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Q: Could you please provide a briefing on China’s foreign- exchange situation during the first half of 2013? A: China has seen a transition from an increase in rapid inflows to balanced inflows and outflows of foreign exchange since the beginning of 2013. Foreign-exchange settlements and sales reached USD 911.4 billion and USD 773 billion respectively, resulting in a surplus of USD 138.4 billion during the first half of the year. During the period from January through April, due to the benefits of adequate international liquidity, stable economic fundamentals, and strengthened expectations of an appreciation of the RMB, the trend in large-scale foreign-exchange inflows that emerged during the second half of last October continued, with foreign-exchange settlements and sales at banks registering a surplus of an average of about USD 32.1 billion per month. But due to the changed economic environment in China and the rest of the world, as well due to policy adjustments in China, net inflows of foreign exchange have dropped sharply since May, with the foreign-exchange settlements and sales reaching a surplus of USD 10.4 billion in May but recording a small deficit of USD 400 million in June. Q: Why was there a slump in net cross-border capital inflows during the last two months? A: This was due to international, domestic, seasonal, and policy factors. In the global markets, as the U.S. Federal Reserve announced a gradual withdrawal of the quantitative easing monetary policy after its economic recovery picked up, since May the emerging markets have witnessed a currency depreciation, a decline in the stock markets, and capital outflows. In China, because of downward pressures on its economic growth, those who are bearish on China were on the rise, expectations of an appreciation of the RMB lessened, and forward rates showed the RMB will depreciate more sharply against US dollar; deleveraging reappeared among Chinese firms, and cross-border credit sales and trade financing by banks changed from an average of net inflows of USD 3.3 billion per month during the January-April period to an average of net outflows of USD 21.8 billion per month during May and June. In addition, as the foreign-exchange purchasing price on offshore RMB markets became higher than that on the domestic foreign-exchange market, more purchases of foreign exchange were made in the Chinese mainland, and RMB net payments under the trade item fell from a monthly average of USD 10.9 billion during the January-April period to USD 5.1 billion during May and June. All of the above factors contributed to the decrease in the surplus in foreign-exchange settlements and sales by banks. In terms of seasonal and policy factors, since May and June are peak seasons when Chinese residents choose to travel or to begin their studies abroad, as well as seasons when most foreign-funded firms distribute their bonuses, average monthly purchases of foreign exchange for overseas tours and for investments rose 16 percent and 83 percent respectively from the January through April period of this year. During the past few months, government departments, including the People’s Bank of China, the General Administration of Customs, the China Banking Regulatory Commission, and the State Administration of Foreign Exchange (SAFE), have introduced policies and measures to regulate the settlement of cross-border trade in RMB and customs declarations for exports and to enhance management of bank wealth management products and foreign- exchange inflows, and have managed to contain capital arbitrage via false trading in liquidity. Q: Most emerging markets have been under pressure from currency depreciations and capital outflows during the past months. I am wondering whether China is at risk of continuous large-scale cross-border capital outflows during the second half of the year. A: As the U.S. Federal Reserve is expected to gradually increase its exit from quantitative easing that began in May 2013, there have been signs that this may lead to gradual withdrawal of foreign capital from the emerging markets, with a decrease in the MSCI Emerging Markets Index and the currency indices by more than 10 percent. So far, no signs of massive foreign-capital withdrawals have been discovered in China. First, FDI and net cross-border capital inflows in securities investments have continued to rise. In June, net FDI inflows totaled USD 11.9 billion, up by 14 percent month on month, and net foreign-exchange settlements for securities investments totaled USD 1.5 billion, 3.5 times that during the previous month. Second, FDI withdrawals have remained at a low level. Foreign- exchange purchases for FDI withdrawals totaled USD 3.5 billion during the first half of the year, down by 17 percent year on year. Third, there have been only slight changes in the investment profits repatriated by foreign-funded firms. Foreign-funded firms usually distribute bonuses around June of every year. During this June, profits repatriated by foreign-funded firms dropped 2 percent year on year to reach USD 12.6 billion. Given the uncertainties and instabilities in China and the rest of the world, it is expected that during the second half of the year China’s cross-border capital will stabilize amid fluctuations. As global economic growth continues to slow down, China’s overall external demand will remain weak while international trade frictions will increase, thus placing heavy pressure on exports. As most people believe that the RMB exchange rate is currently at an equilibrium, higher two-way volatility and weaker expectations of an appreciation of the RMB are favorable for slowing down capital inflows. In 2012, for example, China saw bi-directional changes in cross-border capital flows. This pattern of cross-border capital flows and the balanced supply and demand for foreign exchange will become more common in the future, so adaptive adjustments will be made to both domestic macro controls and to the behavior of domestic market players. During the next phase, the SAFE will focus on strengthening the monitoring of cross-border capital flows, increasing policy and data transparency, improving contingency plans and policies to limit the impacts of two-way cross-border capital flows, and will do whatever it takes to control risks in order to support a balance in the balance of payments and the sustained healthy development of China’s foreign-related economy. Q: What about the increase in the foreign-exchange positions of the banks after the SAFE introduced measures to strengthen administration of foreign-exchange fund inflows? A: On May 5, the SAFE issued the Circular of the SAFE on Relevant Issues on Strengthening Administration of Inflows of Foreign- Exchange Funds (Huifa [2013] No. 20, referred to as Circular No. 20 hereafter), stating that a bank’s minimal consolidated position in foreign-exchange settlements and sales will be linked to the foreign-currency loan-to-deposit (LDR) ratio. Banks whose foreign-currency LDR ratio exceeds the reference rate can reduce their LDR ratio via decreasing foreign-currency loans and increasing foreign-currency deposits, or via buying foreign exchange on the spot market and increasing its position through forward foreign- exchange trading. As the policy allows for a two-month transition period, since its issuance the influence of this circular has been absorbed by the financial market, and the foreign-exchange market has remained stable. The overall consolidated position of banks at the end of June was USD 22.5 billion more than that on May 5, the day on which Circular No. 20 was issued, and it was higher than the amount that Circular No. 20 required to be increased. Further analysis shows that net outstanding forward foreign-exchange settlements registered an increase of USD 23.8 billion, while the decrease in the banks’ positions on a cash basis was USD 1.3 billion during the same period, suggesting that forward foreign exchange was not traded thoroughly flat on the spot market so that banks could meet the requirements of Circular No. 20 to increase their consolidated positions. Circular No. 20 has had a limited impact on the banks’ domestic- and foreign-currency cash positions. 2013-08-09/en/2013/0809/1085.html
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Q: Since the Fed initiated the QE tapering at the beginning of this year, some emerging economies have been struggling due to the currency depreciation and capital flight. Under such circumstances, what changes have occurred in terms of China’s cross-border capital flows and what are the main contributing factors? A: Presently China still has a large amount of net inflows of cross-border capital. In January 2014, China reported USD 73.3 billion of surplus in sales and settlements of spot foreign exchange and USD 25.4 billion of surplus in sales and settlements of forward foreign exchange (signed contracts), each representing a record high. Amidst the overall currency depreciation in the emerging markets, the RMB exchange rate remained stable during the month, with the nominal and real effective RMB exchange rate indexes prepared by the BIS up 1.2 percent and 2.1 percent respectively. Internal and external factors such as the real economy, the market, and seasonal fluctuations are the primary contributors to the massive amount of net inflows of foreign exchange. Customs statistics show that in January the surplus of imports and exports amounted to USD 31.9 billion, representing an increase of 13 percent year on year. Ministry of Commerce statistics show that within the month foreign capital disbursements amounted to USD 10.8 billion, up 16 percent year on year. Further, market sentiment prone to inflows continued after September 2013. Despite the polarization in the emerging economies, China has witnessed good economic performance and the RMB exchange rate has remained stable. Within the context of the key advanced economies continuing to maintain low interest rates, market players both at home and abroad remained bullish regarding the RMB and bearish regarding foreign currencies. In the run-up to the Chinese New Year, foreign trade businesses commonly accelerate exports and collection of expenses, resulting in a huge demand to convert foreign exchange into RMB. Additionally, huge amounts of compensation and funds for family maintenance are remitted by overseas migrant workers and overseas Chinese. Q: Recently the RMB exchange rate has been on the decline both at home and abroad. On February 25, the spot rate hit a 7-month low in the domestic market. What do you think about this phenomenon? A: It is true that the RMB exchange rate has presented bi-directional fluctuations both at home and abroad, which can be explained by the following four factors: (1) the recent movements in the RMB exchange rate are the culmination of the adjustments by market players of the RMB trading strategies during earlier stages; (2) the range of fluctuations has been normal as compared with the currency fluctuations in the advanced and emerging markets; (3) as the institutional reform of the RMB exchange rate deepens and the market begins to play a more decisive role in setting the rate, bi-directional volatility of the exchange rate will become normal, calling for efforts by market players to adjust their strategies and to adapt to any changes; (4) the bi-directional fluctuations of the RMB exchange rate at a balanced and rational level will be conducive to promoting an equilibrium in the BOP, creating a better foreign-related economic environment and guarding against financial risks. Q: As the global economy is still facing a post-crisis period, with increasing complexity of the economic and financial environments both at home and abroad, will there be any risks from a massive amount of cross-border capital flight? A: There is little likelihood that China will see massive and sustained cross-border capital flight in the foreseeable future. This can be attributed to two factors: the first is that China’s net inflows of cross-border capital through real economic channels, e.g., trade and investment, will remain massive due to the strong economic fundamentals. It is especially noteworthy that the country will gradually develop and put into practice a series of reform programs in related fields after the Third Plenum of the 18th Central Committee of CPC. This will play a helpful role in achieving the country’s mid- and long-term economic-growth objectives. Over the long term, a positive economic outlook and a huge market potential will continue to be a magnet for capital inflows. The restoration of the global economy, especially of the developed economies, will enable China to maintain a surplus in imports and exports. The second is that the fiscal and financial risks in the country remain under control. The robust current account, the dominance of mid- and long-term capital in the form of FDI in external debts and the abundance of foreign exchange reserves have strengthened the country’s capability to withstand any external impacts. Meanwhile, it should be noted that the country will face great uncertainties in terms of its external environment. Given that China's balance in the current account will gradually improve and the exchange rate of the RMB will tend to move in a rational direction toward equilibrium, there is still a likelihood that the country will witness bi-directional fluctuations of cross-border capital. Thus, it is necessary that with respect to this situation the market players adopt a rational perspective and adopt measures to cope with the changes. Looking ahead, the SAFE will continue to intensify efforts to monitor cross-border capital flows, further increase policy and data transparency, improve pre-arranged policy planning to cushion the impacts of the bi-directional cross-border capital flows, and adopt rigorous measures to guard against risks so as to maintain the healthy and sustainable development of the foreign-related economy. 2014-02-26/en/2014/0226/1109.html
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The SAFE recently released China’s International Investment Position for year-end 2012 as well as the revised data for the end of the four quarters of 2011. The statistics reveal that at the end of 2012, China’s external financial assets totaled USD5174.9 billion, external financial liabilities totaled USD3438.5 billion, and net external financial assets totaled USD1736.4 billion. Among the external financial assets, direct investments abroad totaled USD502.8 billion, portfolio investments totaled USD240.6 billion, other investments totaled USD1043.7 billion, and reserve assets totaled USD3387.9 billion, accounting for 10 percent, 5 percent, 20 percent, and 65 percent respectively of the external financial assets. In terms of external financial liabilities, foreign direct investments totaled USD2159.6 billion, portfolio investments totaled USD336.4 billion, and other investments totaled USD942.6 billion, accounting for 63 percent, 10 percent, and 27 percent respectively of the external financial liabilities. The International Investment Position (hereinafter referred to as the IIP) is a statistical statement which reflects at a specific point the stocks of financial assets and liabilities of one country or region in relation to the other countries or regions in the world, and together with the balance of payments statements (BOP statements) it constitutes the trade flows of the complete international accounts system of the country or region. Compilation Principles and Indexes for the IIP I. Compilation Principles for the IIP In accordance with the standards of the Balance of Payment Manual (Fifth Edition) published by the International Monetary Fund (IMF), the IIP is a statistical statement which reflects at a specific point the stocks of financial assets and liabilities of one country or region to the other countries or regions in the world. Changes in the IIP can be caused by changes in transactions, prices, and exchange rates as well as by other adjustments during specific periods. The IIP is consistent with the BOP statement with regard to the principles of valuation, measurement, and conversion, and together with the BOP statement constitutes a complete international accounts system of the country or region. Chinas IIP is a statistical statement which reflects at a specific point the stocks of China’s financial assets and liabilities (excluding Hong Kong SAR, Macao SAR, and Taiwan Province) to the other countries or regions in the world. II. Major IIP Indexes According to IMF standards, the items on the IIP are categorized according to assets and liabilities. The assets are divided into direct investments abroad, portfolio investments, other investments, and reserve assets, and the liabilities are divided into foreign direct investments, portfolio investments, and other investments. The net position refers to the external assets minus the external liabilities. The items are specifically defined as follows: 1. Direct investments refer to external investments in which an investor in one country operates an enterprise located in another country with the aim of acquiring effective control over the enterprise. They consist of direct investments abroad and foreign direct investments. Direct investments abroad include stocks of direct investments abroad conducted by China’s non-financial sectors, stocks of the capital fund and working capital appropriated by domestic banks to set up branches overseas, as well as stocks of loans between parent companies and subsidiaries both in China and abroad and stocks of other receivables and payables. Foreign direct investments include stocks of foreign direct investments absorbed by China’s non-financial sectors, stocks of direct investments overseas absorbed by the financial sectors (including foreign investments attracted by branches of foreign financial sectors and Chinese-funded financial sectors, and investments by the foreign party in joint financial sectors), as well as stocks of loans between parent companies and subsidiaries both in China and abroad and stocks of other receivables and payables. 2. Portfolio investments include types of investments such as shares, long- and medium-term bonds, and money-market instruments. Portfolio investment assets refer to holdings of negotiable securities, such as shares, bonds, money-market instruments, and derivative financial instruments, which are held by Chinese residents but issued by non-resident enterprises. Portfolio investment liabilities refer to shares and bonds held by non-resident enterprises but issued by Chinese residents. 2.1 Equity securities mainly comprise securities in the form of stocks. 2.2 Debt securities include long-term and medium-term bonds, short-term (one year or less) bonds, and money-market instruments or transferable debt instruments, such as short-term treasury notes, commercial papers, and large-sum short-term negotiable certificates of deposits. 3. Other investments refer to all financial assets and liabilities, including trade credits, loans, currency, and deposits, as well as other assets and liabilities, but excluding direct investments, portfolio investments, and reserve assets. Long term means that the contract period of the relevant financial assets/liabilities is longer than one year, and short term means that the contract period is one year or less. 3.1 Trade credits refer to direct business credits arising from the import and export of goods between China and other countries. Assets refer to the receivables of China’s exporters and the advance payments by China’s importers, whereas liabilities refer to the payables of China’s importers and the advance receipts of China’s exporters. 3.2 Loan assets refer to the external assets held by domestic institutions by providing loans to overseas institutions; and loan liabilities refer to loans borrowed by domestic institutions, such as loans from foreign governments, loans from international institutions, loans from foreign banks, and sellers’ credits. 3.3 Currency and deposit assets refer to funds deposited abroad and foreign cash in stock by China’s financial institutions; and currency and deposit liabilities refer to overseas private deposits and short-term funds from foreign banks attracted by China’s financial institutions, as well as other short-term funds, for instance loans from foreign exporters and individuals. 3.4 Other assets/liabilities refer to investments other than trade credits, loans, currency, and deposits, for example, capital paid by non-currency international institutions and other receivables and payables. 4. Reserves assets refer to external assets that can be used at any time and are controlled effectively by the PBOC, consisting of monetary gold, special drawing rights (SDRs), the reserve position in the Fund, and foreign exchange. 4.1 Monetary gold refers to the gold held by the PBOC as reserve. 4.2 SDR is a kind of ledger assets, which is allocated by the IMF according to the capital share of its members; it can be used to repay debt to the IMF and to make up for the deficit in the balance of payments between the governments of member countries. 4.3 Reserve positions in the Fund refer to assets that are held in the ordinary accounts of the IMF and that can be freely used. 4.4 Foreign exchange refers to current assets and liabilities that are retained by the PBOC and that can be used as a means of international compensation. (End). 2013-04-22/en/2013/0422/1080.html
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Q: The State Administration of Foreign Exchange (SAFE) recently released China’s International Investment Position. Could you please say something about China’s external financial assets and liabilities? A: The statistics reveal that due to the fact that the domestic and international economies have entered a stage of deep transformation, the increase in China’s external financial assets and liabilities has decelerated to some extent. As of the end of 2012, China’s external financial assets and liabilities totaled USD5.1749 trillion and USD3.4385 trillion respectively, an increase of 9 percent and 13 percent year on year, a decline of 6 and 12 percentage points compared with the same period in 2011. Net external financial assets amounted to USD1.7364 trillion, a rise of 3 percent year on year. The structure of external financial assets was optimized. As of the end of 2012, China’s foreign direct investments, securities investments, other investments. and reserve assets amounted to USD502.8 billion, USD240.6 billion, USD1.0437 trillion, and USD3.3879 trillion respectively, accounting for 10 percent, 5 percent, 20 percent, and 65 percent respectively of the external financial assets. The share of reserve assets fell to the lowest level since the beginning of 2008. Among the new external financial assets in 2012, the contribution of reserve assets declined to 30 percent, which is far below the average annual contribution of 65 percent since the beginning of 2004. The structure of external financial liabilities remained stable. Foreign direct investments, securities investments, and other investments amounted to USD2.1596 trillion, USD336.4 billion, and USD942.6 billion respectively, accounting for 63 percent, 10 percent, and 27 percent of external financial liabilities, which is basically unchanged from the 2011 level. Foreign direct investments still contribute primarily to China’s external financial liabilities. New foreign direct investments and re-investments of foreign profits contributed 64 percent of China’s new external financial liabilities in 2012, an indication of the confidence of foreign capital in the growth potential of the Chinese economy. The large proportion of direct investments in liabilities is conducive to alleviating the impact of short-term cross-border capital flows and to promoting the development of the real economy, while it is also a manifestation of China’s high costs of foreign capital utilization which primarily contribute to the structural problems of the deficit in investment income. From a global perspective, China’s structure of external assets and liabilities is similar to that of most emerging economies. In terms of external assets, securities investments and direct investment assets constitute a larger portion of total liabilities in the developed countries in Europe and North America. Meanwhile the emerging economies have a higher proportion of reserve assets among their total liabilities. For instance, the proportion of reserve assets in the total liabilities of the emerging economies, such as South Korea, Russia and Brazil, are in excess of 40 percent; in India the figure has even reached 73 percent. In terms of external financial liabilities, most countries in the developed world have a higher proportion of securities investments in liabilities, in excess of 50 percent, whereas in the BRIC countries such as Russia, Brazil and India, direct investments account for over 30 percent of total liabilities. Q: We’ve noticed that the SAFE has made revisions to China’s International Investment Position in 2011. How do we properly use the revised data? A: Both the Balance of Payments and the International Investment Position are subject to regular revisions. The SAFE makes revisions to the BOP data for various periods in the previous year after releasing the BOP data at the end of the year. This time we made revisions to China’s International Investment Position at the end of each quarter of 2011 based on the latest acquired and compiled data for China’s International Investment Position at the end of 2012. Meanwhile, the data for the previous three quarters of 2012 have not been revised. So the data for the previous three quarters of 2012 are temporarily not comparable to the revised data in 2011 and the end of 2012 data. We will release the revised data at the end of each quarter of 2012 in parallel with the release of China’s International Investment Position at the end of 2013. Using foreign direct investment as an example, when revising China’s International Investment Position at the end of 2011 and compiling China’s International Investment Position at the end of 2012, we updated the data on stocks of foreign direct investment based on the annual inspection of FDI that was completed in 2012. After the revision, the stock of foreign direct investment in 2011 amounted to USD1.9069 trillion, an increase of USD102.7 billion from the pre-revision level. The data on stocks of foreign direct investment at the end of 2012 are the sum of the data on flows of foreign direct investments in 2012 and the revised data on stocks at the end of 2011. The data on stocks of foreign direct investment at the end of the previous three quarters of 2012 have not been revised; they will be revised in China’s International Investment Position at the end of 2013 which will be released at the beginning of 2014. 2013-04-22/en/2013/0422/1081.html
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For the purpose of adapting to the requirements for statistics and monitoring of foreign-related receipts and payments under the new situation of China’s opening-up and for providing better services for macroeconomic decision making and social analysis and applications, the State Administration of Foreign Exchange (SAFE) recently revised and released the Classification and Codes for Foreign-related Receipt and Payment Transactions (2014 version) (HuiFa [2014] No. 21, hereafter referred to as “Codes [2014 version]”). The Codes (2014 version) will serve as an important institutional basis for preparing the balance-of-payments statistics in line with the Balance of Payments and International Investment Position Manual (Sixth Edition) issued by the International Monetary Fund (IMF). The major changes in the Codes (2014 version) are reflected in the following areas. First, adjustments have been made to adapt to the new international standards. For example, in line with the principle of ownership changes, transit trade has been transferred from trade in services to trade in goods, while the receipt and payment of processing fees for processing trade with supplied materials and outward processing have been transferred from trade in goods to trade in services; c investments, reverse investments among associated enterprises and corresponding revenue items have been added under direct investments. Second, monitoring of fund flows under trade in services will be further strengthened. For example, service items such as freight services, import and export freight insurance, travel, project contracting, and intellectual property rights are refined and adjusted. Third, statistical preparations and regulatory requirements are better met. For example, capital flows under trade in goods are classified by whether they are integrated into the Customs statistics, and transaction categories that are not covered in the Customs statistics are further refined; relevant codes are added under the securities investments for trading activities market conducted by non-residents in the domestic securities. Fourth, the declaration burdens of the declaring entities are lessened. Revision work has been conducted in line with the principles of necessity and minimization to delete and combine certain items. The Codes (2014 version) will take effect as of May 1, 2014. The recommended national standards for the previous classification of foreign-related receipt and payment transactions will be adjusted accordingly. 2014-04-17/en/2014/0417/1111.html
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In order to further increase the transparency of information regarding the BOP statistics and to make it easier for the general public to study and analyze information related to the foreign-exchange circumstances, the State Administration of Foreign Exchange (SAFE) beginning from February 2014 began to release aggregate data on outstanding forward foreign exchange settlements and sales by banks on behalf of their clients and aggregate data on foreign-related receipts and payments and data on China international trade in services, based on the specifications and category of data released each month. The previous Timetable for the Release of the BOP and Relevant Data was revised and promulgated. With the release of the aggregate data on the outstanding forward foreign exchange settlements and sales by banks on behalf of their clients, users of the relevant data will be able to obtain comprehensive insights into aggregate forward foreign exchange settlements and sales. The release of the aggregate data on foreign-related receipts and payments will enable users of the data to obtain insights into changes in the foreign-related receipts and payments in various currencies. The data on China international trade in services will enable users to obtain timely insights into China’s development of trade in services, thus increasing the reliability of relevant data for research, analysis, and policy adjustments. To facilitate utilization of relevant time-series data, beginning from 2010 the SAFE also released aggregate monthly historical data on outstanding forward foreign-exchange settlements and sales by banks on behalf of their clients. 2014-02-24/en/2014/0224/1108.html
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For the purpose of further improving the transparency of statistical information on the balance of payments (BOP), enhancing the capacity to service the real economy by BOP statistics and facilitating utilization of the BOP statistics by the general public, the State Administration of Foreign Exchange (SAFE) will, beginning in January 2014, in addition to the current practice of releasing USD-denominated statistics, release RMB-denominated BOP-related statistics from 2013. Such statistics include statistics on the annual exchange settlements and sales by banks, foreign-related exchange receipts and payments on behalf of clients, the balance of international payments, and direct investments of financial institutions as well as external debts. With regard to the sequence of the release of the statements, the RMB-denominated statistical statements will precede the USD-denominated statistical statements. The released RMB-denominated BOP-related statistics are directly converted from the USD-denominated statistics based on the exchange rate of the USD against the RMB. In order to help the general public use the relevant time-series statistics, the SAFE will, at the same time, release the historical RMB-denominated statistics for 2010–2013. With regard to the statistics prior to 2010, users can select the historical time frame needed and make the conversion in line with the aforementioned method. 2014-01-24/en/2014/0124/1102.html
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In order to increase transparency in the release of data on foreign exchange administration and to facilitate efforts by the general public to acquire and use the BOP and relevant data, the Timetable for the Release of the BOP and Relevant Data is hereby revised and promulgated (see the Appendix for details). FILE: Timetable for the Release of the BOP and Relevant Data 2014-02-24/en/2014/0224/1107.html
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The SAFE recently released China ’s International Investment Position as of the end of June 2012. The statistics reveal that as of the end of June 2012 external financial assets hit USD4946.2 billion, external financial liabilities reached USD3197.4 billion, and net external financial assets totaled USD1748.8 billion. Among the external financial assets, direct investments abroad totaled USD392.3 billion, portfolio investments USD 259.3 billion, other investments USD979.8 billion, and reserve assets USD3314.8 billion, respectively accounting for 8 percent, 5 percent, 20 percent, and 67 percent of the total. In terms of external financial liabilities, foreign direct investments totaled USD1903.2 billion, portfolio investments USD301.1 billion, and other investments USD993.2 billion, respectively accounting for 60 percent, 9 percent, and 31 percent of the total. The International Investment Position (hereinafter referred to as the IIP) is a statistical statement reflecting the stocks of financial assets and liabilities of one country or region to other countries or regions in the world at one specific point; together with the Balance of Payments Statement (BOP Statement) it constitutes the complete international accounts system, indicating the country’s or region’s trade flows. China’s International Investment Position Unit: 100 million US dollars Item # End-June, 2012 Net Position 1 17,488 A. Assets 2 49,462 1. Direct Investments Abroad 3 3,923 2. Portfolio Investments 4 2,593 2.1 Equity Securities 5 1,006 2.2 Debt Securities 6 1,587 3. Other Investments 7 9,798 3.1 Trade Credits 8 3,101 3.2 Loans 9 2,671 3.3 Currency and Deposits 10 3,577 3.4 Other Assets 11 448 4. Reserve Assets 12 33,148 4.1 Monetary Gold 13 542 4.2 Special Drawing Rights 14 118 4.3 Reserve Position in the Fund 15 88 4.4 Foreign Exchange 16 32,400 B. Liabilities 17 31,974 1. Foreign Direct Investments 18 19,032 2. Portfolio Investments 19 3,011 2.1 Equity Securities 20 2,469 2.2 Debt Securities 21 542 3. Other Investments 22 9,932 3.1 Trade Credits 23 2,901 3.2 Loans 24 4,110 3.3 Currency and Deposits 25 2,580 3.4 Other Liabilities 26 341 Note: 1. This IIP employs rounded-off numbers. 2. Net position refers to assets minus liabilities, “+” refers to net assets, and “-” refers to net liabilities. Compiling Principles and Indexes for the IIP I. Compiling Principles for the IIP In accordance with the standards of the Balance of Payments Manual (Fifth Edition) published by the International Monetary Fund (IMF), the IIP is a statistical statement which reflects the stocks of financial assets and liabilities of one country or region to other countries or regions in the world at a specific point. Changes in the IIP can be caused by changes in transactions, prices, or exchange rates, as well as by other adjustments during a specific period. The IIP is consistent with the BOP Statement with regard to the principles of valuation, measurement, and conversion, and together with the BOP Statement constitutes a complete international accounts system of the country or region. China ’s IIP is a statistical statement which reflects at a specific point the stocks of financial assets and liabilities of China (excluding that of Hong Kong SAR, Macao SAR, and Taiwan Province ) to other countries or regions in the world. II. Explanation of the Major IIP Indexes According to IMF standards, items on the IIP are categorized according to assets and liabilities. Assets are divided into direct investments abroad, portfolio investments, other investments, and reserve assets, and liabilities are divided into foreign direct investments, portfolio investments, and other investments. The net position refers to external assets minus external liabilities. The items are specifically defined as follows: 1. Direct investments: refer to external investments whereby an investor of one country operates an enterprise located in another country with the aim of acquiring effective control over the enterprise. They consist of direct investments abroad and foreign direct investments. Direct investments abroad include the stocks of direct investments abroad conducted by China ’s non-financial sectors, the stocks of capital and working capital allocated by domestic banks to set up branches overseas, as well as the stocks of loans between parent companies and subsidiaries both in China and abroad, and the stocks of other receivables and payables. Foreign direct investments include the stocks of foreign direct investments absorbed by China’s non-financial sectors, the stocks of direct investments overseas absorbed by the financial sectors (including foreign investments attracted by branches of foreign financial sectors and Chinese-funded financial sectors, and investments by foreign parties in joint financial sectors), as well as the stocks of loans between parent companies and subsidiaries both in China and abroad, and the stocks of other receivables and payables. 2. Portfolio investments: include some types of investments, such as shares, long- and medium-term bonds, and money-market instruments. Portfolio investment assets refer to negotiable securities, such as shares, bonds, money-market instruments, and derivative financial instruments, which are held by Chinese residents but issued by non-resident enterprises. Portfolio investment liabilities refer to shares and bonds held by non-resident enterprises but issued by resident enterprises. 2.1 Equity securities: consist of securities in the form of stocks. 2.2 Debt securities: include long- and medium-term bonds, short-term (one year or less) bonds, and money-market instruments or transferable debt instruments, such as short-term treasury notes, commercial papers, and large-sum short-term negotiable certificates of deposits. 3. Other investments: refer to all financial assets and liabilities, including trade credits, loans, currency, and deposits, as well as other assets and liabilities, but excluding direct investments, portfolio investments, and reserve assets. Long term refers to a contract period for the relevant financial assets/liabilities that is longer than one year, whereas short term refers to a contract period that is one year or less. 3.1 Trade credits: refer to direct business credits arising from the import and export of goods between China and other countries. Assets refer to the receivables of China 's exporters and the advance payments by China ’s importers, and liabilities refer to the payables of China ’s importers and the advance receipts of China 's exporters. 3.2 Loans: refer to the external assets held by domestic institutions by providing loans and lending to overseas institutions; and liabilities refer to loans borrowed by domestic institutions, such as loans from foreign governments, loans from international institutions, loans from foreign banks, and sellers’ credit. 3.3 Currency and deposits: Assets refer to the funds deposited abroad and the foreign cash in stock held by China 's financial institutions; and liabilities refer to overseas private deposits and short-term funds from foreign banks absorbed by China ’s financial institutions, as well as other short-term funds, for instance, loans from foreign exporters and individuals. 3.4 Other assets or liabilities: refer to investments other than trade credits, loans, currency, and deposits, for example, capital paid by non-currency international institutions and other receivables and payables. 4. Reserve assets: refer to external assets that can be used at any time and that are effectively controlled by the PBOC, consisting of monetary gold, special drawing rights (SDRs), the reserve position in the fund, and foreign exchange. 4.1 Monetary gold: refers to the gold held by the PBOC as reserve. 4.2 Special drawing rights: is a type of ledger asset, which is allocated by the IMF according to the capital share of its members; it can be used to repay debt to the IMF and can make up for a deficit in the balance of payments between the governments of member countries. 4.3 Reserve position in the fund: refers to assets in the ordinary accounts of the IMF that can be freely used. 4.4 Foreign exchange: refers to current assets and liabilities that are retained by the PBOC and that can be used as a means of international compensation. 2012-09-18/en/2012/0918/1069.html
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Question: The SAFE recently published preliminary data on China ’s balance of payments (BOP) in the first three quarters of 2012. Could you please introduce the current status of China ’s BOP? Answer: According to the preliminary data, China ’s BOP status continued to improve this year. First, receipts and payments under the current account maintained a basic equilibrium. In the third quarter, the current account surplus was USD70.6 billion. For the first three quarters, the cumulative surplus was USD147.8 billion, accounting for 2.6 percent of GDP during the same period, a drop of 0.3 percent compared with the same period of the last year, which continued to be within the internationally accepted reasonable level. Second, the capital account and financial account (including errors and omissions) was characterized by a net outflow. In the third quarter, the capital account and financial account witnessed a deficit of USD71 billion, after a deficit in the second quarter. For the first three quarters, the cumulative deficit was USD85.4 billion; however, the same period of the last year witnessed a surplus of USD234.1 billion. Third, growth of foreign exchange reserves slowed down significantly. In the third quarter, foreign exchange reserve assets calculated on the basis of the BOP coverage (setting aside the influence of changes in non-trade value, such as the exchange rate, and prices) increased only by USD0.3 billion. For the first three quarters, the total increase of such assets was USD64 billion, with the increment decreasing by 83 percent compared with the same period of the last year. Question: Both the second and third quarters of this year witnessed deficits in China ’s capital and financial account, and the first three quarters as a whole also witnessed a deficit. What is your opinion about this? Answer: From the beginning of this year, China ’s capital account and financial account witnessed deficits, which were mainly influenced by factors such as the international financial crisis and the slowdown in domestic economic growth. From the fourth quarter of 2011 to the end of the third quarter of this year, China ’s supply and demand in foreign exchange market witnessed a basic equilibrium, and foreign exchange reserves maintained basic stability. In such a situation, the current account surplus inevitably was accompanied by the deficits in the capital account and the financial account. At present, the deficits in the capital account and financial account of China have three major characteristics: First, the deficits reflect the process of “foreign exchange to be held by the people,” that is to say, the holder foreign exchange assets is shifted from the central bank to domestic institutions and individuals. For the first three quarters, the balance of foreign exchange deposits of market players such as enterprises increased by USD138.8 billion. The banks themselves increased the foreign exchange position by more than USD12 billion, part of which was used for domestic foreign exchange loans and the remainder of which was used by the banks for overseas loans and investments. Second, the deficits indicate an accelerating pace of the “Going Out” strategy by domestic enterprises. For the first three quarters, the amount of overseas direct investments by China ’s non-financial sector was USD52.5 billion, an increase of 29 percent compared with the same period of the last year. Third, the deficits reflect an orderly debt deleveraging process by the enterprises. For the past few years, domestic enterprises paid in foreign exchange for their imports as late as possible, by such means as the Import Bill Advance by Overseas Banks, and accumulated a lot of USD short positions under the trade account. The original strategy of incurring liabilities in foreign currency began to be adjusted after the bi-directional fluctuation of the exchange rate, and, in particular, under the regulation of relevant policies; with respect to the imports of enterprises, the debt balance under the Import Bill Advance By Overseas Banks dropped by more than USD40 billion. Question: Some media have recently said that USD200 to USD300 billion of capital has fled from China . Is this true? Answer: We think this is not true. The scale of capital flight referred to by some media is the estimated result of the reduction of such accounts as trade and direct investments due to changes in the foreign exchange reserves, and the concept and method for such calculations are not scientific. The capital account and financial account of the BOP statements are usually used internationally to measure the condition of cross-border capital flows. On the basis of such coverage, for the first three quarters of this year, the USD85.4 billion in deficits in the capital account and financial account of China (including errors and omissions) mainly due to the fact that under the recent basic stability of foreign exchange reserves, the assets in foreign exchange acquired by China from current account transactions such as trade were no longer held by the central bank. Rather, they were mainly held by domestic institutions and separate individuals, and such assets held by domestic institutions and individuals inevitably were used outside of China by such means as overseas investments, loans, and deposits, which presented an outflow of the capital account and the financial account but was not equal to capital flight. 2012-10-29/en/2012/1029/1073.html