains unchanged. Without making any significant policy adjustment, the SAFE still follows the principle of current account convertibility, duly supports and ensures true payments and transfers under the current account in compliance with regulations, while enhancing trade and investment facilitation. What's more, we will continue to properly and systematically push for the two-way opening of the market, support capable domestic enterprises that meet the conditions to make true outbound investments that conform to the regulations and support them to go global. For the issues you are concerned about, we can keep in contact with each other as the issues are also of help to us. Thank you.
2017-07-20 11:27:12
China National Radio:
The Bond Connect has been launched recently. What impact will it have on China's cross-border capital flows? What supportive measures will the SAFE provide for the Connect?
2017-07-20 11:33:37
Wang Chunying:
China has been committed to stably pressing ahead with the opening up of the financial market, while the Bond Connect is a key measure to achieve this end. Along with the robust development of China's economy and the development of RMB internationalization, global investors are strengthening their demand for investing in RMB assets. The Bond Connect is the institutional arrangement for the connectivity of infrastructure in the financial markets between mainland and Hong Kong, and Northbound Connect makes it easier for foreign investors to invest in China's bond market.
2017-07-20 11:37:02
Wang Chunying:
China's bond market has much room for developments and strong potential for attracting the inflows of foreign capital. First, China's bond market still has great potential for growth. Currently the market ranks No. 3 worldwide, but has plenty of leeway for growth as compared with GDP. The balance of government bonds, for example, is nearly 50% of China's GDP, compared with more than 70% in the US and over 200% in Japan. Second, foreign investors are expected to hold more shares. For the moment, foreign investors take up 1.2% of China's bond market. The share of foreign investors holding government bonds is 4% in China, versus 42% in the US, and 10% in Japan. The share is also lower than those of emerging markets in Asia such as Indonesia, Malaysia and Thailand. Third, the bond yield in China still outperforms other major markets. At the beginning of July, for example, the yield of 10-year treasury bonds was 3.6% in China, compared with 2.3% in the US, 0.5% in Europe and only 0.08% in Japan.
2017-07-20 11:41:30
Wang Chunying:
The SAFE has been active in supporting the liberalization measures of the Bond Connect. It works with the People's Bank of China to study relevant capital remittances, inward or outward, exchange and foreign exchange risk management, and adopts facilitation management measures. For example, it imposes no restriction on capital remittances, inward or outward, and exchange; it allows foreign investors to trade foreign exchange derivatives through the clearing house in Hong Kong, who can square off the position in the domestic interbank market based on the true compliance requirements under the Northbound Connect, which is favorable for foreign investors to manage exchange rate risks. Going forward, the SAFE will ensure the combination of investment facilitation and risk control to boost stable cross-border capital flows, based on the progress of the liberalization of China's financial market and the implementation of the Bond Connect. The SAFE will also be dedicated to ensuring foreign currency exchange and foreign exchange risk hedging to deepen and refine the liberalization of China's foreign exchange market and its coordination with the opening up of the domestic financial market. Thank you.
2017-07-20 11:45:24
Bloomberg News:
We have noticed that the short-term external debt of Chinese enterprises is rising. Are you concerned about this? What risks will this impose on Chinese enterprises? Will the SAFE take measures to tackle such risks?
2017-07-20 11:49:50
Wang Chunying:
China's external debt is growing stably now. As at the end of the first quarter of 2017, China's outstanding full-scale external debt was USD 1.44 trillion, up by USD 17.1 billion or 1.2% against the end of 2016. The total external debt has climbed steadily for four consecutive quarters.
2017-07-20 11:52:07
Wang Chunying:
Given the level of external debt and relevant metrics, the risk associated with China's external debt is under control now.
First, China's full-scale external debt has continued rebounding recently, but is far lower than the peak in recent years. As at the end of 2014, China's outstanding full-scale external debt amounted to USD 1.78 trillion and has been falling since then. As at the end of the first quarter of 2016, the outstanding full-scale external debt hit USD 1.33 trillion, the lowest level since the statistics on full-scale external debt began to be collected. The current level of USD 1.44 trillion was USD 106.3 billion higher than the historical low, but more than USD 340 billion less than the high level as at the end of 2014. According to the maturity structure of external debt, the medium and long-term external debt has changed stably, with the outstanding medium and long-term external debt as at the end of the first quarter of this year being USD 39.7 billion higher than that of the end of 2014. But short-term external debt is volatile. The outstanding short-term debt as at the end of the first quarter increased by USD 45.5 billion year on year, chiefly due to the increases in currencies and deposits attracted by banks, but was still USD 381.8 billion lower than the outstanding external debt as at the end of 2014. The normal flows of external debt in compliance with regulations will help support the development of the real economy. In our opinion, to observe the changes of an economic datum or financial indicator, one should focus on the long-term performance and assess the level of the datum in terms of absolute value or relative value. China's short-term external debt in terms of absolute value is markedly lower than the historical high.
2017-07-20 11:55:06
Wang Chunying:
Second, the major indicators of the risks associated with China's external debt are lower than the internationally accepted alarm levels. As at the end of 2016, China's liability ratio, or outstanding external debt/GDP, was 13%, compared with the internationally accepted safe level of 20%; the debt ratio, or outstanding external debt/income from exports of goods and services, was 65%, versus the internationally accepted safe level of 100%; the solvency ratio, or the payments of principal and interest on external debt/income from exports of goods and services, was 6%, compared with the internationally accepted safe level of 20%; the ratio of short-term external debt to foreign exchange reserves was 29%, much lower than the internationally accepted safe level of 100%.
Going forward, the PBC and the SAFE will continue to refine the external debt and capital flows management system under the macro-prudential management framework, and will strengthen ongoing and ex-post monitoring and analysis while further promoting cross-border investment and financing facilitation, so as to guard against external debt risks and safeguard China's economic and financial security. Thank you.
2017-07-20 12:04:00
China News Service:
China's foreign exchange reserves have recovered for five months straight. What are the major reasons for this? What would you say about the trend of foreign exchange reserves for the second half? Thank you.
2017-07-20 12:06:03
Wang Chunying:
The first half has witnessed the five consecutive months of rebounds in foreign exchange reserves, which has strengthened market confidence. The factors that impact the changes in foreign exchange reserves, as we have communicated with you many times before, include the following: First, the central bank's operation in the foreign exchange markets. Second, price fluctuations of foreign exchange reserve assets for investments. Third, as foreign exchange reserves are denominated in the US dollar, changes in the exchange rates of other currencies against the US dollar will lead to changes in foreign exchange reserves. Fourth, as defined by the IMF, foreign exchange reserves used to support going global will be excluded from the entry of foreign exchange reserves in accounting, and vice versa.
2017-07-20 12:07:12
Wang Chunying:
The consecutive recovery of foreign exchange reserves in the first half should be attributed to the following: first, in the dimension of trading, China's economic growth has gained momentum, the cross-border capital flows have continued to be stabilized, and the RMB exchange rate has grown stably, and therefore, residents and enterprises have become increasingly reasonable in buying foreign exchange and the supply and demand of foreign exchange have found an equilibrium. Second, in non-trading terms, the currencies against the US dollar have appreciated this year, and the prices of foreign exchange reserves assets for investments have risen, boosting foreign exchange reserves to recover stably.
2017-07-20 12:10:40
Wang Chunying:
Looking ahead, it is likely that China's foreign exchange reserves will stay stable. On the one hand, as China's economic growth becomes increasingly stable and coordinated, China's economic performance will continue to make progress while maintaining stability, in terms of industry support, development motives, development confidence and development environment. On the other hand, the further opening up of the financial market, the healthy development of the foreign exchange market, the more stable market expectations, and the balance of cross-border capital flows and the supply and demand of the financial market will further boost the stability of foreign exchange reserves. Thank you.
2017-07-20 12:13:17
Moderator Xi Yanchun:
This is the end of today's press conference. Let me thank Ms. Director again for her wonderful answers and thank you all for coming.
2017-07-20 12:17:15
(The original text is available at china.com.cn)
