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The State Administration of Foreign Exchange (SAFE) recently released the data on foreign exchange settlement and sales by banks and foreign-related receipts and payments by banks for customers for December 2015. The spokesperson of the SAFE answered press questions on related issues. Q: What would you say about the cross-border capital flows in China in 2015? What are the characteristics? A: Overall, China witnessed net outflows of cross-border capital in 2015, but the pressure from outflows in the fourth quarter was lower than it was in the third quarter. Below are the major characteristics: First, foreign exchange settlement and sales by banks and foreign-related receipts and payments by banks for customers were both in deficit. In 2015, in dollar terms, foreign exchange settlement by banks was down by 9% from 2014, and foreign exchange sales by banks were up by 24%, indicating a deficit of USD 465.9 billion; foreign-related receipts by banks for customers were slightly down by 0.8%, and foreign-related payments by banks for customers were up by 6%, suggesting a deficit of USD 200.9 billion, including a deficit of USD 253.8 billion in foreign-related foreign exchange receipts and payments. Second, cross-border capital flows fluctuated drastically. For foreign exchange settlement and sales by banks, a deficit of USD 91.4 billion was recorded in the first quarter, which declined to USD 13.9 billion in the second quarter, expanded to USD 196.1 billion in the third quarter and then dropped to USD 164.4 billion in the fourth quarter. For foreign-related foreign exchange receipts and payments by banks for customers, deficits of USD 25.3 billion, USD 1.6 billion, USD 163.7 billion and USD 63.1 billion were posted in the first, second, third and fourth quarters respectively. Net foreign exchange outflows in the fourth quarter were down by 61% quarter-on-quarter. Third, companies actively repaid domestic foreign exchange loans and cross-border financing and released the risks of high-leverage operation and currency mismatch in an orderly way. The foreign exchange sales rate that measures the motivation for purchasing foreign exchange, or the ratio of foreign exchange sales by banks for customers to foreign-related foreign exchange payments, was 81% in 2015, 12 percentage points higher than it was in 2014, indicating an increasing part of foreign exchange payments by companies was made for foreign exchange purchases while a smaller part was for financing. Accordingly, the balance of domestic foreign exchange loans dropped by USD 100.6 billion in 2015, compared with an increase of USD 21.7 billion in 2014. The cross-border trade finance for imports such as refinancing and forward L/C fell by USD 115.1 billion in 2015, compared with a drop of USD 44.9 billion in 2014. Fourth, letting people hold more foreign exchange was pushed ahead with and outbound investments by companies for going global were accelerated. The foreign exchange settlement rate that measures the willingness to settle foreign exchange, or the ratio of foreign exchange settlement by banks for customers to foreign-related foreign exchange receipts, was 68% in 2015, 3 percentage points lower than 2014, suggesting companies and individuals were more willing to hold foreign exchange income. While more foreign exchange was used to repay domestic foreign exchange loans and cross-border financing, the balance of companies' foreign exchange deposits as a whole went up by USD 24.9 billion in 2015. The balance of individuals' domestic foreign exchange deposits climbed by USD 18.4 billion, up by USD 13.3 billion than 2014. Chinese companies made ODI of USD 161.4 billion in 2015, up by 90% from 2014. Fifth, banks posted a deficit in forward settlement and sales of foreign exchange, which dropped significantly in the fourth quarter. In 2015, the value of contracts signed between banks and customers in respect of forward settlement of foreign exchange dropped by 56% compared with that of 2014 and the value of contracts signed between banks and customers in respect of forward sales of foreign exchange went up by 33%, indicating a deficit of USD 194.2 billion. Specifically, the deficit was USD 47 billion in the first quarter, dropped to USD 21.5 billion in the second quarter, expanded to USD 99.3 billion in the third quarter and then fell by a staggering 73% quarter-on-quarter to USD 26.3 billion in the fourth quarter. Q: What is your view of the recent significant changes in Chinas' cross-border capital flows? A: The current cross-border capital flows are reflective of the adjustment of the structure of external assets and liabilities in China. According to the data in the International Investment Position, China's net external assets amounted to USD 1.54 trillion as at the end of September 2015. For statistical reasons, this figure is not comparable to that of the end of 2014, but is USD 136 billion higher than the comparable figure of the end of March 2015. Specifically, holders of external assets have shifted from the central bank to market players. As official reserve assets drop, the assets of Chinese market players, such as ODI, securities investments and overseas deposits and loans, have increased, with the figures of the end of September climbing by USD 52.5 billion, USD 8.8 billion, and USD 87.8 billion from the end of March respectively. As for external liabilities, foreign investments in securities and foreign loans in China are dropping, with the figures of the end of September decreasing by USD 180.4 billion and USD 71.5 billion from the end of March. Meanwhile, China's FDI has increased by USD 100.5 billion, indicating continuous inflows of funds for long-term investments. For the moment, China's balance of payments remains stable, suggesting the risk of cross-border capital flows is within control. First, China continues to post a current account surplus, with the causes and structure of the surplus being reasonable, and still ranks No. 1 worldwide by the size of foreign exchange reserves, which was USD 3.33 trillion as at the end of 2015, much higher than USD 1.2 trillion in Japan, the No. 2 country, and USD 600-odd billion in Saudi Arabia, the No. 3 country. This indicates that the usual payments of the balance of payments are fully ensured. Second, the external solvency risk is in good order and within control. Some companies have recently adjusted their structure of assets and liabilities, leading to a drop of USD 143.4 billion in the balance of external debt at the end of September 2015 from the figure with comparable coverage at the end of March 2015, which is conducive to reducing the risk of repaying external debts in the future. As for solvency, China's external debt critical indictors have been within the international safe standards over the years. For example, as at the end of September 2015, the ratio of full-scale outstanding short-term external debt in both domestic and foreign currencies to the balance of foreign exchange reserves was 29.1%, down by 2.5 percentage points from the end of March and much lower than the international safe standard of 100%. Last but not least, the impact of cross-border capital outflows on domestic liquidity and economic and financial operation is within control. Q: What's your view of the impact of the Fed's interest rate rise on China's cross-border capital flows? If the Fed continues to slowly raise interest rates in 2016, what changes will occur to China's cross-border capital flows? What will be the mid- and long-term impact? A: The Fed's interest rate rise will boost the cyclical adjustment of the relevant structure of assets and liabilities of Chinese market players, which is in line with the market law and a necessary phenomenon. Over the past years, as developed economies such as the US adopted QE, emerging economies witnessed large-scale cross-border capital inflows. During this period, Chinese market players also showed a preference for foreign exchange financing to holding foreign exchange assets, which was a reasonable choice in face of unilateral appreciation of the RMB and low cost of foreign exchange financing, but was at risk of excessive adjustment and increased cross-border capital inflows in China. As the Fed recently exited from QE and began raising interest rates, Chinese enterprises adapted to the changes in the environment, optimized the structure of assets and liabilities in domestic and foreign currencies and adjusted the behavior of holding assets in domestic currency and owing debt in foreign currencies that has continued for years. For example, the SAFE statistics show that companies' cross-border financing for imports such as refinancing and forward L/C dropped from the peak of USD 367.4 billion in June 2014 to USD 164.6 billion at the end of 2015, which was equal to the level prior to the Fed's exit from the second round of QE in 2011. This change helped release the external financing risk accumulated by Chinese enterprises as developed economies adopted QE. The Fed's interest rate rise will pose a challenge to most emerging economies, but China has relatively strong capability to resist the external impact. An analysis of the impact of the Fed's past and recent interest rate rises on emerging economies shows that hard-hit countries are usually those struggling with obviously deteriorated economic fundamentals, continued current account deficit, and heavy reliance on external financing. China's overall economic fundamentals are sound, its economic growth is at the forefront among major economies despite a large economic size, its industrial structure is diversified with great potential, strong resilience, and large leeway, and its financial system is robust. China's balance of payments is stable and healthy, trade in goods and current accounts continue to post a surplus, long-term capital continues to flow in, foreign exchange reserves are abundant, and the marketization of the foreign exchange rate formation mechanism is being deepened. The Fed's interest rate rise will not upset the basic equilibrium of China's balance of payments in the mid- and long-term. The purpose of this round of interest rate rise by the Fed is to normalize the monetary policy, not to cool the overheated economy, but its direct or indirect impact on the US economy and finance will be taken into consideration, including changes of other economies due to the spillover, which may impact the US instead. As a result, the Fed's interest rate rise may be a slow and cautious process as we expect, the US Dollar Index will fluctuate prior to and post the interest rate hike, and part of the market impact of the interest rate hike may be digested step by step. The normalization of the Fed's monetary policy somehow indicates the promising prospects of the US economic recovery, which will be favorable for stabilizing China's external demand. But it is sure that China's cross-border capital flows are essentially dependent on China's domestic economic fundamentals. In the coming years, as China's economic structure is optimized and upgraded, and the dividends of reform are yielded, China's domestic economy is expected to stabilize and grow after the adjustment is completed, which will strengthen the foundation for the basic equilibrium of China's balance of payments. Q: China's balance of foreign exchange reserves dropped by USD 512.7 billion year on year as at the end of 2015. Where have these foreign exchange reserves been used? A: As at the end of December 2015, the balance of China's foreign exchange reserves was USD 3.33 trillion, down by USD 512.7 billion year on year. Many factors have contributed to the changes in China's foreign exchange reserves, such as the Central Bank's operation in the foreign exchange market, the price fluctuations of foreign exchange reserves as investment assets, the changes in foreign exchange rate and support of the "going global" effort by foreign exchange reserves. Major factors are as follows: First, changes in non-trading value like foreign exchange rate and price led to a decrease of more than USD 100 billion in the book value of foreign exchange reserves, which is different from outflows of foreign exchange from foreign exchange reserves. According to the balance of payments data, in the first three quarters of 2015, foreign exchange reserves obtained from the trading of foreign exchange dropped by USD 227.2 billion accumulatively, while the balance of the book value of foreign exchange reserves fell by USD 328.9 billion, indicating the book value of foreign exchange reserves was down by USD 101.7 billion due to the valuation factors such as conversion of foreign exchange rates. 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 the size of foreign exchange reserves. For example, as the US Dollar Index went up by 9% in 2015, foreign exchange reserves denominated in the US dollar will shrink when non-US dollar assets like the euro in foreign exchange reserves are converted into the dollar. Second, Chinese market players including companies optimized the structure of domestic assets and liabilities in domestic and foreign currencies, increased foreign exchange deposits and repaid foreign exchange loans. In 2015, corporate and individual foreign exchange deposits in China increased by USD 24.9 billion and USD 18.4 billion respectively, and domestic banks increased USD 102.4 billion in foreign exchange position to satisfy companies' demand for the maintenance of value in the long term. Meanwhile, the balance of domestic foreign exchange loans of companies fell by USD 100.6 billion. Third, companies and individuals made net payments in foreign exchange such as overseas investments, consumption and repayment of debt. In 2015, non-banking sectors such as domestic companies and individuals made net cross-border payments of USD 253.8 billion in foreign exchange, for ODI, securities investments under QDII, repayment of overseas financing, studying abroad and travel. But huge net inflows of foreign exchange were registered under FDI and overseas securities financing by Chinese companies. Fourth, as defined by the IMF on foreign exchange reserves, foreign exchange reserves used to support the "going global" effort would be deducted from total foreign exchange reserves when being calculated. As the economic and financial environments both at home and abroad are still complex and changing, it is normal to see foreign exchange reserves fluctuating. As the formation mechanism for the marketization of the RMB exchange rate is improved, the balance of payments will achieve basic equilibrium and fluctuations of foreign exchange reserves may become a new normal. Q: China's foreign exchange reserves have been shrinking recently, which have sparked concerns that the liquidity of foreign exchange reserves may be exhausted. What would you say about this? A: The increase and decrease in foreign exchange reserves are the results of macroeconomic operation. The recent changes in the size of foreign exchange reserves are reflective of the adaptive adjustments of assets and liabilities in domestic and foreign currencies by domestic market players, which send some positive signals, and future changes need to be viewed in a sensible way. As far as liabilities are concerned, China's external liquidity risk is in a good order and within control. Of the outstanding external debt of USD 1.53 trillion as at the end of September 2015, USD 506.3 billion was mid- and long-term external debt and half of the short-term external debt was trade-related credit. 47% of external debt was denominated in the RMB. Moreover, companies are actively pushing forward deleveraging of external debt. After their balance sheets are recovered, the financial situation will become healthy, which will be more favorable for structural adjustment. The amount of external debt is within the bearable range of foreign exchange reserves, which are more than USD 3 trillion at the moment. As for assets, companies are the key holders of foreign exchange in the effort of letting people hold more foreign exchange, and they focus on ODI, which has produced significant results in recent years. The International Investment Position data show that the ODI assets of Chinese market players went up by USD 52.5 billion as at the end of September 2015 from the end of March. Individuals purchase foreign exchange mainly for two purposes: first, traveling, shopping and studying abroad, which are the objective results of Chinese economic growth. Second, individuals' wealth management demand to allocate foreign currency assets. Given the real interest differentials between domestic currency and foreign currencies, the benchmark yields of RMB financial products in China still can reach 4%, much higher than the US dollar deposit interest rates and the yields of financial products in other currencies in China, indicating foreign currency assets are not the ideal wealth management channels for Chinese individuals. As for individual use of foreign exchange, no changes have occurred to the policies for purchases of foreign exchange within the quota of USD 50,000 or for purchases of foreign exchange of over USD 50,000 under the current account based on the transaction certificates. Therefore, individuals need to purchase and hold foreign exchange in a sensible way. Overall, measured by the absolute amount of foreign exchange reserves or by other adequacy indicators such as the shares of foreign exchange reserves in GDP, imports and external debt, China's foreign exchange reserves are abundant, which lays a strong foundation for the state to withstand external impact. Q: Will the SAFE introduce new management measures in respect of cross-border capital flows? Will measures be taken to restrict purchases of foreign exchange and capital outflows? A: Given the current situation of cross-border capital flows, the logic that the risk bottom line should be safeguarded while the overall principle of supporting reform and opening up should be followed in foreign exchange administration will remain unchanged. In recent years, under the uniform arrangements of the CPC Central Committee and the State Council, efforts have been made to support the development of the real economy, promote administration streamlining and power delegation, and facilitate trade and investment activities in foreign exchange administration. At the same time, further efforts have been made to strengthen monitoring and early warning of the balance of payments statistics, improve ongoing, ex-ante and macro-prudential management, and enhance offsite verification and onsite inspections so as to guard against unusual cross-border capital flows. This is the direction that has been followed in foreign exchange administration as boosting reform while guarding against risks have been the responsibilities and primary tasks of foreign exchange authorities. As a result, the principle of supporting and facilitating normal and reasonable use of foreign exchange by market players has not been changed. To prevent drastic fluctuations of cross-border capital, the SAFE has taken some measures, particularly heightened monitoring, standardization of business, crackdown of speculations and irregularities, but no new regulations on restricting purchases and payments of foreign exchange have been introduced. For example, the policy for individual purchases and payments of foreign exchange remains unchanged. The annual quota for individual purchases of foreign exchange of USD 50,000 per person or the equivalent has not been restricted or slashed and such purchases can be done through multiple channels including bank counters, online banking, self-service terminals, telephone banking and mobile banking. Purchases of foreign exchange under the current account of more than USD 50,000 or the equivalent can be handled at bank counters by presenting transaction certificates provided that the transaction background is authentic. Meanwhile, the requirements for heightening regulation of the authenticity and compliance of foreign exchange receipts and payments have not been changed either. The prerequisites for the facilitation and liberalization of foreign exchange administration remain to be authenticity and compliance. The requirements for authenticity and compliance do not conflict with facilitation. As the demand of the real economy is satisfied and the normal order of the foreign exchange market is maintained, trade and investment facilitation could obtain real and effective guarantee, and benefit the absolute majority of market players. Going forward, foreign exchange authorities will supervise the implementation of the regulatory requirements for authenticity and compliance through offsite monitoring and onsite inspections. Foreign exchange authorities will focus their monitoring and verification on foreign exchange receipts and payments by banks and companies, guide banks to handle foreign exchange business under the principles of "knowing you customer", "understanding your business" and "due diligence" to perform their responsibilities for authenticity and compliance reviews. Moreover, foreign exchange authorities will continue to conduct related inspections of foreign exchange business, crack down on regulatory and legal offences such as fabricated foreign exchange transactions without an authentic transaction background and underground banks. 2016-02-14/en/2016/0214/1186.html
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The State Administration of Foreign Exchange (SAFE) recently released Preliminary Data on China’s Balance of Payments Statement for the Fourth Quarter and the year of 2015. The press spokesperson of the SAFE answered press questions on China's balance of payments as follows: Q: Could you brief us on China's balance of payments for 2015? A: China witnessed new changes to its balance of payments in 2015, with the twin surpluses that have continued for a long time replaced by the current account surplus and the capital and financial account (excluding reserve assets) deficit. First, the current account surplus grew to nearly USD 300 billion. The current account surplus was USD 293.2 billion in 2015, up by 33% year on year, and the current account surplus as a percentage of GDP was 2.7%, compared with 2.1% in the previous year. The surplus of trade in goods hit a new record high. In 2015, the surplus in trade in goods under balance of payments reached USD 578.1 billion, up by 33% year on year. The income from trade in goods was USD 2.145 trillion, down by 4%, while the expenditure was USD 1.5669 trillion, down by 13%. Trade in services continued to be in deficit. In 2015, the deficit of trade in services was USD 209.4 billion, up by 39% year on year. The income from trade in services was USD 230.4 billion, down by 1%, while the expenditure reached USD 439.7 billion, up by 15%. Travel racked up the highest deficit among the items under trade in services, which was USD 195 billion in 2015, up by 81% year on year. The reason was Chinese residents' strong demand for study, travel and shopping abroad. The deficit in primary income expanded. In 2015, the deficit in primary income (previously called primary yield) hit USD 59.2 billion, up by 74% year on year. The income was USD 230.1 billion, up by 8%, and the expenditure reached USD 289.3 billion, up by 17%. The cause of the deficit was that due to the heavy stock of FDI, the expenditure on return on investment grew faster than the income from the return on China's ODI. The deficit in secondary income contracted. In 2015, the deficit in secondary income (previously known as current transfers) hit USD 16.3 billion, down by 46% year on year. The income was USD 37.9 billion, down by 8%, and the expenditure was USD 54.2 billion, down by 24%. Second, the financial account was in deficit. China's non-reserve financial account deficit was USD 504.4 billion in 2015 (including net errors and omissions in the fourth quarter, but it is expected that the actual data may be lower than this figure). Net inflows from direct investments dropped. In 2015, net inflows from direct investments reached USD 77.1 billion, down by 63% year on year. On the one hand, net outflows for ODI hit USD 167.1 billion, up by 108% year on year, suggesting that as the Belt and Road Initiative was promoted, Chinese enterprises became optimistic about the prospects for overseas investments and stepped up efforts to go global. On the other hand, net inflows from FDI reached USD 244.2 billion, down by 16% year on year, which, however, suggested that overseas investors remained optimistic about the long-term prospects for investing in China and net inflows from FDI remained high. Third, foreign exchange reserves fell. As at the end of 2015, the balance of China's foreign exchange reserves was USD 3.3 trillion, down by USD 512.7 billion or 13% year on year. Specifically, the foreign exchange reserves arising from international transactions dropped by USD 342.3 billion, and the carrying value of the foreign exchange reserves arising from non-transaction factors such as changes of foreign exchange rates and asset prices fell by USD 170.3 billion. Q: Why did the current account surplus increase significantly amid capital outflows in 2015? Will capital outflows put China's balance of payments at risk? A: To answer this question, we should first look at the preparation of the Balance of Payments Statement. By the latest international standards, the Balance of Payments Statement contains the current account, and the capital and financial account. If errors and omissions are not taken into consideration, the absolute value of the current account surely equals that of the capital and financial account, and the sum of the two accounts is zero. This means that if the current account is in surplus, the capital and financial account is in deficit, to be sure. The larger the current account surplus, the higher the capital and financial account deficit. According to the recording principle of the Balance of Payments Statement, the increase in external assets or the decrease in liabilities is recoded as capital outflows. This means that the deficit of the capital and financial account indicates the increase in China's net external assets. Previously, when the current account surplus was heavy, China achieved the equilibrium of the balance of payments by increasing reserve assets or making outbound investments with reserve assets, which are shown as capital outflows. But this changed dramatically in 2015, with capital outflows arising from significant increase in reserve assets replaced by capital outflows arising from significant increase in net external assets held by other private sectors. The capital outflows in 2015 were the results of domestic banks' and enterprises' voluntary increase of their external assets and repayment of previous foreign financing, which were substantially different from withdrawal of foreign capital. In the year, reserve assets arising from international transactions dropped by USD 342.9 billion, and were shown as capital inflows in the Balance of Payments Statement while net capital outflows of USD 504.4 billion were recorded in the non-reserve financial account. This means while reserve assets were decreasing, net external assets held by the private sector were increasing. In the first three quarters (the data for the fourth quarter are unavailable), China witnessed an increase of USD 272.7 billion in external assets. To be specific, ODI as a result of the going global efforts went up by USD 115 billion, stock and bond investments through the Shanghai-Hong Kong Stock Connect or QDII, USD 57.3 billion, and other investments such as overseas deposits and foreign loans, USD 96.9 billion. External debt fell by USD 32.1 billion, while continued inflows of USD 184.1 billion were recorded under FDI. The decrease in external debt was chiefly due to the decreased non-resident deposits and the repayment of trade finance of previous years. Generally speaking, the current capital outflows from China are the result of the shift of China's external assets from reserve assets to the private sector, and China's external assets and liabilities structure ensures the stability of its foreign-related economy and its capability to withstand strong impact. First, China's current account has remained in surplus and its net external assets are immense. As at the end of September 2015, China posted USD 6.28 trillion in external financial assets, USD 4.74 trillion in external debt and USD 1.54 trillion in net assets, which enabled it to remain at the world's second place by net assets. So long as the current account remains in surplus, there will surely be capital outflows as a result of the increase in net external assets, which will either be in the form of reserve assets or be held by the private sector. Second, the central bank has an enormous amount of foreign exchange reserves, which will be favorable for the government to concentrate resources to withstand possible impact from capital flows. By the end of 2015, China's reserve assets amounted to USD 3.33 trillion, which was the highest worldwide, nearly 3 times that of Japan (USD 1.2 trillion), the No. 2 worldwide, and 5 times that of Saudi Arabia (more than USD 600 billion), the No. 3 worldwide. Third, unlike other countries' external debt that is mainly comprised of short-term stocks of foreign-owned companies and bond investments, China's external debt is mainly FDI, which is made for the purpose of long-term and stable operation. As at the end of September 2015, China's stock of FDI amounted to USD 2.85 trillion, accounting for 60% of its total liabilities. As these investments have been integrated into the real economy, if foreign companies want to withdraw their investments, they need time to cash in the land, plants and machinery they have, and enough support from cash flows even if they want to remit out the accumulated undistributed profits. Fourth, the additional net external assets of the private sector are mostly productive assets, such as ODI, which are the positive results of making better use of domestic and overseas markets and resources. Both theories and practices show that it is a trend that the private sector will allocate productive and financial resources at the global level at a certain stage of economic development. Last but not least, it is an objective economic law that capital inflows will alternate with capital outflows while the long-term large-scale capital inflows are not sustainable. Between 2000 and 2013, as international capital flooded into emerging markets, China witnessed an astonishing amount of net capital inflows, which amounted to USD 1.35 trillion. As the domestic and foreign economic environments change, it is inevitable that China will witness usual and orderly capital outflows. Therefore, we should objectively view the changes in the balance of payments such as the capital and financial account deficit and the decrease in foreign exchange reserves. Q: Could you please predict China's balance of payments in 2016? A: Overall, it is expected that the pattern of "current account surplus and capital and financial account (excluding reserve assets) deficit" will continue in China's balance of payments in 2016, with the balance of payments staying stable and cross-border capital flow risk within control. The current account will continue to be in surplus. On the one hand, trade in goods will be in surplus. The continued slow recovery of the world economy will help stabilize China's external demand. The IMF projection shows that the world economic growth will hit 3.4% in 2016, 0.3 percentage point higher than in 2015. Meanwhile, as the Belt and Road Initiative is implemented, bilateral and multilateral strategic cooperation will be deepened, providing new opportunities for exports. As the US dollar strengthens and the real demand remains sluggish, the commodity prices in the global markets will remain low, making it hard for import prices to rebound in the year. China's domestic demand will stay stable, so it is not very likely that imports will change dramatically and the import volume will remain lower than the export volume. On the other hand, trade in services will continue to be in deficit. Expenses on travel will still be the primary cause of the deficit as Chinese residents' consumption demand for travel and study abroad will remain strong. As a result, it is expected that the current account surplus, led by the surplus in trade in goods, will continue. The capital and financial account is expected to stay in deficit, with either cross-border capital outflows or inflows under different entries. First, overseas long-term capital will remain optimistic about China's economic prospects and market potential and foreign capital aimed at long-term investments will continue to flow in. China posted a net FDI inflow of USD 244.2 billion in 2015, and is expected to continue to witness a large-scale net FDI inflow in 2016. Second, the normalization of the US monetary policy and the operational risks facing the emerging markets will continue to heighten the fluctuations of China's cross-border capital flows, and domestic market players' demand for the allocation of overseas assets and the tendency to deleverage overseas liabilities will remain. If the US adjustment of its monetary policy is consistent with market expectations, its impact on the global financial markets will be gradually released and the capital outflows from China under the capital account will remain orderly and controllable. Overall, it is expected that China's balance of payments will remain stable and the cross-border capital flow risk will be within control in 2016. There are still many fundamental factors that support the stable and healthy operations of China's balance of payments. For example, with economic fundamentals having not changed substantially, China remains at the forefront among major economies by economic growth as its economic size keeps expanding, and the optimization and upgrading of its economic structure is accelerating. At the same time, China's current account remains in surplus, its foreign exchange reserves are still in abundance, and the outstanding short-term external debt as a percentage of the balance of foreign exchange reserves is far lower than 100%, the international security line. Therefore, China can fully ensure the receipts and payments in the balance of payments and is strong in withstanding the impact from cross-border capital flows. 2016-03-14/en/2016/0314/1193.html
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The State Administration of Foreign Exchange (SAFE) recently disseminated the official data on the balance of payments (BOP) for the first quarter of 2016. The press spokesperson of the SAFE answered media questions on relevant issues. Q: The data recently disseminated by the SAFE show that the surplus in the current account plunged in the first quarter of 2016 on a year-on-year basis. What are the main reasons behind? What are the outlooks for the current account? A: The current account registered a surplus of USD 39.3 billion in the first quarter of 2016, down by 54% year on year (same below) for the reasons as follows: First, the surplus in trade in goods fell. Trade in goods in the balance of payments registered a surplus of USD 103.9 billion in the first quarter, down by 11%. Dragged by sluggish demand in global markets, exports dropped by 12%, versus growth of 0.3% in the same period last year, while imports fell by 12%, lower than 16% in the same period last year, thanks to the stable domestic economy and pick-up of commodity prices, which, coupled with a high export base, resulted in a lower surplus in trade in goods. Second, the deficit in trade in services grew. Trade in services registered a deficit of USD 57.6 billion in the first quarter, up by 47%. The major component of the deficit was the deficit in travel, which hit USD 55.4 billion, up by 33%. This shows that, driven by China's enhancing economic strength and its people's increasing income, people's actual power for overseas purchasing has been strengthened and their demand for traveling, studying and seeking medical help abroad is enhancing. It is expected that the current account will remain in surplus in the near future, with its ratio to GDP still at an international rational level. First, trade in goods will remain in surplus. The slow recovery of the global economy has been favorable for stabilizing China's external demand, with its exports recovering in March-May, but as global commodity prices remain low, and China's domestic demand stays stable, its imports will continue to be greatly lower than exports. Second, trade in services and other accounts will remain in deficit. Overall, the current account led by trade in goods will continue to register a surplus, and its ratio to GDP is expected to be consistent with the level for recent years. Q: The data recently disseminated by the SAFE show that the non-reserve financial account remained in deficit in the first quarter of 2016. What would you say about this? What are your perspectives into the future BOP status? A: The deficit in the non-reserve financial account (excluding reserve assets, same below) shows domestic players have made heavier outbound investment and reduced their external debt. In the first quarter of 2016, the financial account recorded a deficit of USD 123.3 billion, up by 9% year on year and down by 26% quarter on quarter. On the one hand, domestic players participated in international economic activities more actively but were more sensible than in the fourth quarter of 2015. External assets for the first quarter rose by USD 109.8 billion, which was up by 35% year on year or down by 3% quarter on quarter. Those in direct investment and other investment went up by USD 57.4 billion and USD 28.7 billion respectively, which was up by 77% and 26% year on year, or down by 13% and 6% quarter on quarter. On the other hand, Chinese companies' external debt fell further, but they were slow in deleveraging. The external debt for the first quarter dropped by USD 13.5 billion, which was down by 57% year on year or 75% quarter on quarter. Net outflows under other external debt for investment amounted to USD 38.5 billion, down by 67% year on year and quarter on quarter respectively. But overseas capital under direct investment recorded heavy net inflows, showing overseas long-term capital remains confident in China. The pressure on China from cross-border capital outflows has been relieved recently. The deficit in banks' settlement and sales of foreign exchange dropped by 35% and 47% in April and May on a quarter-on-quarter basis. The deficit in banks' foreign-related receipts and payments for customers was down by 66% quarter on quarter in April, but banks' foreign exchange receipts and payments for customers turned around in May. The balance of foreign exchange reserves fell by a monthly average of USD 10.4 billion in April and May, much lower than the monthly average decrease of USD 39.3 billion in the first quarter. China's BOP is expected to find a basic level of equilibrium in 2016, with continued surpluses in the current account and deficits in the capital and financial account. On the one hand, driven by policies and measures for economic restructuring, production capacity adjustment and industry upgrading, China's economy will sustain a mid-to-high growth rate, the current account led by trade in goods will remain in surplus, foreign exchange reserves will continue to be adequate, and its capability against the impact from cross-border capital flows will be strong, which will make China attractive to long-term foreign investment. On the other hand, under the new normal of economic transformation and upgrading, domestic players will raise their awareness of participation in international economic development, which will drive them to make rational arrangements for cross-border investment and financing based on domestic and overseas situations and their development needs. Under such circumstances, China's BOP is expected to find a basic level of equilibrium as its cross-border capital will display a pattern of alternation of inflows and outflows and bidirectional fluctuations. 2016-08-30/en/2016/0830/1208.html
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The State Administration of Foreign Exchange (SAFE) released statistics on foreign exchange settlement and sales by banks and foreign-related receipts and payments through banks in April 2016. The SAFE press spokesperson answered media questions on recent cross-border capital flows. Q: China's cross-border capital outflow pressure was eased in the first quarter this year, are there any new developments in April? A: The gradual easing of cross-border outflow pressure of the first quarter continued in April. Since the beginning of this year, both the deficit in foreign exchange settlement and sales and the deficit in foreign-related receipts and payments of banks have been on the decline. In April 2016, banks' deficit in foreign exchange settlement and sales stood at USD 23.7 billion, down by 35percent month on month. In January to March, banks' deficit in foreign exchange settlement and sales was USD 54.4 billion, USD 33.9 billion and USD 36.4 billion respectively. In April, the non-banking sectors posted a deficit in foreign-related receipts and payments of USD 8.9 billion, down by 66 percent month on month. Specifically, the net outflow of foreign exchange funds hit USD 2 billion, down by 67 percent month on month. In January to March, the net outflow of cross-border capital was USD 55.8 billion, USD 30.5 billion and USD 26.1 billion respectively and the net outflow of foreign exchange was USD 20.1 billion, USD 10.5 billion and USD 5.9 billion respectively. Besides, the balance of foreign exchange reserves rebounded in two consecutive months, with an increase of USD 10.3 billion and USD 7.1 billion in March and April respectively. The details are as follows: Firstly, domestic players were less willing to buy foreign exchange, and their external debt repayment continued to slow down. In April, the foreign exchange sale ratio (or the ratio of foreign exchange purchased by clients from banks to their foreign-related foreign exchange payments) that measures the motivation to buy foreign exchange was 75 percent, down 5 percentage points from the first quarter. Meanwhile, the balance of import financing such as refinancing and forward L/C dropped by USD 1.3 billion, which was 88% lower than the monthly average fall for the first quarter. Secondly, enterprises and individuals were more willing to settle exchange settlement but less willing to hold foreign exchange. In April 2016, the foreign exchange settlement ratio (or the ratio of foreign exchange sales to banks by clients to their foreign-related foreign exchange receipts) that measures the willingness to settle foreign exchange was 63 percent, 4 percentage points higher than the first quarter. In the same period, the balance of foreign exchange deposit increased by USD 900 million, which contracted by 93 percent from the monthly average growth for the first quarter. Since the beginning of this year, China has been under easing pressure from cross-border capital outflows, which reflects the changes in internal and external market environments. In the near future, China's economy will continue to operate within the reasonable range and at a relatively high rate compared with those of the rest of the world, which will be conducive to the overall stability of China's cross-border capital flows. 2016-07-11/en/2016/0711/1199.html
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Q: How do you view the changes in China’s full-scale external debt data as of the end of September? A: As at the end of September 2015, China's full-scale outstanding external debt was the equivalent of USD 1.5298 trillion, down by USD 150.3 billion from the end of June. Our analysis shows that the changes in the size of China's external debt are primarily caused by the following: first, domestic players have been actively repaying debt under trade finance to avoid exchange rate risks. As of the end of September, banks' balance of trade finance (i.e., refinancing and forward L/C) was USD 31.4 billion lower than that of the end of June. Second, domestic players have optimized the structure of liabilities and assets in domestic and foreign currencies through financial operation. By the end of September, the outstanding RMB-denominated external debt fell by USD 98.1 billion from the end of June. Third, along with heightened expectations of the Fed's rate rise in the third quarter, some foreign financial institutions and non-residents have adjusted their deposit allocation. The deposits passively absorbed by Chinese financial institutions from their foreign counterparts and non-residents dropped by USD 70.3 billion as of the end of September, as compared with that of the end of June. Overall, with the decline in external debt, the external solvency risk facing China has been reduced. Going forward, as the RMB exchange rate elasticity is enhanced, the capital account convertibility is further boosted and the interest rate and exchange rate change in international markets, short-term fluctuations in China's full-scale external debt may become a new normal. The State Administration of Foreign Exchange (SAFE) will continue to enhance ongoing and ex-post monitoring and analysis, actively build an external debt and capital flow management system under the macro-prudential management framework, increase the response policy reserves and improve emergency plans to guard against the risks associated with abnormal cross-border capital flows. 2016-01-06/en/2016/0106/1180.html
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With the approval from the State Council, Zhou Xiaochuan, governor of the People's Bank of China, wrote a letter on October 6, 2015 to Christine Lagarde, managing director of the International Monetary Fund (IMF), in the capacity of Governor of the IMF for China, officially informing Ms. Lagarde of China's decision to adopt the Special Data Dissemination Standards (SDDS) of the IMF. This marks that China has completed all the processes for subscribing to the SDDS and will observe the SDDS to disseminate its statistical data. On October 7, Yi Gang, deputy governor of the People's Bank of China and administrator of the State Administration of Foreign Exchange (SAFE), and David Lipton, first deputy managing director of the IMF, attended a ceremony to celebrate China's adoption of the SDDS during the annual meeting of the IMF in Lima. Subscribing to the SDDS, a necessary step in reform and opening up, will further improve the transparency, credibility and International comparability of China’s macroeconomic statistics, further unveil China's macroeconomic conditions to provide timely and accurate basis for decision-making on the macro-economy, and deepen the international community's and the public's understanding of China's economy to expand China's participation in global economic cooperation. The adoption of the SDDS is another bold step forward in improving China's statistical system and transparency. To help data users to fully understand the statistical methodologies of China's foreign-related departments, scientifically assess the coverage, timeliness, availability and authenticity of the data, and reasonably judge the conditions of China's foreign-related economy, the SAFE hereby releases SDDS metadata for the Balance of Payments, the International Investment Position and the External Debt Statistics Interpretation Documents for reference. 2015-11-30/en/2015/1130/1177.html
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Recently, the State Administration of Foreign Exchange (SAFE) disseminated the country-specific data on China's external portfolio investment assets for the first time. The statistics show that China's external portfolio investment assets (excluding reserve assets) amounted to USD 286.8 billion as at the end of June 2015, including USD 177.8 billion in equity investments and USD 109.1 billion in bond investments. The top 5 recipients of Chinese investments were the US, Hong Kong, Cayman Islands, the UK and Japan, with the amount being USD 116.7 billion, USD 49.5 billion, USD 16.3 billion, USD 13 billion and USD 12.4 billion respectively. At the end of 2015, the SAFE wrote to the International Monetary Fund (IMF), confirming its participation in the Coordinated Portfolio Investment Survey (CPIS). The compiling principle of the CPIS is consistent with the sixth edition of the Balance of Payments and International Investment Position Manual (BPM6) published by the IMF. The data released this time were compiled in line with the requirements and formats of the CPIS, with the coverage consistent with the portfolio investment subentry under external assets in the BPM6, but the classified data were more detailed and country specific, with bond investments divided into long-term and short-term investments. The country-specific data on China's external portfolio investment assets are to be released on a half-year basis as required by the IMF. 2016-02-14/en/2016/0214/1187.html
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The State Administration of Foreign Exchange (SAFE) recently wrote letters to the International Monetary Fund (IMF) and the Bank for International Settlements (BIS) respectively, confirming its official participation in the Coordinated Portfolio Investment Survey (CPIS) and the International Banking Statistics (IBS). The CPIS collects information on the stock of cross-border portfolio investment holdings (by country or region). The BIS reflects the stock of the cross-border financial assets and liabilities of a country's banking industry. The compiling principles of the CPIS and IBS are consistent with the sixth edition of the Balance of Payments and International Investment Position Manual (BPM6) published by the IMF. Participation in the CPIS and IBS is one of the motions of the G20 on data gaps. The SAFE will release China's CPIS and IBS statistics soon. 2016-01-19/en/2016/0119/1184.html
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The People's Bank of China and the State Administration of Foreign Exchange (SAFE) released in November 2015 the Operational Guidelines for Funds Management in Cross-Border Issuance and Sales of Mainland and Hong Kong Securities Investment Funds (Guidelines), marking the official launch of the Mutual Fund Connect scheme. According to the Guidelines, the SAFE will disseminate the data on the inward and outward remittances for the cross-border issuance and sales of Mainland and HK funds on a monthly basis starting from February 2016. As at the end of January 2016, the cumulated net inward remittance from the issuance and sales of Mainland funds in Hong Kong amounted to RMB 21.5433 million, and the cumulated outward remittance for the issuance and sales of HK funds in the Mainland, RMB 40.1767 million. 2016-03-14/en/2016/0314/1191.html
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An interview was recently conducted with a responsible person from the State Administration of Foreign Exchange (SAFE) on the revised Methods for Reporting the Balance of Payments Statistics (hereafter referred to as the Methods). 1. For what types of transactions does China require that the statistics on the balance of payments be reported? A: In principle, balance-of-payments (BOP) statistics are required for all economic transactions between Chinese and non-Chinese residents, and all financial assets and liabilities arising therefrom, settled in either RMB or foreign currency: “residents” refer to individuals and institutions; “non-Chinese residents” refer to overseas individuals and institutions. “Economic transactions” refer to all activities involving economic incomes and expenditures, including purchases and sales of commodities, provision and use of services, and donations and financial investments, thus emphasizing the capital flows as the relevant activities occur. “Financial assets and liabilities arising therefrom” refer to a creditor’s rights and debt obligations after the occurrence of financial investments, with an emphasis on capital stock. 2. Among non-Chinese residents, who is required to report the BOP statistics? Is this also required of overseas Chinese? A: According to the revised Methods, non-Chinese residents who engage in economic transactions with Chinese residents within the territory of China are required to report the BOP statistics. Currently, statistical data on the balance of payments regarding transactions between Chinese and non-Chinese residents are primarily collected from the Chinese residents. The SAFE does not require non-Chinese residents to report the BOP statistics. However, as these transactions continue to expand in size and type, it will become more difficult and more costly to collect data only from the Chinese residents and will be more difficult to effectively guarantee the quality of the data. Thus, the revised Methods include a reporting requirement for non-Chinese residents who engage in economic transactions within China. The SAFE will introduce specific requirements in this regard at an appropriate time based on the actual circumstances. As overseas Chinese have been residing outside of China for a long period of time and most of their economic interests are in other countries, they are deemed to be non-Chinese residents. When they engage in economic transactions with Chinese residents within China it is difficult to collect high-quality statistical data, thus they are required to carry out the reporting obligation. But they need not report the BOP statistics on all their economic transactions, including those carried out with other non-Chinese residents outside of China, as these transactions are beyond the scope of the statistics in China. 3. Through what channels should the BOPS be reported? A: Entities now report the BOP statistics to the SAFE primarily through two channels: (1) direct reporting. This applies to large (financial and non-financial) institutions that are required to make timely reports on their transactions with respect to bulk foreign-related goods, services, stocks and bonds investments, deposits, and loans and financial derivatives investments; (2) indirect reporting, or reporting through relevant intermediaries. This applies to small and medium enterprises (SMEs) and individuals. Such an approach is designed to reduce the burden of on reporting entities, given the characteristics of their foreign-related economic transactions. The relevant intermediaries include banks, insurance companies, securities and fund companies, and institutions engaging in securities registration and settlement as well as custody of funds. 4. What is the meaning of “foreign financial assets and liabilities”? A: According to the revised Methods, the statistical scope of the balance of payments is expanded to include foreign financial assets and liabilities of Chinese residents. Simply put, assets with corresponding creditors and debtors are financial assets, including stocks, bonds, financial derivatives, deposits, loans, trade credits, and other receivables and payables. These assets are financial assets for the creditors and liabilities for the debtors. In contrast, there are non-financial assets, or assets without corresponding debtors, such as machinery equipment, inventories, gems, and intangible assets. To better understand the operations of the reporting entities, the SAFE enumerated the concept in the Notice of the State Administration of Foreign Exchange on Issuing Statistical Systems for Foreign Financial Assets, Liabilities, and Trading (Huifa [2013] No.43). 5. After the revised Methods have been implemented, how will Chinese individuals report their foreign financial assets? A: During the recent years Chinese individuals have made foreign financial investments based primarily on the system for qualified domestic institutional investors (QDII). Data on the stock of financial assets generated from these investments are primarily collected through the QDII custodian banks. The SAFE currently does not require individuals to report their stock of foreign financial assets. But as China's economy develops rapidly, individuals will have a broader range of channels for making foreign financial investments, and financial assets will continue to expand in size. To improve the quality of the statistical data, the revised Methods begin by improving the relevant systems and clarifying the obligations of individuals within China in terms of reporting their foreign financial assets and liabilities. The rules for the new Methods will be introduced in detail in the future, focusing on supervising the major financial investments made by Chinese individuals and easing controls over minor investments, with the aim of reducing the reporting burdens. 6. What penalties will be imposed if entities fail to report the BOP statistics? A: According to the revised Methods, the SAFE, or its branches/sub-branches, will penalize institutions and individuals that fail to report the BOP statistics in accordance with Article 48 of the Regulations of the People’s Republic of China on Foreign Exchange Administration. Penalties include warnings by foreign exchange administration authorities issued to the violating institutions and to individuals and orders that they correct their violations; institutions will be fined by a maximum of RMB300,000 and individuals will be fined by a maximum of RMB50,000 . 7. How will the SAFE ensure the timeliness, accuracy, and integrity of the BOP statistical data that are reported? A: China has created a complete and effective administrative system for collecting the BOP statistics. Further, the SAFE will take the following measures to ensure the timeliness, accuracy, and integrity of the BOP statistical data that are reported after the revised Methods are implemented. First, further improving the relevant laws and regulations. With implementation of the new Methods, the SAFE will standardize the content of the data and the channels for collection of the BOP statistics in accordance with the implementation rules and normative documents and will clarify the reporting obligations and channels for the relevant institutions and individuals. The SAFE has recently revised the Statistical System for Foreign Financial Assets, Liabilities, and Trading in line with the statistical scope of the “foreign financial assets and liabilities” highlighted in the new Methods. It will continue to supplement and improve the standards and rules for statistical reporting in light of the development of foreign exchange business and statistical needs. Second, enhancing the building of a data acquisition system to make overall improvements in the quality of the statistical data. The SAFE will accelerate development of a data submission system that will be aligned with the revised Methods and will provide banks and other reporting entities with rapid-reporting access. This will help the SAFE to employ wide-scale IT applications in terms of data collection, summaries, and processing. Third, intensify training and verification efforts. The foreign exchange administration authorities at all levels will provide data- reporting institutions such as banks with regular business training to improve the professional expertise of those statisticians involved in balance-of-payments transactions. The authorities will also conduct off-site verifications of the BOP statistical data that has been reported, track the quality of the relevant data in a timely manner, and even conduct on-site verifications if necessary. 8. What is the purpose of the BOP statistical data? Will the new Methods play an active role in combating corruption, money laundering, and tax evasion? A: According to Article 16 of the new Methods, “The SAFE and its branches and sub-branches shall keep the reported data strictly confidential and shall use them only for BOP statistical efforts. Unless otherwise provided by law, BOPS statisticians shall not provide the reported data to any institutions and individuals in any form.” Thus, the reported data on the BOP statistics are primarily used by the SAFE for monitoring and analyzing the foreign exchange situation and cross-border capital flows, and for compiling foreign-related macro-economic statistical data, including balance-of-payments statements, the international investment position, and foreign-related receipts and payments through banks. Thus far, independent management systems and data sources have been created to combat corruption, money laundering, and tax evasion. Unless otherwise provided for by the law, the SAFE will not provide the reported statistical data on the BOP to the above administrative authorities. These authorities shall not combat or penalize illegal practices by using the above data. 9. With the implementation of the new Methods, more entities will be required to report the BOP statistics. Will this contravene those policies that have been designed to facilitate external investments? A: No, it will not. First, as we allow the market to play a decisive role in allocating resources so as to facilitate external investments, China will be exposed to growing external economic risks. Only by acquiring timely, accurate, and integrated BOP statistical data can the potential risks be effectively warded off, thereby creating conditions for a bi-directional opening-up of the capital market. Second, in the wake of the global financial crisis, the major economies have imposed more stringent statistical requirements on foreign-related transactions by expanding the scope of the statistics, increasing the statistical elements, and enhancing the timeliness of the statistics. Major economic organizations including the IMF have increased the statistical standards for foreign-related transactions. China has tightened its requirements on reporting the BOP statistics in accordance with international conventions. Third, with implementation of the new Methods, the SAFE will develop scientific rules to reduce the burdens on the reporting entities by optimizing the channels and simplifying the procedures, thus enabling the entities to engage in more efficient reporting. The SAFE will also disclose the relevant BOP statistical data in a timely manner, thus revealing the development of China's foreign-related economy, with the aim of providing data support to develop investment strategies and to mitigate risks. 2013-12-31/en/2013/1231/1098.html