The State Administration of Foreign Exchange (SAFE) held a press conference on the foreign exchange receipts and payments for the first half of 2018 in the State Council Information Office on Thursday, July 19, 2018 at 10 am and answered press questions.
Moderator Hu Kaihong:
Good morning, ladies and gentlemen. Welcome to the press conference held by the State Council Information Office. Today we are very glad to invite Ms. Wang Chunying, Director of the Department of Balance of Payments of the State Administration of Foreign Exchange (SAFE). First of all, let’s welcome Director Wang to make an introduction.
2018-07-19 10:00:00
Wang Chunying:
Good morning, everyone. Welcome to today's conference. I would first like to unveil foreign exchange receipts and payments for the first half of this year, and then answer your questions.
In the first half of 2018, the global economic recovery has slowed down but maintained overall stability, and the fluctuation of the international financial market has increased.China's economic operation has maintained an overall stable trend with improved development. The results in transformation and upgrading have been outstanding and quality and efficiency have continued to improve. The exchange rate of RMB against US dollar fluctuates in both directions, and the exchange rate is expected to be basically stable. The SAFE adheres to the general tone of steadiness with progress, and further deepens the reform and opening-up of foreign exchange administration around promoting the formation of a new pattern of comprehensive opening-up. Overall, in the first half of 2018, China's cross-border capital flows were generally stable, and supply and demand in the domestic foreign exchange market were basically balanced.
2018-07-19 10:01:30
Wang Chunying:
Banks settled foreign exchange in the amount of RMB 5.91 trillion (equivalent to USD 928.2 billion) and sold foreign exchange in the amount of RMB 5.82 trillion (equivalent to USD 914.4 billion) for the first half of 2018, with a surplus of RMB 88 billion (equivalent to USD 13.8 billion). The data on banks' foreign-related receipts and payments for customers show that banks' foreign-related receipts for customers amounted to RMB 10.86 trillion (equivalent to USD 1.71 trillion), and their external payments hit RMB 10.94 trillion (equivalent to USD 1.72 trillion), representing a deficit of RMB 74.6 billion (equivalent to USD 12.1 billion).
China’s foreign exchange receipts and payments for the first half of the year present the following characteristics:
First, banks’ foreign exchange settlement and sales turned from deficit to surplus, and deficit of foreign-related receipts and payments declined.In the first half of 2018, in US dollar terms, foreign exchange settlement by banks was up by 20% year on year, and foreign exchange sales by bank was up by 6%, resulting in a surplus of USD13.8 billion, from a deficit of USD93.8 billion in the same period last year;banks' foreign-related receipts for customers were up by 23% year on year, and the payments up by 17%, leading to a deficit of USD 12.1 billion, representing a decrease of 86% year on year.
2018-07-19 10:01:48
Wang Chunying:
Second, the supply and demand of foreign exchange market maintained basic balance.Based on data on banks' foreign-related foreign exchange receipts and payments for customers, the first quarter and second quarter of 2018 registered a surplus of USD15.8 billion and USD4.6 billion respectively. Except for February and March, all other months achieved surplus;The foreign exchange settlement and sales registered a deficit of USD18.3 billion in the first quarter, which turned into a surplus of USD32 billion in the second quarter.Overall, China’s foreign exchange supply and demand maintained basic equilibrium in the first half of this year.
2018-07-19 10:03:54
Wang Chunying:
Third, the foreign exchange sales rate dropped while foreign exchange financing of enterprises maintained general stability.In the first half of 2018, the foreign exchange sales rate which measures the willingness to buy foreign exchange, or the ratio of foreign exchange purchased by customer from banks to customer’s foreign-related foreign exchange payments was 64%, down by 4 percentage points from the same period last year. The ratio for the first quarter and the second quarter was 64% and 63% respectively, indicating that the willingness of enterprises to buy foreign exchange declined as a whole while foreign exchange financing became more stable.At the end of June 2018, the balance of cross-border trade financing denominated in foreign currencies for imports such as refinancing and forward L/C etc. of enterprises rose by USD12.6 billion from the end of last year, while banks’ balance of foreign exchange loans in China maintained basically stable as compared with that at the end of last year.
Fourth, the foreign exchange settlement rate climbed, indicating market players were less willing to hold foreign exchange.In the first half, the foreign exchange settlement rate that measures the wiliness to settle foreign exchange, or the ratio of foreign exchange sold to banks by customers to their foreign-related foreign exchange receipts was 66%, up by 3 percentage points year on year. To be specific, the ratio was 62% and 70% respectively for the first and second quarter, indicating rising wiliness of market players to settle foreign exchange. At the end of June, the balance of domestic foreign exchange deposits of banks decreased by USD19.3 billion from the end of last year, while the same period last year registered an increase of USD41.4 billion.
2018-07-19 10:04:46
Wang Chunying:
Fifth, bank’s forward foreign exchange settlement and sales registered a small deficit. In the first half of 2018, the value of forward foreign exchange settlement contracted by banks for customers was up by 91% year on year, while that of forward foreign exchange sales contracted was up by 163%, leading to a deficit of USD 24.8 billion in forward foreign exchange settlement and sales contracted with banks. Specifically, forward foreign exchange settlement and sales contracts posted a deficit of USD17.8 billion in the first quarter, a deficit of USD7 billion in the second quarter, with deficit narrowed by 60% quarter-on-quarter.
Sixth, foreign exchange reserve maintained overall stability. As of the end of June 2018, affected by non-trading factors such as exchange rate conversion and asset price changes, the balance of China’s foreign exchange reserves stood at USD3,112.1 billion, down by USD27.8 billion from the end of 2017.
These are the data unveiled and characteristics of China’s foreign exchange receipts and payments in the first half year.
2018-07-19 10:05:45
ModeratorHu Kaihong:
Thank you, Director Wang. Please mention the news organization you represent before you ask questions.
2018-07-19 10:08:01
CCTV reporter:
What changes have taken place in the situation of cross-border capital flows in the first half of this year? Could you tell us something about this change and how do you evaluate it?
2018-07-19 10:08:45
Wang Chunying:
Thank you for your question. This year, especially since the second quarter, the international financial market has changed considerably. We see that the US dollar exchange rate has changed its previous downward trend, and the US dollar interest rates have also risen, some emerging economies have been relatively impacted, global trade frictions have intensified, risk aversion of markets has increased, and fluctuation of international capital markets has increased.Therefore, the complexity, fluctuation and uncertainty of the external environment have increased significantly. However, under this context, the domestic economy in the first half of the year has remained stable, opening-up has continued to deepen, the foreign exchange market has maintained a relatively stable pattern, and the overall performance has been outstanding. We can make two comparisons and share with you the situation of cross-border capital flows in China in the first half of this year.
First of all, from the vertical comparison, China's foreign exchange market operation in the first half was more stable and balanced than that of previous years.On the one hand, there was a surplus in the banks' foreign exchange settlement and sales and cross-border foreign exchange receipts and payments, while there were relatively large deficit in the same period before.In the first half of this year, the surplus of banks' foreign exchange settlement and sales was USD13.8 billion, while for the first half of 2015 to 2017, the deficits were USD105.4 billion, USD173.8 billion and USD93.8 billion respectively.In the first half of this year, the surplus of banks' foreign-related receipts and payments for customers was USD20.4 billion while for the first half of 2015 to 2017, the deficits were USD22.8 billion, USD25.9 billion and USD14.3 billion respectively.From this perspective, both the foreign exchange settlement and sales and the cross-border foreign exchange receipts and payments witness surpluses, which have changed greatly compared with previous years.
2018-07-19 10:10:06
Wang Chunying:
On the other hand, viewed from the vertical comparison, the two-way fluctuation of RMB exchange rate has intensified, market expectations have been reasonably differentiated, and the trading behaviors of market players have become more diversified.In the first half of this year, the exchange rate of RMB against the US dollar showed a two-way fluctuation of rising first and falling afterwards. The banks’ foreign exchange settlement and sales and cross-border receipts and payments in different months witnessed alternation of slight surplus and deficit, rather than the previous one-way change, which reflects the fact that market players tend to decide and arrange their cross-border receipts and payments as well as foreign exchange settlement and sales in light of their actual demands.
2018-07-19 10:21:12
Wang Chunying:
Horizontal comparison shows that China's foreign exchange market and RMB exchange rate are relatively stable across the globe.In the first half of this year, the US dollar index rose by 2.7%, indicating that the currencies of major developed economies fell by 2.7% against the US dollar. EMCI fell by 7.3%; meanwhile the middle rate of RMB against the US dollar slightly fell by 1.2% and the CFETS of RMB slightly increased by 0.9%. During the turbulent period of emerging markets, because of the stable economic fundamentals, good balance of payments, the level of external liabilities within the safety range, and relatively abundant foreign exchange reserves, China has effectively responded to external shocks, and our cross-border capital flows have not been greatly affected.
Therefore, both from vertical and horizontal comparisons, in the first half of the year, when the external environment fluctuation rises, cross-border capital flows in China have been generally stable, supply and demand in the foreign exchange market have been basically balanced, and the two-way fluctuation of RMB exchange rate has intensified.
2018-07-19 10:25:03
Reporter of People's Daily Overseas Edition:
Under the background of Sino-US trade friction, will our pressure of cross-border capital outflow increase in the future?At the same time, how will the operation of the foreign exchange market be affected?
2018-07-19 10:30:32
Wang Chunying:
Sino-US trade friction is a matter of great concern to all of us. We are also very concerned about it whose future evolution needs to be continuously observed.As regards impact on cross-border capital flows and foreign exchange market operation as you just mentioned, I would like to make a few comments.
Firstly, from the perspective of China's economic fundamentals, China's economic resilience, adaptability and large space for maneuver are the solid foundation for the smooth operation of the foreign exchange market. At present, China's economic growth has shifted from mainly industry driven to industry and services driven, from mainly investment driven to investment and consumption driven, and from a major exporting country to a major exporting and importing country. All these changes have enhanced the stability and resilience of China's economy.Moreover, China's economy is now entering a stage of high-quality development, especially as the manufacturing industry chain is complete, and the transformation and upgrading is steadily advancing, China’s comparative advantage in the world will continue to exist and further consolidate. In the first half of this year, the national fixed assets investment (excluding farmers) increased by 6.0% year on year, of which the investment on high-tech manufacturing industry increased by 13.1% year on year, whose growth rate was 7.1 percentage points faster than that of the total investment.This is also directly related to the fact that we are in the high-quality development stage and our focus is on the upgrading of the manufacturing industry.In addition, the domestic market has huge potential, financial risks are generally controllable, foreign exchange reserves are sufficient, space for policy regulation is large, and we have conditions, capabilities and confidence to meet various challenges.
2018-07-19 10:31:38
Wang Chunying:
Secondly, from the perspective of fundamentals of China's policy, adhering to the goal of reform and opening-up will create favorable conditions for the balanced flow of cross-border capital in China. This year marks the 40th anniversary of China's reform and opening up. When President Xi Jinping attended the Boao Forum in Asia in April, he once again demonstrated China's determination to expand its opening up. Recent relevant measures have been actively promoted. For example, in early June, the State Council issued a circular on the utilization of foreign capital, putting forward six measures: investment liberalization, facilitation, investment promotion and protection, regional opening up optimization, and promoting innovation and upgrading of national development zones, so as to further create a fair, transparent, convenient and more attractive investment environment.Moreover, for example, the 2018 version of Negative List of Foreign Investment Access issued at the end of June has reduced items from 63 to 48, and a series of major opening up measures have been introduced, including a substantial expansion of the opening up of services in the fields of finance, infrastructure, transportation, trade and circulation, a basic opening up of manufacturing industries and easing access to fields like agriculture and energy resources.In addition, the domestic capital market has been further opened up, and major international indices have gradually been incorporated into the stock market and bond market, which have shown relevant effects.In the first half of this year, the net cross-border capital inflows of foreign securities investment in China increased by two times over the same period last year. At present, the share of foreign investors in domestic stock market and bond market is less than 3% and 2%. Compared with the major developed countries and some emerging market economies, the proportion is low, and there is still much room for growth in the future.
2018-07-19 10:37:33
Wang Chunying:
In addition, over the past few years, we have further accumulated management experience and enriched policy instruments in dealing with external pressures.The SAFE will continue to adhere to the general tone of steadiness with progress. On the one hand, the reform of foreign exchange administration will be deepened to promote the two-way opening up of financial markets and serve the new pattern of comprehensive opening up in China. On the other hand, the stability of the foreign exchange market will be maintained to guard against the risk of cross-border capital flows, safeguard the security, liquidity, value preservation and appreciation of foreign exchange reserves, and safeguard the national economic and financial security.
Generally speaking, the economic and policy fundamentals closely related to the operation of China's foreign exchange market remain stable, and cross-border capital flows and the operation of China's foreign exchange market have conditions to maintain overall stability.
2018-07-19 10:43:52
Nikkei reporter:
Deficit occurred in China's current account in the first quarter. What impact do you think it will have on China's cross-border capital flows?
2018-07-19 10:45:43
Wang Chunying:
Thank you for your questions. In the first quarter of this year, China's current account witnessed slight deficit, but it has tended to be balanced.This change has drawn much concern so I would like to take this opportunity to share some views with you on this issue.
First, in recent years, China's current account continued to reach basic equilibrium of receipts and payments, which it is still in.In 2016 and 2017, the ratio of surplus under the current account to GDP was 1.8% and 1.3% respectively. The ratio of surplus to GDP in some quarters was as low as 0.5%.This shows that in recent years, China's current account has reached a very stable range of receipts and payments, and a small surplus can easily turn into a small deficit in a certain period, both of which fall into the range of basic equilibrium. In practice, international studies have shown that whether the deficit under the current account continues to exceed about 5% of GDP is a very critical early warning indicator.Therefore, in the first quarter of this year, China's current account is still within a stable and healthy reasonable range.
2018-07-19 10:48:08
Wang Chunying:
Secondly, the basic equilibrium of receipts and payments under the current account in China reflects the effect of domestic economy transforming to high-quality development, and it is also an important contribution to global economic rebalancing. Balance of payments is an external manifestation of the operation of the domestic economy. The current account status of the balance of payments mainly reflects the characteristics of two aspects of China's domestic economic development in recent years. On the one hand, it shows that substantial progress has been made in China's economic restructuring, and the role of domestic demand in economic growth has been significantly enhanced.According to the estimates of the National Bureau of Statistics, from 2008 to 2017, the annual contribution rate of domestic demand to China's economic growth reached 105.7%. Among them, final consumption expenditure has been the first engine of China's economic growth for five consecutive years, and the contribution rate of final consumption expenditure to economic growth reached 78.5% in the first half of this year. This shows that substantial progress has been made in China's economic restructuring; that is, the role of domestic demand in economic growth has been significantly enhanced.On the other hand, it reflects the continuous growth of residents' income and the upgrading of consumption. With the continuous improvement of people's living standards and the rapid rise of consumption, it is normal for people to increase their demand for imported goods, outbound tourism and studying abroad. In addition, China's balance of payments approaching basic equilibrium is also very important for global economic rebalancing.
2018-07-19 10:55:11
Wang Chunying:
Thirdly, China's economic development model determines that it is impossible for China's current account to sustain a large deficit in the future.Looking from the history of economic development worldwide, most of the economies with developed manufacturing, such as Germany, Japan, Korea and Taiwan China, have maintained surplus under the current account for a long time, and the occurrence of deficit was rare or the duration of deficit was very short. If the surplus fell, it usually occurred in the stage of transformation and upgrading. China's manufacturing industry will be in a very important position in the national economy for a long time. It has a very mature manufacturing infrastructure. What cannot be ignored is that we have a large number of skilled workers, our industrial chain is relatively complete and our competitiveness in the world is still relatively strong. At present, we are in the process of transformation and upgrading from middle and low-end industries to middle and high-end industries. This upgrading will still help to maintain a reasonable surplus under trade in goods in the medium and long term. At the same time, China's consumption upgrading will gradually move from a fast rising period to a stable period. For example, the growth rate of rapidly increasing overseas tourism and studying abroad in recent years has stabilized, and this trend is also in line with international experience.
2018-07-19 10:58:53
Wang Chunying:
Therefore, from the above aspects, China's current account balance will remain within a reasonable range in the future.
2018-07-19 11:05:06
Reporter of South China Morning Post:
It is estimated that the Sino-US trade war will lead to capital outflow from China. If there is capital outflow, what measures will the SAFE take to cope with it?
2018-07-19 11:07:52
Wang Chunying:
Preventing the risk of cross-border capital flows is an important task of foreign exchange authorities. We are highly concerned about the situation of cross-border capital flows.What you asked was a hypothetical question, but the current operation of our foreign exchange market is relatively stable.We have calculated the recent data performance; since June 25 this year, market fluctuations have increased, but from daily data of individual foreign exchange settlement and sales and cross-border capital flows of non-banking sector, it was far from reaching the period with higher pressure of capital outflow in 2015 and 2016, and the average deficit of individual foreign exchange settlement and sales was only 28% of the daily average on the month with highest pressure at that time. And the daily net outflow of cross-border capital was only 12% of the daily average on the month with highest pressure at that time.So your hypothesis didn't come up.
2018-07-19 11:08:56
Wang Chunying:
To guard against the risk of cross-border capital flows, we continue to enrich our response plans and policy reserves, and always adhere to two basic considerations.The first is to deepen the reform of foreign exchange administration, promote the two-way opening up of financial markets and serve the new pattern of comprehensive opening up in China.The second is to maintain the stability of the foreign exchange market, guard against the risk of cross-border capital flows, safeguard the security, liquidity, value preservation and appreciation of foreign exchange reserves, and safeguard the national economic and financial security.
In the long run, while accelerating the reform of key areas and links of foreign exchange administration, we will continuously improve and optimize macro-prudential management and micro-market supervision of cross-border capital flows.First, establishing a macro-prudential management system for cross-border capital flows, counter-cyclically adjusting short-term fluctuations in the foreign exchange market, and safeguarding the security of the financial system and the equilibrium of balance of payments.Second, improving the micro-regulatory framework of the foreign exchange market, cracking down on foreign exchange irregularities to maintain the order of the foreign exchange market.
2018-07-19 11:22:54
Wang Chunying:
As for macro-prudential policy, first, the monitoring, early warning and response mechanism of macro-prudential management of cross-border capital flows should be established and improved.Secondly, the toolbox of macro-prudential management of cross-border capital flows should be enriched, which will be adjusted continuously according to the changing situation and open policies, including the risk reserve used in the past, and macro-prudential management policies focusing on banks and short-term capital flows. As for the supervision of micro-market, the first is to adhere to the verification of authenticity, compliance and legality, fulfill the obligations of anti-money laundering, anti-terrorist financing and anti-tax avoidance, and protect the legitimate rights and interests of market players. The second is to maintain the stability and consistency of policies across cycles. The third is to adhere to the principle of "leaving traces" in cross-border transactions and strengthen penetrating supervision.
2018-07-19 11:29:11
China Daily reporter:
Since this year, the spreads between China and the United States have narrowed as a whole, and the Federal Reserve will continue to raise interest rates in the future. Will this put some pressure on China's capital outflow?
2018-07-19 11:34:25
Wang Chunying:
Thank you for your question. The impact of interest rate spreads on cross-border capital flows needs to be analyzed and judged more comprehensively.
Spreads do affect cross-border capital flows, but they are not the only or fundamental factor.We can cite several examples: First, in recent years, the interest rate of the US dollar has been significantly higher than that of the Euro zone and Japan, but international capital has not flowed from Europe and Japan to the United States continually, and the exchange rate of the US dollar has not continued to appreciate in the past few years.It shows that international capital needs to consider the comparison of economic growth expectations, monetary policy adjustment, and the resultant exchange rate changes, and also the decentralization of different assets.Secondly, historically, in order to curb capital outflow, many emerging economies raised interest rates by a large margin, even to tens of percentage points, but they failed to attract more capital inflows or retain domestic capital outflow. The related risks brought by economic vulnerability is a very important consideration for all kinds of investment capital.Thirdly, for most of the time period from 2006 to 2007, the interest rate of RMB in China was lower than that of US dollar. At that time, we were faced with continuous net cross-border capital inflows, which showed that factors such as domestic economic conditions, long-term investment prospects and RMB exchange rate expectations had significantly greater impact than that of spreads.So we say that spreads will affect cross-border capital flows, but they are not the only nor the most fundamental factor.
2018-07-19 11:35:38
Wang Chunying:
Therefore, factors such as relatively stable economic fundamentals, still high comprehensive investment returns, and increasingly improving demand for RMB asset allocation will have a more important impact on China's cross-border capital flows. First, the uncertainties in the current international financial market have increased and investment risks have increased. However, China's economic fundamentals are generally stable with progress, and the overall social and political situation is stable. At present, China is in the deepening period of reform and opening up. A stable investment environment and huge market development space are still conducive to attracting investment. Secondly, the comprehensive return of overseas investment in China is still very high.According to the data of balance of payments, we estimate that the average return on investment of all kinds of capital coming to China in 2017 was 5.9%. Among them, the return on direct investment in China was higher, which was obviously higher than that of foreign direct investment in developed countries like Europe and America. Thirdly, China's securities market has been continuously opened up to the outside world. At present, RMB assets are still in the stage of low allocation in international capital investment. Just now, I mentioned that the market value of foreign investors in stock market and bond market is less than 3% and 2%, respectively, so there is great room for improvement in the future. Fourthly, the two-way fluctuation of the RMB exchange rate against the US dollar has increased, and it is a relatively stable and powerful currency in the global currency.According to the daily data released by the Bank for International Settlements, it is estimated that CFETS of RMB appreciated by 2.8% in the first half of this year, ranking 10th out of 61 currencies monitored by the Bank for International Settlements.
2018-07-19 11:38:36
Wang Chunying:
In addition, the impact of the Federal Reserve raising interest rate on the long-term interest rate of the US dollar needs to be observed.Looking back on 2017, the Federal Reserve raised interest rates three times, but the yield of 10-year Treasury bonds remained basically unchanged. Market expectations of the U.S. economic outlook and other factors will affect its long-term interest rate movements. These are my views on your questions. Thank you.
2018-07-19 11:41:44
Economic Daily reporter:
How has China's external debt changed since the beginning of this year, and would you please analyze the causes and risks of this change?
2018-07-19 11:44:47
Wang Chunying:
According to the latest published data, at the end of March this year, China's total external debt balance reached USD 1,843.5 billion, an increase of USD132.9 billion over the end of last year.
From the perspective of term structure, China's external debt structure has been further optimized, and the proportion of short-term external debt has declined significantly.At the end of March this year, the medium- and long-term external debt balance accounted for 36% of the total external debt, which was basically the same as that at the end of 2017, up by 9 percentage points from that at the end of 2014 when the full-scale external debt statistics were first published.We have observed that 80% of the newly growing external debt is debt securities. Foreign investors have increased their investment in China's medium- and long-term bonds, reflecting their confidence in China's long-term economic growth. At the end of March, the ratio of outstanding short-term external debt was 64%, which was the same as that at the end of 2017, down by 9 percentage points from that at the end of 2014.
2018-07-19 11:45:19
Wang Chunying:
According to the classification of debt instruments, the growth of money and deposits, and debt securities is obvious. The increase of both accounts for about 70% of the total increase of external debt, which is mainly because of the increased deposits in domestic banks by overseas non-resident institutions and individuals. Meanwhile, the willingness of overseas non-resident institutions to invest in domestic bond market is strong.
Overall, China's external debt risk is controllable.Several external debt risk indicators, such as liability ratio, debt ratio, debt servicing ratio, are within the safety line of international standards. Preliminary judgment shows that China's outstanding external debt will grow steadily in the second quarter, which is conducive to promoting domestic market players to make better use both the domestic and international resources and markets under controllable risks. Thank you.
2018-07-19 11:46:25
This is the end of today's conference. Thank you, Director Wang! Thank you all!
(The original text is available at www.china.com.cn)
