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The State Administration of Foreign Exchange (SAFE) held a press conference on the foreign exchange receipts and payments for 2016 at the State Council Information Office on Thursday, January 19, 2017 at 10 am, and answered press questions. · Xi Yanchun, the moderator: Good morning, ladies and gentlemen. Welcome to the press conference of the State Council Information Office. Today, we are very glad to have with us Ms. Wang Chunying, the press spokesperson of the SAFE, and she will unveil the data on foreign exchange receipts and payments for 2016 and take your questions. Now let's invite Ms. Wang Chunying for some opening remarks. 2017-01-19 10:00:55 · Wang Chunying: Good morning, ladies and gentlemen. Welcome to today's press conference. I would first like to release China's foreign exchange receipts and payments for 2016 and then I will be taking your questions. In 2016, the global economic recovery was slow still, and the global financial markets fluctuated more violently. China's economy grew slowly but steadily and showed promising prospects, and was operating within a reasonable range. The SAFE coordinated the relationship between promoting trade and investment facilitation and guarding against cross-border capital flow risks, in a bid to safeguard the balance of payments and the national economic and financial security. Overall, the pressure from cross-border capital outflows facing China was relieved to some extent in 2016. 2017-01-19 10:01:22 · Wang Chunying: According to banks' foreign exchange settlements and sales, banks settled foreign exchange of RMB 9.55 trillion (USD 1.44 trillion) and sold RMB 11.80 trillion (USD 1.78 trillion) in 2016, representing a deficit of RMB 2.25 trillion (USD 337.7 billion). The data on banks' foreign-related receipts and payments for customers show that banks' cumulative foreign-related receipts amounted to RMB 18.55 trillion (USD 2.79 trillion), and their external payments hit RMB 20.57 trillion (USD 3.10 trillion), representing a deficit of RMB 2.02 trillion (USD 305.3 billion). 2017-01-19 10:03:18 · Wang Chunying: In 2016, China's foreign exchange receipts and payments presented the following features: First, there were deficits in banks' settlements and sales of foreign exchange, and in foreign-related receipts and payments. In 2016, banks' settlements of foreign exchange in dollar terms dropped by 17% year-on-year, and their sales of foreign exchange, 19% year-on-year, leading to a deficit of USD 337.7 billion; and banks' foreign-related receipts fell by 15%, and their foreign-related payments, 11%, resulting in a deficit of USD 305.3 billion. Second, the pressure from cross-border capital outflows for the four quarters was lower than that of the beginning of 2016. According to the data on banks' foreign exchange settlements and sales, the deficit peaked in the first quarter at USD 124.8 billion, then fell to USD 49 billion and USD 69.6 billion in the second and third quarters respectively, and hit USD 94.3 billion in the fourth quarter, 24% lower than the first quarter and down by 43% year-on-year. Banks registered deficits of USD 112.3 billion, USD 56.5 billion and USD 85.5 billion respectively in their foreign-related receipts and payments for customers in the first three quarters, and the deficit dropped to USD 51 billion in the fourth quarter, the lowest record of the year. 2017-01-19 10:04:28 · Wang Chunying: Third, the foreign exchange sales rate dropped and enterprises' solvency process slowed down, while their demand for financing picked up. In 2016, the sales rate that measures the willingness to buy foreign exchange, or the ratio of foreign exchange purchased by customer from banks to the customer's foreign-related foreign exchange payments was 74%, down by 8 percentage points year-on-year. The ratio was 80%, 74%, 70% and 72% respectively in the four quarters, primarily because fewer enterprises bought foreign exchange to repay foreign exchange financing. Accordingly, banks' outstanding domestic loans in foreign exchange fell by USD 35 billion, USD 23.4 billion, USD 12 billion and USD 15.1 billion in the first through fourth quarter of 2016. Since March 2016, importers' balance of cross-border financing denominated in foreign currencies such as refinancing and forward L/C had gone up on a monthly basis and risen by a cumulative USD 42.5 billion as at the yearend. Fourth, the foreign exchange settlement rate fluctuated and the foreign exchange deposits held by Chinese enterprises and individuals in China were on the rise. In 2016, the foreign exchange settlement rate that measures the willingness to settle foreign exchange, or the ratio of the foreign exchange sold by customers to banks to the customers' foreign-related foreign exchange receipts was 59%, down by 9 percentage points from 2015, indicating that enterprises and individuals preferred to retain foreign exchange receipts. From the first to the fourth quarter of the year, the foreign exchange settlement rate was 59%, 63%, 59% and 57% respectively. In 2016, the balance of the domestic foreign exchange deposits of Chinese banks rose by USD 60.4 billion, up by USD 48.8 billion year-on-year. 2017-01-19 10:06:11 · Wang Chunying: Fifth, banks' deficit in forward settlements and sales of foreign exchange contracted from the level of 2015. In 2016, the number of clients contracting for forward foreign exchange settlement with banks was down by 47% year-on-year, while that of clients contracting for forward foreign exchange sales with banks was down by 52%, representing a deficit of USD 84.9 billion, down by 56%. In particular, a deficit of USD 36.3 billion was registered in the first quarter, and narrowed to USD 800 million in the second quarter, but rose to USD 21.1 billion in the third quarter, which, however, contracted by 79% year-on-year. In the fourth quarter, a deficit of USD 26.7 billion was posted, consistent with the same period of 2015. These are the major data on the foreign exchange receipts and payments for 2016 I would like to unveil. Next, I will be taking your questions. 2017-01-19 10:09:37 · Xi Yanchun, the moderator: Many thanks to Ms. Wang Chunying. Next we will move into the Q&A session. As usual, please tell us what news agency you are from before raising your questions. 2017-01-19 10:12:27 · CCTV: Mr. Donald Trump will take office tomorrow. I am wondering what the new trends are in recent cross-border capital flows. You said just now that the pressure from cross-border capital flows were relieved throughout 2016, but could you brief us on the latest trends? What changes will take place in 2017? Thank you. 2017-01-19 10:13:09 · Wang Chunying: Thank you for your questions, which have drawn wide concern among people. At this juncture, it is likely that everyone is anticipating what the future holds, such as what new changes will take place to the US policies and what impact the execution will have on the future. First of all, China's cross-border capital flows improved over the past year, as shown in the statistical data on foreign exchange receipts and payments released just now, especially in the major indicators of foreign exchange situations such as foreign exchange reserves, banks' foreign exchange settlements and sales, and their foreign-related receipts and payments for customers. 2017-01-19 10:14:30 · Wang Chunying: First, the balance of foreign exchange reserves was stabilized. In 2016, the balance of foreign exchange reserves dropped by USD 319.8 billion, much lower than that of 2015. The balance of foreign exchange reserves fell by USD 107.9 billion in December 2015, and went down further by USD 99.5 billion in January 2016, but contracted significantly afterwards, and even picked up in some months. As the USD exchange rate has appreciated rapidly since October 2016, the US Dollar Index rose by 7.1% in the fourth quarter, leading to tremendous changes to the book value of foreign exchange reserves arising from the foreign exchange conversion factors. Nevertheless, foreign exchange reserves fell more slowly than they did at the beginning of the year. Second, the deficits of banks' foreign exchange settlements and sales, and their cross-border foreign-related receipts and payments for customers contracted. In December 2015 and January 2016, a deficit of USD 89.4 billion and USD 54.4 billion respectively was registered under banks' foreign exchange settlements and sales, and a deficit of USD 72.5 billion and USD 55.8 billion respectively was recorded under foreign-related receipts and payments. The deficits had shrunk since February 2016. Alongside the strengthening of the US exchange rate, the deficit in foreign exchange settlements and sales went up to USD 46.3 billion in December, which was much lower than the level at the end of 2015 and the beginning of 2016; and a deficit of USD 12.3 billion was registered under foreign-related receipts and payments in December, which was low compared with other months in the year. 2017-01-19 10:23:20 · Wang Chunying: China's cross-border capital flows have recently undergone some positive changes in structure, with domestic players adding outbound investments while foreign players' investments in China have converted from net outflows into net inflows, which was evident in the Balance of Payments. A key indicator of a country's cross-border capital flows usually is the financial account in the Balance of Payments that excludes reserve assets, which is indicated as the non-reserve financial account in China's Balance of Payments. From the second half of 2015 to the first quarter of 2016, net outflows were recorded under the credit account and debit account of the non-reserve financial account. The net outflows under the debit account mean outbound investments by domestic players, while the net outflows under the credit account mean domestic players are servicing external debt, and under this circumstance, the capital outflow pressure was heavy. Since the second quarter of 2016, net outflows still have been registered under the debit account of the non-reserve financial account, while net inflows have been recorded under the credit account, representing a positive change that shows the capital outflows from China are the external investments made by domestic players, including ODI, securities investments and external loans. On the other hand, this shows that after a period of external debt servicing, net inflows have begun to be registered under foreign capital. In particular, net inflows have been recorded under FDI all along; the net inflows of foreign securities investment exceeded USD 20 billion in the second and third quarters respectively in 2016, which was high in history; the outstanding external debt has turned around since the second quarter. From these changes, we could infer that, first, China's economy and its markets remain widely attractive across the world; second, driven by actual demands, Chinese debtors are confident in adjusting external debt after relevant risks are released; third, relevant reforms provide a strong boost, such as the further liberalization of interbank bonds markets, macro-prudential management of full-scale cross-border financing, and the inclusion of the RMB in the SDR basket. 2017-01-19 10:35:19 · Wang Chunying: Going forward, China's cross-border capital flows will contract towards an equilibrium. Undoubtedly, in a period to come, the global economy will remain subdued, featuring slowdowns in trading and investment, limited room for financial policy and weak economic recovery. Externally, the Fed's interest rate hikes and various uncertainties may interrupt the global financial markets now and then, which is the environment the countries including China will have to face all the time. This includes the impact of the policies of the new US administration. Overall, however, a country's economic condition is the ultimate determinant of its cross-border capital flows. China stands out in this regard. Its economic growth is at a high level across the world, its financial position is sound, its financial system is robust, the current account remains in surplus, and it takes the top spot worldwide by the size of foreign exchange reserves. Moreover, as I just mentioned, some positive factors that are conducive to the equilibrium between China's foreign exchange receipts and payments are emerging. Thank you. 2017-01-19 10:53:15 · Economic Daily: The Fed hiked the US interest rate last December, and is expected to do it several times in 2017. What's your view on the impact of the interest rate hikes on China's cross-border capital flows? How would you respond? Thank you. 2017-01-19 11:06:54 · Wang Chunying: Thank you for your questions. I would here like to share with you my observations and judgments with regard to the impact. First, the impact from the two interest rate hikes respectively at the end of 2015 and 2016 on China's cross-border capital flows was on the decline. Alongside the two Fed interest rate hikes and the changes in the expectations before the hikes, the USD exchange rate was strengthened. The US Dollar Index climbed by 2.4% in the fourth quarter of 2015, and by 7.1% in the fourth quarter of 2016, which both increased the short-term pressure from cross-border capital outflows, but to a different extent. China's balance of foreign exchange reserves fell by USD 155.9 billion in the fourth quarter of 2016, which was 15% less year-on-year. In December in particular, the margin was 62% less year-on-year. In the fourth quarter, banks posted a deficit of USD 94.3 billion in foreign exchange settlements and sales, down by 43% year-on-year, and in December in particular, the margin was 48% less year-on-year. Banks registered a deficit of USD 51 billion in foreign-related receipts and payments for customers in the fourth quarter, contracting by 59% year-on-year, of which, the margin was 83% lower year-on-year in December. The reason for these is that many domestic players increased the foreign assets they held and serviced debt when the Fed raised the interest rate for the first time, but after the pressure was released, domestic players' adjustment of assets and debt had become more stable, and they continued to make outbound investments, but slowed its pace to service debt and strengthened demand for borrowing, thereby strengthening China's capability to dampen external impact on its cross-border capital flows. 2017-01-19 11:08:03 · Wang Chunying: Second, the Fed interest rate hikes will have a spillover effect worldwide. When most relevant economies are under impact, the extent of impact on a country will be dependent on its economic fundamentals, complemented by the degree of liberalization, economic size, etc. Currently, China stands out worldwide for its economic conditions, robust financial markets and social stability, which will put China at an advantage in coping with the impact from the Fed interest rate hikes. We also have recently noticed that the major economic indicators of China have been improved to various degrees, indicating China's economic growth has become more stable. For example, as at last December, China's official manufacturing purchasing manager's index (PMI) had remained above the 50 boom and bust line for 5 years in a row, and the PPI had sustained positive growth for 4 consecutive years. The International Monetary Fund (IMF) has recently upped its projection of China's economic growth for 2017 to 6.5% by 0.3 percentage point from the level of the early projection. 2017-01-19 11:14:23 · Wang Chunying: Third, further observations are required with regard to the Fed interest rate hike cycle and the strengthening of the US dollars. Based on the current market changes, the USD exchange rate will fluctuate somewhat, as shown by the recent fall of the US Dollar Index against the beginning of the year. There are doubts and disputes about the longer-term movement of US dollars in the market, considering the execution and effects of the policies of the new US administration as well as the impact of the uncertainties in the global financial markets. You may remember that after the hike by the Fed at the end of 2015, it was widely expected in the market that there would be 3-4 times of hikes in 2016, but the interest rate was hiked only once due to the many uncertain and unforeseeable factors. No matter how the external environment changes, the most effective measure would be to do our own business well. In 2017, China's economy will continue to be operating within a reasonable range, and the deepened supply-side structural reform will guide the economy to become better in quality, more efficient, more equitable and more sustainable, which will help China's balance of payments find a basic equilibrium. Adhering to the general work guideline of making progress while maintaining stability, foreign exchange authorities will effectively enhance the level of trade and investment facilitation to serve the real economy. Meanwhile, the authenticity and compliance reviews will be strengthened to sustain a tough stance on foreign exchange irregularities and guard against risks associated with cross-border capital flows. 2017-01-19 11:19:26 · ITAR-TASS: What would you say about the China-Russia cooperation in foreign exchange last year? What is expected from China-Russia cooperation in foreign exchange this year? Thank you. 2017-01-19 11:23:32 · Wang Chunying: Thank you for your questions. With regard to China-Russia cooperation in finance, the SAFE is committed to cooperating with the initiator to boost closer cooperation between the two countries' commercial banks, and provide better services for bilateral trade and economic transactions, which have gone smoothly. We will continue to promote these efforts in 2017. 2017-01-19 11:24:41 · China News Service: At the beginning of this year, the SAFE imposed more stringent declaration requirements for individual purchases of foreign exchange. How will this impact individual purchases of foreign exchange, given the current situation? Thank you. 2017-01-19 11:35:38 · Wang Chunying: Thank you for your question. The data we have monitored show that individual purchases of foreign exchange has stayed stable across the country since the policy is implemented. Since January, the average individual purchases of foreign exchange have declined on a year-on-year and month-on-month basis. This indicates that people have developed an accurate understanding of the policy, with their sentiment staying stable. This is, I believe, attributable to the fact that two aspects of the policy for individual purchases of foreign exchange have remained unchanged. First, the quota for individuals' annual purchases of foreign exchange remains unchanged. After declaring the demand for authentic purchases of foreign exchange by presenting their valid ID cards, domestic residents can purchase foreign exchange within the annual quota from the bank counters and through electronic channels. The annual quota is still USD 50,000, which can satisfy the demands of most people for foreign exchange under the current account. To purchase foreign exchange under the current account beyond the quota, the authentic evidencing materials with the amount of transaction indicated should be presented to the bank, with no barriers in the process. 2017-01-19 11:36:09 · Wang Chunying: Second, the policies for the use of foreign exchange for study and travel abroad that are closely related to people's daily life remain unchanged. To purchase foreign exchange within the quota for study aboard, complete and authentic information should be declared as required. Where the purchases are beyond the quota, private passport, valid visa, and letter of admission from an overseas school, certificate of tuition or cost of living certificate should be presented to buy foreign exchange from banks. Foreign exchange for travel abroad could be bought within the quota based on the traveler's demand or bank card could be used aboard to use the foreign exchange as normal. Moreover, the foreign exchange purchasing policies remain unchanged for residents' other demands for foreign exchange under the current account, such as visiting relatives, seeking medical help abroad, trade in goods, purchases of non-investment insurances and various consulting services. 2017-01-19 11:41:37 · Wang Chunying: The purposes for improving the declaration management of personal foreign exchange information are to enhance ex-post verification, strengthen management and disposal of irregularities and better ensure authentic requirements for foreign exchange. In the past, due to shortfalls in the management of individual purchases of foreign exchange, there were irregularities, frauds and money laundering, which had disturbed normal transaction order, and eroded the interests of residents who followed the provisions on individual purchases of foreign exchange. As a result, it is imperative to improve the management of the declaration of personal foreign exchange information, especially break down what to be declared, make known the rules individuals should observe to buy and make payment in foreign exchange and relevant legal responsibilities they should take on, and intensify banks' responsibilities for authenticity and compliance reviews. It is now easy for individuals to buy and make payment in foreign exchange under the current account, and the SAFE will continue to optimize relevant policies, and urge banks to improve the level of services while intensifying authenticity and compliance inspection of banks that handle individual purchases of and payments in foreign exchange. Meanwhile, further efforts will be made in the ex-post sample surveys and inspections of individual purchases of and payments in foreign exchange, and in the monitoring, analysis, selection and inspection frequencies of individuals' information declaration and transaction data. Heavier penalties will be imposed on individuals and banks involved in false declaration, obtaining foreign exchange under false pretenses, frauds, money laundering, illegal use and transfer of foreign exchange to enhance the costs for violating regulations and laws. Relevant measures are as follows: including individuals violating regulations in the watchlist, restricting them from purchasing foreign exchange within the quota or prohibiting them from buying foreign exchange, and incorporating their behaviors into their personal credit records; the anti-money laundering authority will conduct anti-money laundering investigations into anyone suspected of money laundering; anyone suspected of committing a crime will be transferred to the judicial department for the department to take legal actions against them. 2017-01-19 11:59:33 · Union Morning Paper: Experts have recently said that USD 2 trillion in foreign exchange reserves would be sufficient. What would you say about the size of foreign exchange reserves and its changes? Thank you. 2017-01-19 12:09:14 · Wang Chunying: Thank you for your question. The size of foreign exchange reserves has drawn wide concerns. I would here like to share with you some of my ideas. First, it is not necessary to hype a certain figure since it is normal for financial indicators to go through ups and downs. Second, China's foreign exchange reserves are still sufficient in terms of its capabilities to make external payments and service external debt. There is no common measurement for the size of a country's foreign exchange reserves. By traditional standards, foreign exchange reserves must be sufficient to make payments for at least 3 months of imports. Assuming no RMB is used for making external payment, the current demand for foreign exchange is about USD 400 billion. But as a matter of fact, RMB can be used for making cross-border payments now. Turning to servicing of external debt, foreign exchange reserves should be sufficient to pay off short-term external debt. Currently, the short-term debt denominated in RMB and foreign currencies amounts to USD 800-900 billion, much less than USD 1.3 trillion as at the 2014 yearend, which indicates that most external debt servicing pressure has recently been released. To sum up, China's capabilities to make external payments and service external debt remain strong as shown in the size of China's foreign exchange reserves and are in a good position to safeguard China's economic and financial security. 2017-01-19 12:15:31 · Wang Chunying: Third, from the perspective of foreign exchange reserves' sufficiency for domestic players to hold more external assets, the changes in China's foreign exchange are in nature the changes in the structure of external asset holders, which is a matter of process with some positive implications. As Chinese enterprises' and individuals' economic strengths have been enhanced in recent years, the demands for diversifying asset allocation in the private sector are set to rise, which is a process of encouraging companies and individuals to hold more foreign exchange. According to the International Investment Position, as at September 2016, the external assets held by China's private sector accounted for 49.7% of its total external assets, up by 4.5 percentage points from the end of 2015. In the past, the share of reserves in external assets was large, but now the share of private sector rises, making external assets and external debt of the private sector more balanced and matched with each other. As at the end of September, the private sector's net external debt was USD 1.5 trillion, much lower than the peak of USD 2.3 trillion at the end of 2014. Moreover, the increase in the external assets held by the private sector is not necessarily from foreign exchange reserves. The continued surplus under the current account, and the policies on cross-border financing and market liberalization also facilitate the cross-border capital inflows, which could also be the sources of capital for domestic players to hold more external assets. It is certain that external assets should be adjusted properly and moderately between the government and the private sector, which should be aligned with the levels of economic development and opening up in China. In the future, China will enhance the elasticity of the RMB exchange rate while ensuring the rate stays stable at a reasonable and even level, and improve the cross-border capital flow management system under the framework of macro-prudential management, which will be favorable for stable adjustment as mentioned earlier. 2017-01-19 12:33:21 · Wang Chunying: Fourth, China's foreign exchange reserves will continue to fluctuate within a reasonable range. There are four factors that impact the changes in the size of foreign exchange reserves: first, the central bank's operation in the foreign exchange markets; second, the price fluctuations of foreign exchange reserves as investment assets; third, other currencies' exchange rates against the USD may impact the changes in the size of foreign exchange reserves since the USD is the measurement currency of foreign exchange reserves; fourth, as defined by the IMF, foreign exchange reserves used to support going global will be excluded from the entry of foreign exchange reserves in accounting, and vice versa. In the future, China's foreign exchange reserves will be sufficient to meet the conditions for fluctuating within a reasonable range. On the one hand, the recent increase in the foreign assets held by the private sector is correlated with the current market environment, especially the strengthening of the US dollars, but the dollar's movement is uncertain and impossible to rise all along, while the RMB exchange rate will obtain more support from the domestic economic fundamentals, which means that the private sector may adjust the structure of assets and liabilities denominated in domestic and foreign currencies, making foreign exchange receipts transfer towards official reserves again. On the other hand, and the most important, China's economy will continue to grow at a medium-to-high speed, and the balance of payments will stay stable with a surplus under the current account and a deficit under the capital and financial account. Thank you. 2017-01-19 12:40:37 · The Voice of China: Hello, Ms. Spokesperson. As for a key word you mentioned in your previous answer, outstanding external debt, I learned that it has picked up for two quarters. What would you say about this? As far as you know, will this continue in the future? Thank you. 2017-01-19 12:46:37 · Wang Chunying Thank you for your questions. Indeed, China's outstanding external debt has rebounded for two consecutive quarters. As at the end of June 2016, the full-scale outstanding external debt amounted to USD 1.39 trillion, up by 2% quarter-on-quarter; and as at the end of September, the figure was USD 1.43 trillion, up by 3% quarter-on-quarter. The pick-up of the outstanding external debt for two quarters in a row reversed the downward trend since the second quarter of 2015, for two reasons as follows: First, in the face of optimistic conditions for imports and exports, Chinese enterprises had developed a stronger demand for external financing. According to the external debt structure, the share of credit financing related to the real economy especially trade was high, indicating the country was highly susceptible to the fluctuations in imports and exports. Since the second half of 2014, as the imports declined and the US dollars kept strengthening, Chinese enterprises had actively adjusted the level of external debt they incurred and repaid short-term trade finance and trade credit. Since the second quarter of last year, however, Chinese imports had bottomed out, and grown gradually on a quarter-on-quarter basis especially since May. Meanwhile, the US Dollar Index had fallen, and enterprises' demand for trade finance had rebounded. As at the end of September 2016, the outstanding loans and trade credit rose by USD 35.3 billion quarter-on-quarter and by USD 42.5 billion against the end of March. On the one hand, the growth of enterprises' external debt in two consecutive quarters was for the purpose of the enterprises' business operation and development, and on the other hand, this indicates the sound capability of Chinese enterprises to finance externally and use domestic and foreign funds to serve their production and operations. This also shows that with promising prospects of their operations, Chinese enterprises were optimistic about their outlooks and willing to support their imports and exports through financing. 2017-01-19 12:48:06 · Wang Chunying: Second, foreign investors were optimistic about returns on investing in China and more willing to make investments. In 2016, China's economy maintained stable growth, at a medium-to-high speed, and witnessed a continued surplus under trade in goods, but since April, as the expectations of the Fed interest rate hikes in the global financial markets were weakened, the economy of the euro area and Japan recovered slowly, and the environment in the global financial markets changed, foreign investors were still confident in the returns on investing in China, with a stronger demand for holding more RMB assets. In addition, as China's policy for external financing was further liberalized, China attracted USD 20.8 billion in non-resident deposits and debt securities in the second and third quarters, which was a result of foreign investors' active participation, and reversed the downward trend of the first quarter. It is expected that China's external debt will continue to turn for the better in 2017. Since the beginning of last year, China has introduced a series of reformative measures in favor of domestic players' cross-border financing and foreign players' making investments in China. These measures include steadily pushing forward macro-prudential management of full-scale cross-border financing, facilitating foreign exchange settlement of external debt by Chinese enterprises, vigorously pressing ahead with the liberalization of the interbank bonds markets, and further deepening the external debt management reform to facilitate foreign exchange settlements under the capital account. In 2017, these policies will continue to be deepened, and relevant market infrastructure will be refined, which, coupled with the support from China's real economy and foreign trade development, will be favorable for boosting the steady bounces of China's outstanding external debt. 2017-01-19 12:50:50 · CBN: We have noticed that banks' sales and settlements of foreign exchange remained in deficit, which indicates there are expectations of depreciation of the RMB exchange rate. The US Dollar Index has been weakened and there have been a wave of rebounding of the RMB exchange rate against the USD recently. Are you worried that this will unleash the demand of enterprises and individuals for purchasing foreign exchange to further drive RMB depreciation? What responses does the SAFE have? Word has it that settlement of foreign exchange will be mandated when necessary. Is this true? 2017-01-19 12:57:41 · Wang Chunying: Thank you for your questions. But you'd better judge hypothetical problems prudentially. As far as specific policies are concerned, it is advised that you refer to the official documents released by relevant government departments, rather than give the rumor much credibility. As for the changes in the RMB exchange rate, we believe it should be looked at in the short term and the medium and long term respectively. Over the short run, the supply and demand in foreign exchange markets are impacted by different factors such as balance of payments, market sentiment, cross-border capital flows and speculation and hype, which are reflected in the exchange rate. Sometimes due to expectations and speculation, the supply and demand may deviate from the fundamentals. In the medium and long run, the exchange rate is subject to the impact of the fundamentals. It was much talked and is widely believed that there is no ground for RMB exchange rate depreciation according to China's economic fundamentals. It is sure that this does not exclude short-term fluctuations of the RMB exchange rate, which is normal. Market participants should make analysis by objective standards. As for the rumor you mentioned, I have not heard it yet. In fact, to guard against risks, a response plan should be in place in relation to the pressure from cross-border capital inflows or outflows, and prudential assessment and implementation should be ensured based on domestic and foreign conditions. Our rationale is still that by adhering to the general work guideline of making progress while maintaining stability, trade and investment facilitation should be stuck to serve the real economy, while the authenticity and compliance reviews should be promoted to crack down on foreign exchange irregularities more rigorously. 2017-01-19 13:23:13 · Xi Yanchun, the moderator: Thank you, Ms. Director. This is the end of today's press conference. Thank you all. 2017-01-19 13:27:05 (The original text is available at www.china.com.cn) 2017-04-27/en/2017/0427/1262.html
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The State Administration of Foreign Exchange (SAFE) has recently released the Balance of Payments (BOP) and the International Investment Position (IIP) for the first quarter of 2017. The press spokesperson of the SAFE answered media questions on relevant issues. Q: Could you brief us on China's BOP for the first quarter of 2017? A: In the first quarter of 2017, China's surplus under the current account in the BOP was within the reasonable range, and the non-reserve financial account was in surplus, indicating China's cross-border capital flows have been remarkably improved. The surplus in trade in goods remained the major source of the surplus under the current account, with the import and export of goods registering year-on-year increases. In the first quarter of 2017, the current account recorded a surplus of USD 18.4 billion, accounting for 0.7% of GDP, which was still within the reasonable range. The trade in goods in the BOP registered a surplus of USD 82.3 billion, including USD 475 billion in exports and USD 392.7 billion in imports, which was up by 12% and 23% year-on-year respectively, a good sign of stable and rising foreign trade. But trade in services recorded a deficit of USD 60.7 billion, up by 12% year on year, as a result of an expansion of 36% in the deficit under transport due to the increases in imports as well as a rise of 5% in the deficit under travel. Non-reserve financial account registered a surplus. In the first quarter of 2017, non-reserve financial account recorded a surplus of USD 36.8 billion, compared with a deficit of USD 126.3 billion for the same period last year. On the one hand, domestic market participants became more sensible in making outbound investments. In the first quarter, China witnessed a net increase of USD 54.7 billion in external financial assets from BOP transactions. To be specific, ODI rose by USD 20.5 billion net; external portfolio investment went up by USD 14.7 billion net and other external investments climbed by USD 19.4 billion net. On the other hand, foreign investors continued to increase their investments in China. In the first quarter, external debt rose by USD 91.5 billion net, versus a net decrease of USD 13.5 billion for the same period last year. To be specific, FDI jumped by USD 33.1 billion net, which was high; portfolio investment in China rose by USD 6.8 billion net, compared with a net decrease of USD 18.9 billion for the same period last year; other investments in China surged by USD 51.6 billion net as a result of the increases in non-resident deposits, compared with a net decrease of USD 38.5 billion for the same period last year. The reserve assets dropped by a slight margin due to the BOP transactions, which contracted remarkably. In the first quarter, China's reserve assets fell by USD 2.6 billion due to the BOP transactions (excluding non-transaction factors such as foreign exchange rates and prices), or 98% both year on year and quarter on quarter. In particular, foreign exchange reserves dropped by USD 2.5 billion, and the reserve position in the IMF went down by USD 100 million. Q: Could you tell us about China's international investment position (IIB) as at the end of March 2017? A: As at the end of March, China had witnessed double quarter-on-quarter increases in external financial assets and debt. As at the end of March, China's net external assets reached USD 1.7319 trillion. Specifically, China's external assets hit USD 6.4824 trillion, and external debt amounted to USD 4.7506 trillion, up by 0.2% and 2% quarter on quarter respectively (the same below). As for external assets, most assets rose slightly except the slight decreases in other investment assets and financial derivative tool assets. To be specific, the direct investment assets rose by USD 28.7 billion or 2%; portfolio investment went up by USD 27.2 billion or 7%, reserve assets increased by USD 4.9 billion, or 0.2%; financial derivative tool assets dropped by USD 500 million or 9%; and other investment assets fell by USD 44.4 billion, or 3%. As for external debt, most items continued to recover except falls in financial derivative tool debt. Specifically, direct investment debt rose by USD 37.8 billion or 1%; portfolio investment debt went up by USD 27.5 billion, or 3%; other investment debt increased by USD 21.2 billion, or 2%; while the financial derivative tool debt shrank by USD 1.9 billion, or 28%. With regard to the composition of assets and debts, the official reserve assets constituted the majority of external financial assets, and FDI, the external debt. To be specific, of external assets, reserve assets hit USD 3.1028 trillion, accounting for 48% of total assets; ODI amounted to USD 1.3459 trillion, representing 21% of total assets; portfolio investment reached USD 392.3 billion, 6% of total assets; the financial derivative tools were USD 4.7 billion, 0.1% of total assets; and other assets reached USD 1.6367 trillion, 25% of total assets. Of external debt, FDI hit USD 2.9037 trillion, accounting for 61% of total debt; portfolio investment was USD 836.1 billion, 18% of total debt; financial derivative tools were USD 4.7 billion, 0.1% of total debt, and other investments hit USD 1.006 trillion, 21% of total debt. Overall, China still took the top spot worldwide by foreign exchange reserves, with Chinese investors becoming increasingly sensible in making outbound investments. FDI continued growing and other foreign investments in China recovered, showing foreign investors are confident in China's economic outlook. All this indicates that China's international investment position is robust. 2017-06-29/en/2017/0629/1320.html
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The State Administration of Foreign Exchange (SAFE) has recently disseminated the data on banks' foreign exchange settlements and sales, and on their foreign-related receipts and payments for customers for May 2017. Its spokesperson answered press questions on recent cross-border capital flows. Q: Could you brief us on China's cross-border capital flows in May? A: China witnessed an equilibrium between foreign exchange supply and demand in May. To be specific, first, the deficit in banks' foreign exchange settlements and sales remained stable. In May, banks registered a deficit of USD 17.1 billion in foreign exchange sales and settlements, up by 15% month on month. In particular, the non-banking sector including enterprises and individuals recorded a deficit of USD 12.4 billion in foreign exchange sales and settlements (i.e., bank's foreign exchange sales and settlements for customers), down by 3% month on month. Second, forward foreign exchange sales and settlements remained in surplus. In May, the amount of the contracts signed for forward foreign exchange sales and settlements registered a surplus of USD 3.4 billion, working with banks' spot foreign exchange sales and settlements and options to impact the supply and demand of foreign exchange in China and striking a relative balance between supply and demand of foreign exchange in the month. Third, the non-banking sector saw low net outflows of cross-border capital and month-on-month declines in net outflows of foreign currencies. In May, this sector registered a deficit of USD 21.8 billion in foreign-related receipts and payments, up by 42% month on month, but down by 7% year on year. Specifically, the deficit in foreign-related receipts and payments in RMB terms went up by 72% month on month, and the deficit in foreign-related receipts and payments in foreign currencies went down by 12% month on month. Moreover, impacted by many factors such as the equilibrium between the supply and demand of foreign exchange, China's balances of foreign exchange reserves had risen for 4 consecutive months, with the figure as at the end of May rising by USD 24 billion from April and at a bigger margin month on month. The market sentiment remains stable and the relation between supply and demand of foreign exchange under trade and investment is more balanced. First, according to the rates of the sales and settlements of foreign exchange under foreign-related receipts and payments, the settlement rate of foreign exchange by market participants rose while the purchase rate went down. In May, the ratio of foreign exchange settlements by bank customers to their receipts of foreign-related foreign exchange was 62.7%, up by 0.6 percentage point from the settlement rate for the first four months; the ratio of the purchases of foreign exchange by bank customers to their payments of foreign-related foreign exchange hit 67.4%, down by 0.5 percentage point from the purchase rate for the first four months. Second, the supply and demand of foreign exchange under major items continued to improve. In May, the surplus in foreign exchange settlements and sales under trade in goods by the non-banking sector such as individuals and enterprises increased by 14% month on month, the foreign exchange settlements and sales under direct investment turned from a deficit into a basic equilibrium, and the foreign exchange settlements and sales under portfolio investment turned from a deficit for the previous month into a small surplus. Furthermore, enterprises' cross-border financing continued to rise. At the end of May, the balance of cross-border financing denominated in foreign currencies for imports such as refinancing and forward L/C jumped by USD 2.1 billion month on month, clocking up 15 consecutive months of growth. The improved relation between supply and demand under the above items hedged against the seasonal purchasing and payments of foreign exchange added in some channels in May, such as strengthened demand for travel abroad on May Day and Dragon Boat Festival and normal outward remittances of profits by foreign-funded enterprises. Overall, there are internal and external room for the recovery of China's cross-border capital flows with a good momentum for growth, and the basic equilibrium between the supply and demand of foreign exchange. In particular, as the foundation for China's economic performance within a reasonable range is consolidated and the central parity rate formation mechanism for the RMB exchange rate is refined, the domestic market participants will be more reasonable in their behaviors with regard to foreign-related receipts and payments. 2017-06-16/en/2017/0616/1318.html
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The State Administration of Foreign Exchange (SAFE) has recently released the data on banks' foreign exchange sales and settlement and their foreign exchange receipts and payments for customers for April 2017, and its spokesperson answered press questions on recent cross-border capital flows. Q: Since the beginning of this year, remarkable progress has been achieved in China's cross-border capital flows. Could you brief us on relevant performance for April? A: China's cross-border capital flows continued the good momentum for stable growth in April, with the highlights as follows: first, foreign exchange supply and demand found a better equilibrium. In the month, banks' foreign exchange settlement grew by 5% year on year while their foreign exchange sales fell by 2%, leading to a deficit of USD 14.9 billion, down by 37% year on year. The amount of contracts signed for forward settlement of foreign exchange went up by 81% year on year, while the amount of contracts signed for forward sales of foreign exchange dropped by 24%, leading to a surplus of USD 5.1 billion, compared with a deficit of USD 1.3 billion the same period last year. Due to the foreign exchange supply and demand factors such as spot and forward foreign exchange sales and settlement and stock options, the domestic supply and demand of foreign exchange continued the basic equilibrium in April, and generally outperformed those of March. Second, the non-banking sector registered a low deficit in foreign-related receipts and payments on a month-on-month basis. The deficit for April was USD 15.3 billion, down by 12% month on month. Specifically, the receipts and payments in RMB terms recorded a deficit of USD 10 billion, down by 11%; the receipts and payments in foreign exchange registered a deficit of USD 5.4 billion, down by 13%. In addition, the balance of China's foreign exchange reserves had grown for three consecutive months, as reflected in the balance of foreign exchange reserves as at the end of April that was released on May 7, and achieved a month-on-month increase of USD 20.4 billion in April. Domestic market participants registered stable foreign-related receipts and payments. First, market participants' foreign exchange settlement rate rose slightly and their foreign exchange purchase rate stayed stable. In April, the foreign exchange settlement via banks for customers as a percentage of the foreign-related foreign exchange receipts hit 63%, up by one percentage point against the first quarter; the share of foreign exchange purchases by customers in the foreign-related foreign exchange payments was 68%, consistent with that of the first quarter. Second, cross-border financing by enterprises continued to rise. As at the end of April, the balance of cross-border financing denominated in foreign currencies for imports such as refinancing and forward L/C rose by USD 2 billion month on month, representing growth for 14 consecutive months. Third, enterprises became more sensible in making ODI. Since the beginning of 2017, China's ODI has been further stabilized, with a higher proportion going to manufacturing, information transmission, software and IT services. Fourth, residents' purchases of foreign exchange dropped further. In April the figure went down either on a year-on-year or on a month-on-month basis and is now at its lowest level for one and a half years. Overall, China's economy has grown stably with a good momentum for development since the beginning of this year, and the growth pace has been further stabilized, indicating strong potential for future development. At the same time, the further opening up of the financial market has continued to produce positive results, solidifying the foundation for stable cross-border capital flows and balanced development. 2017-05-17/en/2017/0517/1267.html
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The State Administration of Foreign Exchange (SAFE) has recently released the data on full-scale external debt in both domestic and foreign currencies for yearend 2016, and an official of the SAFE answered press questions on the recent external debt situation and the reform of external debt management. Q: Could you brief us on China's overall scale of external debt as at the end of 2016? A: Overall, China's outstanding full-sale external debt had been rising stably and the risks were within control as at the end of 2016. By the end of 2016, the balance was USD 1.4207 trillion, up by USD 37.7 billion or 2.7% year on year. The overall size of external debt had been going up steadily for three consecutive quarters. By preliminary calculations, as at the end of 2016, the debt ratio (outstanding external debt/GDP) was 13%, the foreign debt ratio (outstanding external debt/export income of trade in goods and services) was 65%, the solvency ratio (sum of payments of principal and interest of mid and long-term external debt and payments of interest of short-term external debt/export income of trade in goods and services) was 6% and the ratio of short-term external debt to foreign exchange reserves was 29%. Since these risk indicators associated with external debt are within the safe range internationally recognized, China's external debt risk is within control. Q: What would you say about the changes in the size of external debt? A: China's efforts to deleverage its external debt have come to an end, with risks gradually unleashed. By the end of 2016, China posted USD 1.4207 trillion in outstanding full-scale external debt, which was down by USD 359.3 billion from the historical high for 2014. To be specific, from the yearend 2014 to the first quarter of 2016, Chinese enterprises were committed to deleveraging of their external debt. They accelerated servicing of relevant debt, reducing debt of USD 397 billion throughout 2015 and USD 51.5 billion in the first quarter of 2016. This was favorable for mitigating accumulated risks arising from external debt, and reducing the risks associated with operations with high levers and currency mismatches. Since the second quarter of 2016, as external debt deleveraging came to an end, and the policies that would facilitate cross-border financing by Chinese enterprises such as macro-prudential management of full-scale cross-border financing were implemented, Chinese enterprises have begun to use external debt again. In the second, third and fourth quarters of 2016, the use of external debt recovered by USD 24.8 billion, 42.7 billion, and 21.7 billion respectively. Q: What's your view of the size and situation of China's external debt for 2017? A: Driven by policies and measures such as China's economic restructuring, production capacity adjustment and industrial upgrading, China's economy will continue to grow at a medium and high speed. Given that a modest amount of borrowing is necessary for an enterprise' day-to-day operations, Chinese enterprises will independently decide the time to borrow external debt and the size and currency structure of the external debt based on the changes in economic conditions both at home and abroad. In all, China's external debt will rebound stably in the year. 2017-04-24/en/2017/0424/1258.html
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The State Administration of Foreign Exchange (SAFE) has recently released the preliminary data in the Balance of Payments for the first quarter of 2017, and its press spokesperson answered media questions on relevant issues. Q: Could you brief us on the balance of payments for the first quarter of 2017? A: The preliminary data in the Balance of Payments for the first quarter of 2017 present the following features: First, the surplus under the current account continues to remain in a reasonable range. In the first quarter of 2017, the current account registered a surplus of USD 19 billion, 0.7% of GDP. In particular, trade in goods in the Balance of Payments recorded a surplus of USD 81.7 billion, which fell on a year-on-year basis. But the imports and exports of goods have represented year-on-year increases for the first time since the second quarter of 2015, which were 12% and 23% respectively, indicating the strengthening of domestic and external demand has contributed to the stabilization of foreign trade. Trade in service recorded a deficit of USD 60.1 billion, up by 11% year on year, because the deficit under transportation driven by import growth rose by 34%, and the growth of travel deficit dropped to 5% versus the previous quarter. The primary income registered a surplus of USD 100 million alongside the increase in returns on investment, compared with a deficit of USD 4.1 billion for the same period of the previous year. Second, the deficit in the financial account excluding reserve assets (including net errors and omissions, same below) plummeted. In the first quarter, the financial account excluding reserve assets recorded a deficit of USD 21.5 billion, down by 87% year on year and quarter on quarter, of which, direct investment recorded net inflows of USD 11.4 billion. To be specific, ODI registered net outflows of USD 20.9 billion, down by 64% year on year and 43% quarter on quarter, suggesting market participants have become more reasonable in making outbound investments. FDI recorded net inflows of USD 32.4 billion, which remains at high level. Third, the BOP transactions have led to a slight decrease in reserve assets, with the margin shrinking remarkably. In the first quarter, due to the BOP transactions (excluding the impact from non-trading factors such as exchange rates and prices), China's reserve assets fell by USD 2.6 billion, which was 98% less on a year-on-year and quarter-on-quarter basis. To be specific, foreign exchange reserves dropped by USD 2.5 billion and its reserve position in the IMF decreased by USD 100 million. Overall, China's BOP sustained a basic equilibrium in the first quarter, suggesting that alongside the advancement of the structural reform, economic growth has been increasingly stable, and the fundamentals for China's BOP are good. 2017-05-08/en/2017/0508/1265.html
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The State Administration of Foreign Exchange (SAFE) has recently released the data on external debt as at the end of March 2017. An official from the SAFE answered media questions on the recent situations of China's external debt. Q: Could you brief us on China's external debt for the first quarter of 2017? A: China witnessed stable growth in external debt for the first quarter of 2017. As at the end of March, China's full-scale outstanding external debt (including foreign currencies) amounted to USD 1.4378 trillion, up by USD 17.2 billion or 1.2% from the end of 2016, representing 4th consecutive month of growth in total external debt. Q: What would you say about the external debt situation in China? A: As the deleveraging of external debt came to a halt, China has registered 4th consecutive month of steady recovery of China's total external debt since the second quarter of 2016. Many factors have impacted the changes of external debt, such as economic fundamentals, cross-border financing policy and domestic and foreign financing environment. At the beginning of 2017, the People's Bank of China (PBC), together with the SAFE, published the Circular of Macro-prudential Management of Full-scale Cross-border Financing, further refining the macro-prudential management policy for cross-border financing, and expanding the room for funding abroad by banks and enterprises, which will be favorable for facilitating normal flows of external debt in compliance with regulations and serving the development of the real economy. As the domestic macro economy and cross-border capital flows recover with a good momentum for growth, and external debt reform and facilitation measures are implemented, it is anticipated that China's external debt will continue growing. Next, the PBC and the SAFE will endeavor to improve the system for external debt and capital flow management under the framework of macro-prudential management. While promoting cross-border financing and investment facilitation, they will enhance ongoing and ex-post monitoring and analysis to guard against external debt risks and safeguard the country's economic and financial security. 2017-06-30/en/2017/0630/1321.html
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Q: The latest data on foreign exchange reserves released by the People's Bank of China (PBC) show that China's foreign exchange reserves as at the end of April 2017 rose by USD 20.4 billion month on month. Could you tell us why the change occurred? A: As at the end of April 30, 2017, China's foreign exchange reserves amounted to USD 3.0295 trillion, rising by a slight USD 20.4 billion or 0.7% month on month. This is the third consecutive month that China's foreign exchange reserves have increased. In April, China's cross-border capital flows continued to find an equilibrium, featuring a basic balance between foreign exchange supply and demand. In the global financial markets, the non-USD currencies appreciated against the USD, with the asset prices picking up. Under the combined impact of these factors, foreign exchange reserves have rebounded. Since the beginning of 2017, China's macro-economic performance has continued to make progress while maintaining stability, with good momentum for growth. The economic growth has recovered slightly, hitting 6.9% in the first quarter, up by 0.1 percentage point quarter on quarter. Other economic indicators all recovered to some extent. As the global economy continues to recover slowly, the global financial markets have performed stably, the RMB exchange rate has stayed stable, and cross-border capital flows and the supply and demand in the foreign exchange markets are basically balanced. Driven by this, enterprises have become more reasonable in buying foreign exchange and their desire to settle foreign exchange has been strengthened. Going forward, as China's supply-side structural reform is deepened, China's economic fundamentals will continue to exhibit a good momentum for growth, the expectations of the RMB exchange rate will stay stable, and cross-border capital flows will develop towards an equilibrium, all of which will boost China's foreign exchange reserves towards further stability. 2017-05-07/en/2017/0507/1264.html
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Q: The latest data on foreign exchange reserves disseminated by the People's Bank of China show that China's foreign exchange reserves by the end of May 2017 rose by USD 24 billion month on month. My question is what caused such changes in foreign exchange reserves. A: As at May 31, 2017, China's foreign exchange reserves amounted to USD 3.0536 trillion, up by a slight USD 24 billion or 0.8% month on month, representing the fourth consecutive month of growth. In May, China's cross-border capital flows continued to be stabilized, presenting a good momentum, while the supply and demand of foreign exchange remained in an equilibrium. Globally, the financial markets were volatile, the non-USD currencies against the US dollar appreciated, and asset prices rose. Due to the combined effect of these factors, China registered recovery of foreign exchange reserves. Since the beginning of this year, China's economic performance has remained within the reasonable range. It also has borne witness to more positive changes such as higher quality, optimized structure, stronger potential and dynamism, and wider space, and the emergence of more factors that support the mid to high-speed economic growth and its efforts to march toward the medium and high level of economic development. All these show that China's economy has become more robust in making progress while maintaining stability. The global financial markets have been operated more stably, while China's cross-border capital flows and the supply and demand of foreign exchange have been basically balanced, and the RMB exchange rate has picked up steadily. Encouraged by these, residents and enterprises have become more sensible in purchasing foreign exchange. Looking ahead, the economy's momentum for making growth while maintaining stability will be further consolidated since China's economy boasts strong potential, remarkable resilience, and much leeway to improve, and new drivers of growth are being formed at a faster pace. As the opening up of China's financial market continues to deliver results, the foundation for the stable and even cross-border capital flows will be solidified, so as to boost the stability of foreign exchange reserves. 2017-06-07/en/2017/0607/1317.html
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Moderator Xi Yanchun: Good morning, ladies and gentlemen. Welcome to the press conference of the State Council Information Office. We have organized several press conferences on economic data since the beginning of July. Today we are very glad to have with us Ms. Wang Chunying, press spokesperson and director of the Department of Balance of Payments of the State Administration of Foreign Exchange (SAFE). She will brief us on the foreign exchange receipts and payments for the first half of 2016 and take your questions. Now let me introduce you to Ms. Wang. 2016-07-21 09:47:51 Wang Chunying: Friends from the press, good morning. Welcome to today's press conference. I would first like to unveil foreign exchange receipts and payments for 2016 and then I will be taking your questions. In the first half of this year, the global economy was still undergoing profound adjustments, featuring heavy downward pressure and increasingly complex global financial markets; China's economic operation basically met expectations, with stable financial markets and RMB exchange rates. The SAFE continued to promote the foreign exchange administration reform to facilitate trading and investing activities by market players; and on the other hand, it was committed to enhancing monitoring of cross-border capital flows to guard against associated risks. Overall, the pressure on China from cross-border capital outflows was gradually eased in the first half. 2016-07-21 09:51:41 Wang Chunying: Banks settled foreign exchange of RMB 4.75 trillion (USD 726.7 billion) and sold foreign exchange of RMB 5.88 trillion (USD 900.5 billion) in the first half, with a deficit of RMB 1.13 trillion (USD 173.8 billion). Meanwhile, banks registered cumulative foreign-related income of RMB 8.85 trillion (USD 1.3545 trillion) and made external payment of RMB 9.95 trillion (USD 1.5233 trillion) for their customers, with a deficit of RMB 1.10 trillion (USD 168.8 billion), according to the data on banks' foreign-related receipts and payments for customers. 2016-07-21 09:54:12 Wang Chunying: China’s foreign exchange receipts and payments for the first half present the following characteristics: First, banks' foreign exchange settlements and sales, and foreign-related receipts and payments were both in deficit. In the first half, in US dollar terms, the foreign exchange settled by banks was down by 16% year on year, while the foreign exchange sold, down by 7% year on year, leading to a deficit of USD 173.8 billion. Banks' foreign-related receipts for customers went down by 18% year on year, and foreign-related payments made by banks for customers went down by 5%, indicating a deficit of USD 168.8 billion, including a deficit of USD 25.9 billion in the balance of foreign-related foreign exchange receipts and payments. Second, pressure from cross-border capital outflows was gradually eased. According to banks' foreign exchange sales and settlements data, China posted a deficit of USD 124.8 billion in the first quarter, which plummeted to USD 49 billion in the second quarter. In particular, the monthly deficit dropped from USD 54.4 billion in January to USD 12.5 billion and USD 12.8 billion in May and June respectively. According to the data on banks' foreign-related receipts and payments for customers, China posted a deficit of USD 112.3 billion in the first quarter, which contracted to USD 56.5 billion in the second quarter. In particular, the deficit in banks' foreign–related receipts and payments for customers dropped month-on-month from January to April to USD 20.1 billion, USD 10.5 billion, USD 5.9 billion and USD 2 billion respectively; But the deficit changed into a surplus of USD 200 million and USD 12.5 billion in May and June respectively. 2016-07-21 09:55:19 Wang Chunying: Third, foreign exchange sales rate dropped, and foreign exchange financing through some channels picked up. The foreign exchange sales rate, the measure of enterprises' motive to buy foreign exchange, or the ratio of foreign exchange customer bought from bank to customer's foreign-related foreign exchange payments, was 80% in the first quarter, and 74% in the second quarter, down by 6 percentage points quarter on quarter. In the first half, the outstanding domestic foreign exchange loans fell by USD 58.3 billion, including declines of USD 35 billion and USD 23.4 billion in the first and second quarters respectively. Further, the balance of cross-border financing for imports such as refinancing and forward L/C dropped by USD 34.9 billion in the first quarter, and by USD 5 billion in the second quarter. In particular, the balance of cross-border financing for imports has picked up for four straight months since March, indicating enterprises' deleveraging of external debt slowed down. Fourth, the foreign exchange settlement rate rose, indicating market players' willingness to hold foreign exchange was weakened. Foreign exchange sold by customers to banks as a percentage of their foreign-related foreign exchange receipts, or the foreign exchange settlement rate that measures the willingness of companies and individuals to settle foreign exchange, was 59% in the first quarter, and 63% in the second quarter, up by 4 percentage points quarter on quarter. In the first half, the balance of banks' foreign exchange deposits rose by USD 28.8 billion, including an increase of USD 38.6 billion in the first quarter and a fall of USD 9.8 billion in the second quarter. All of this pointed to a weakened desire among individuals and enterprises to hold foreign exchange. 2016-07-21 09:58:27 Wang Chunying: Fifth, banks registered a drastic decline in the deficit in forward settlements and sales of foreign exchange. In the first half, the number of clients contracting for forward foreign exchange settlement with banks was down by 61% year on year, while that of clients contracting for forward foreign exchange sales with banks was down by 55%, leading to a deficit of USD 37 billion in forward foreign exchange settlements and sales contracted with banks, down by 46% year on year. In particular, the deficit for the first quarter was USD 36.3 billion, and contracted to USD 800 million in the second quarter, indicating an equilibrium between foreign exchange supply and demand in forward markets, and stable expectations of the RMB exchange rate. These are the major statistical data I want to unveil regarding foreign exchange receipts and payments for the first half. Now I will answer your questions. 2016-07-21 10:01:36 Moderator Xi Yanchun: We are moving into the Q&A session. Please tell us what news agency you are from before raising your questions. Let's get started. 2016-07-21 10:03:00 Economic Daily: China's cross-border capital flows have been fluctuating violently these days. Will this be a normal in the foreseeable future? 2016-07-21 10:04:02 Wang Chunying: As internationally recognized, the Balance of Payments can fully reflect a country's cross-border capital flows. We have published the balance of payments data for the first quarter, and will be disseminating the data for the first half soon. 2016-07-21 10:04:47 Wang Chunying: China's balance of payments for recent years presents a pattern of surplus under the current account while deficit under the non-reserve capital and financial account. In making analysis, we usually remove reserves from the capital and financial account and observe the non-reserve capital and financial account. If reserves are included and net errors and omissions are not taken into consideration, the surplus under the current account can be offset by the deficit under the capital and financial account. First of all, the surplus under the current account lays a foundation for China's cross-border capital flows. According to the statistical principle of the balance of payments, the surplus under the current account is actually the basis for China's sustained exports of capital and accumulation of external claims. For example, China's foreign exchange receipts from exports of goods or services need to be used overseas through investments, among others, which will be shown in a deficit under the capital and financial account. Since the 1990s, China has witnessed continued surpluses under the current account. The surplus as a percentage of GDP for the first quarter was 1.6%, which was within the internationally recognized reasonable range, compared with the historical peak of 10% or so. 2016-07-21 10:09:58 Wang Chunying: Second, the non-reserve financial account is becoming the dominant force in China's cross-border capital flows. The non-reserve financial account reflects NGOs' cross-border capital flows. Around the second quarter of 2014, China witnessed dramatic changes under the non-reserve financial account. Except in a few quarters, China had registered continued surpluses under the non-reserve capital and financial account before 2014. Between 2003 and 2013 in particular, along with a tremendous influx of foreign capital, China reported fast growth in foreign exchange reserves. From 2014 onward, China's non-reserve capital and financial account has remained in deficit, which, however, was not caused by withdrawal of investment by foreign capital, but by the private sector's increasing outward investments for internationalization. In the first quarter, for example, the external financial asset of Chinese enterprises and individuals rose by RMB 109.8 billion, of which more than 50% was ODI. On the other hand, China's external debt fell by USD 13.5 billion, which is favorable for reducing the currency mismatch risk and lowering society's leverage ratio. In the meanwhile, China attracted a net inflow of USD 41.1 billion in FDI, indicating that overseas long-term capital is still optimistic about China. 2016-07-21 10:23:25 Wang Chunying: Going forward, China's cross-border capital flows will continue to reflect China's economic fundamentals. Along with the domestic economic transformation and upgrades, China's economy will maintain a mid and high growth rate, and the current account dominated by trade in goods will continue to remain in surplus. Meanwhile, China's foreign exchange reserves will remain abundant, and its ability to guard against cross-border capital flow risks will be strong. China will also remain highly attractive to long-term capital. As reform and opening up is pushed forward, domestic enterprises and individuals will become more sensible and reasonable about adjusting the asset and liability structures, which will guide China's cross-border capital flows towards a stable direction. Thank you. 2016-07-21 10:34:19 CCTV: According to the data you disseminated just now, the pressure from cross-border capital outflows facing China was eased in the first half. Could you tell us why? What would you say about China's cross-border capital flows in the future? 2016-07-21 10:43:18 Wang Chunying: Thank you for your questions. According to the data I disseminated, the pressure from cross-border capital outflows facing China was indeed eased, which reflected the changes in domestic and overseas market environments. First, the macro economic and financial environments remained stable. Externally, global financial markets were stable in most part of the first half, except at the beginning of the year and the end of June. The Fed was slow in raising interest rates, with the US Dollar Index falling by 2.6% in the period. Domestically, China's economic operation stayed within a reasonable range, with stable growth in the first quarter continuing in the second quarter, the roles of domestic demand further strengthened, reforms achieving positive progress, and some economic indicators performing well. For example, employment and prices stayed stable, sales grew steadily, and the official PMI fell within the expansion phase in most of the time. Second, market sentiment remained stable and reasonable, and expectations of RMB depreciation were weakened. As the RMB exchange rate was further marketized, market players had gradually adapted to the new mechanism and expectations of exchange rate had been stabilized. The daily average spread between CNY/CNH against the US dollars was shrinking from January to April, hitting 419, 111, 94 and 80 basis points respectively; the spread rose to 162 basis points in May but fell to 97 basis points in June. In all, the stabilization of market sentiment was a very exciting change. 2016-07-21 10:43:50 Wang Chunying: Overall, China's cross-border capital flows will remain basically stable in the future. On the one hand, there are many uncertainties in both domestic and foreign environments, which will challenge the stability of China's cross-border capital flows. But on the other hand, there are still many factors that support the stability of China's balance of payments. First, China's economy is operated within a reasonable range, its economic structure is being optimized, and economic growth is high at the global level. Moreover, China's fiscal position is sound, its financial system is robust, and the features of its economy, namely, strong resilience, great potential and broad room to maneuver, remain unchanged. According to the latest forecast issued by the IMF on July 19, the global economic growth will reach 3.1% this year, which is down by 0.1 percentage point from the forecast of April, but China's economic growth will be upped by 0.1 percentage point to 6.6%, the second time the IMF has upgraded its forecast of China's economy since the beginning of this year. Second, the current account remains in surplus, which is within the reasonable range. Third, there is still a gap between the return on assets both at home and abroad. For example, as at the end of this June, the yield of China's treasury bond due in one year was 1.8 percentage points higher than that of the US, and the yield of China's treasury bond due in a decade was 1.2 percentage points higher. Fourth, China still takes the top spot across the world by the balance of its foreign exchange reserves. Further, the global communication and coordination for guarding against risks are being strengthened, which will be favorable for maintaining stable markets. 2016-07-21 10:45:44 China Daily: Since Britain's exited from the EU, global financial markets have been struggling with heightened fluctuations. I wonder what impact Brexit has had on China's cross-border capital flows, and what moves China will take to guard against relevant risks? Thank you. 2016-07-21 10:48:57 Wang Chunying: Britain's exit from the EU has attracted wide concerns in society. China has doubled its efforts of highly frequent statistical monitoring and early warning before and after the referendum on Brexit. So far, no significant impact from Brexit has been spotted on China's cross-border capital flows. First, over the short run, the impact will be chiefly from the fluctuating global markets, but the pressure will be effectively unleashed, hence limited impact on domestic supply and demand. In the wake of the announcement of the Brexit referendum outcome, global financial markets experienced violent volatilities, with the US Dollar Index surging, and risk aversion rose dramatically, and the RMB exchange rate against USD was depreciated, while China's cross-border capital flows and supply and demand remained stable, which indicates that the exchange rate's role in adjusting supply and demand has been strengthened. 2016-07-21 10:49:58 Wang Chunying: Second, in the mid and long term, impact will be complex and rendered step-by-step, but will not change the stability of China's overall cross-border capital flows. Market evolution and conduction will be under great uncertainties after the Brexit referendum, and may affect the cadence of the Fed's adjustment of its monetary policy, which combined will impact China's cross-border capital flows. For example, if Brexit repeatedly impacts the market, China's cross-border capital flows may be affected by market volatilities, rising risk aversion and strengthened US dollars caused therefrom, but the progress of the Fed's interest rate hikes may slow down due to market volatilities. Further, Brexit's impact on the British and European economies, and then on the trade and investments of China, Britain and Europe will not be felt or lead to dramatic adjustments in the short run, and as a result, its impact on China's cross-border capital flows will not be rendered right away. 2016-07-21 10:51:18 Wang Chunying: Third, historically, China's cross-border capital flows have withstood external impact in recent years, suggesting a solid foundation for China to sustain stability. From the global financial crisis in 2008 to the European debt crisis in 2011, and to the exit of Fed's QE policy in 2014 and the first interest rate hike in 2015, global financial markets have experienced violent volatilities. China's cross-border capital flows, somewhat affected though, had been re-stabilized after short-term fluctuations, with relevant risks within control, which was closely related to China's sound economic fundamentals, robust external account and abundant foreign exchange reserves. This will hold true for the Britain's exit from the EU. With a robust internal basis, China's cross-border capital flows will remain stable. To be sure, we will continue to intensify monitoring, assess impacts in real time, and keep refining existing policy programs to guard against risks arising from cross-border capital flows. 2016-07-21 10:59:49 CBN Daily: According to China's foreign exchange reserves and banks' foreign exchange settlements and sales data, China's cross-border capital outflows are contracting. But in comparison, the depreciation pressure on the RMB exchange rate, especially in May and June, was heightened. This means that the RMB exchange rate depreciation was decoupled with cross-border capital flows, and the amount ran counter to the price of the RMB. Could you tell us why? Is this related to China's foreign exchange administration policy? 2016-07-21 11:04:44 Wang Chunying: We have noted this too. It is normal that the deficit in foreign exchange sales and settlements contracts, cross-border capital flows drop while the RMB exchange rate changes. In the 8·11 foreign exchange administration reform last year, the People's Bank of China refined the mechanism of the central parity rate of the RMB against the USD, and announced the RMB exchange rate index last December, thereby further improving the formation mechanism that is adjusted based on supply and demand and with reference to a basket of currencies, in a bid to better adapt to market changes. Under the dual impact of the recent changes in supply and demand, and in exchange rates of a basket of currencies, the RMB exchange rate against the US dollar has been depreciated, but remained stable against a basket of other currencies. The changes in the deficit in foreign exchange sales and settlements are actually subject to many factors. For example, just as mentioned earlier, along with the introduction of the new policies in favor of cross-border investment and financing, many enterprises will consider enhancing overseas financing, and reducing purchases of foreign exchange. Therefore, despite the foreign exchange rate depreciation, the deficit in foreign exchange sales and settlements may not necessarily rise. 2016-07-21 11:09:15 BTV: We noted that China's foreign exchange reserves rose in March and April, dropped in May and picked up in June. Could you tell us why foreign exchange reserves picked up in June? What's your view on the current levels of China's foreign exchange reserves? 2016-07-21 11:40:00 Wang Chunying: Four categories of factors will impact the changes in the size of foreign exchange reserves: first, reserve changes caused by the balance of payments transactions, including adjustments by the central bank to balance the supply and demand of foreign exchange, and operating revenues of reserves; Second, price fluctuations of investments with foreign exchange reserves, or price revaluation; Third, exchange rate conversion. Since China's foreign exchange reserves are denominated in US dollars and subject to diversified operations, the changes in the exchange rates of other currencies against the USD may lead to changes in the size of China's foreign exchange reserves; Fourth, as defined by the IMF, foreign exchange reserves used to support going global will be excluded from the entry of foreign exchange reserves in accounting. As at the end of June 2016, China posted USD 3.2052 trillion in foreign exchange reserves, up by USD 13.4 billion from the end of May, thanks to the rising prices of the assets invested with foreign exchange reserves. Certainly, the recent equilibrium of domestic supply and demand of foreign exchange and reserves income also helped stabilize foreign exchange reserves. 2016-07-21 11:41:40 Wang Chunying: For the moment, China still takes the first place worldwide by foreign exchange reserves, which are much higher than nearly USD 1.3 trillion in Japan, who ranks No. 2, and USD 600 billion in Switzerland and Saudi Arabia respectively, who rank No. 3 and No. 4. The IMF statistics show that China's foreign exchange reserves accounted for 30% of the world's total as at the end of the first quarter, which was still astonishing. There are various opinions on the suitable size of foreign exchange reserves, but traditionally, indicators such as imports for 3-6 months or 100% short-term external debt are used for measurement. Overall, measured by the absolute size of foreign exchange reserves or by other adequacy indicators such as the shares of foreign exchange reserves in imports and external debt, China's foreign exchange reserves are abundant, which lays a solid foundation for the government to withstand external impact. 2016-07-21 11:46:02 Wang Chunying: Going forward, it may be a normal that foreign exchange reserves will fluctuate around the reasonable level. The changes in foreign exchange reserves are the result of macroeconomic operations both at home and abroad. As China is deeply integrated into the world economy, it will face some uncertainties, but there are still many fundamental factors that support the stability of China's balance of payments, such as economic operation within the reasonable range, optimizing economic structure, continued surplus under the current account, and continued inflows of long-term capital. China's cross-border capital will continue to present a pattern of bidirectional fluctuations. By the same token, fluctuations of foreign exchange reserves around the reasonable level may also be a normal. 2016-07-21 11:48:32 Nihon Keizai Shimbun: This press conference is professional with many data disseminated. Could you give me some materials? Such a data dissemination press conference usually provides materials. 2016-07-21 11:49:43 Moderator Xi Yanchun: Let me make a clarification. Relevant data were disseminated at the website of the SAFE this morning. The Q&A session is also uploaded in real time. If you have any questions or want more detailed materials, please contact the news department of the SAFE. I am sure they will help you. 2016-07-21 11:52:28 Guangming Daily: The media has paid close attention to China's loss of the second largest creditor for a while. What's the SAFE's view about such attention? 2016-07-21 11:53:28 Wang Chunying: I would like to say something more to the previous reporter. We would like to provide some historical data in advance to help you understand. The data disseminated today are being uploaded to the website of the SAFE in real time, where you can also acquire the historical data already disseminated. 2016-07-21 11:54:58 Wang Chunying: Well, for this question, we should look at the relationship between the Balance of Payments and the International Investment Position. In 2015, China's ranking dropped by net external assets. The net external asset was USD 1.6 trillion in 2015, down by USD 6.3 billion year-on-year. As at the end of 2014, the figure was down by USD 393.2 billion year-on-year. The slump since 2014 was attributable to China's adoption of a new statistical method. The rise or fall in China's net external asset is subject to the financial account transaction under the balance of payments, the increase or decline in China's assets or liabilities arising from outward investment or attraction of capital and the non-transaction changes such as in price and foreign exchange rate. 2016-07-21 11:59:24 Wang Chunying: Judging from transaction factors, the net external assets under the financial account under the balance of payments rose by USD 311.8 billion in 2014 and 2015 combined, bringing the balance of China's net external assets up by USD 311.8 billion too, rather than bringing it down. This could be explained by the increased outward investments by China, or the significant increase in the non-reserve external assets. In the two years, China registered a net increase of more than USD 800 billion in outward investments. On the other hand, due to the changes in exchange rates and interest rates both at home and abroad, domestic players have voluntarily adjusted their asset and liabilities structures and serviced external debt, and non-residents also reduced their domestic deposits, thus bringing down China's external debt. 2016-07-21 12:03:39 Wang Chunying: In terms of non-transaction factors, the loss in valuation arising from the adjustment of statistical method and the changes in prices and exchange rates has been the major cause of the decrease in China's net external assets in recent years. First, the adjustment of statistical method led to an increase of nearly USD 300 billion in China's external equity and liabilities in the past two years. For example, an enterprise issued 10 shares in its IPO at RMB 1 per share, which were bought up by non-residents. In this way, China owed a total of RMB 10 to non-residents at RMB 1 per share. Two years later, the enterprise and non-residents did not make any deals, and the non-residents still held these shares, but the unit price rose to RMB 3 per share, which means China owed a total of RMB 30 to non-residents, representing an increase of RMB 20 in debt due to the valuation factor, thus bringing down China's net external assets. Likewise, with market capitalization replacing historical costs to measure China's external equity and debt, China's external equity and debt as at the end of 2015 rose by nearly USD 300 billion from the end of 2013, and its net external assets dropped by nearly USD 300 billion. 2016-07-21 12:07:35 Wang Chunying: Second, changes in asset prices and exchange rates led to the changes in external asset valuation. In 2014 and 2015, China's external assets fell by USD 396.9 billion due to the changes in asset prices and foreign exchange rates But China was not extraordinary. Our observations of Japan and Germany, who ranked No. 2 and 3 by net external assets, show that similar changes in valuation had taken place in the two countries. For example, at the end of 2015, Japan's net external assets fell by nearly USD 500 billion, and Germany, more than USD 200 billion, due to the valuation factor. After the adjustment of incomparable factors such as historical valuation and improvement of data sources, the change in valuation as a percentage of net assets was similar in China, Japan and Germany. 2016-07-21 12:26:44 Wang Chunying: Since such changes in valuation reflect the changes in the carrying value at different points of time, and do not represent actual losses, the increase or decrease in net assets arising from changes in exchange rates and asset prices should be looked at rationally. Last but not least, we also should be sensible about the size of China's net claims. On the one hand, the size of net external claims should be appropriate, which should be analyzed in combination with the return on investment and the domestic demand for capital. On the other hand, it would be economical and reasonable if foreign investments are attracted and overseas low-cost financing is rationally used. Many developed economies including the US are net debtors who attract massive investments to develop their economies. Therefore, we should be sensible about this issue. 2016-07-21 12:31:48 Moderator Xi Yanchun: As time is running short, I have to end today’s conference here. Please allow me to thank Ms. Wang for her professional and detailed explanations, and thank you all. 2016-07-21 12:39:27 (The original text is available at china.com.cn) 2016-11-08/en/2016/1108/1214.html