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Taking a Sensible Approach to the Changes in China's Foreign Exchange Reserves By Pan Gongsheng, Deputy Governor of the People's Bank of China and Administrator of the State Administration of Foreign Exchange Foreign exchange reserve is an objective indicator of the achievements in China's reform and opening-up and its development of foreign economy, and also the result of the functioning of the balance of payments. Since the 18th CPC National Congress, China's economic development has stepped into a new normal, with the balance of payments finding an equilibrium amid fluctuations, and foreign exchange reserves registering slower growth rather than high-speed growth as it previously did, and even falling in a certain period, which should be looked at and analyzed objectively and sensibly, rather than fretfully. Foreign exchange authorities are required to refine the foreign exchange administration system, and make use of the positive roles foreign exchange reserves play in serving the real economy and maintaining China's economic and financial security, in a bid to embrace the 19th CPC National Congress with excellent performance. First, foreign exchange reserves change as a result of robust macroeconomic performance In 1992 the reform target of building a socialist market economy was set at the 14th CPC National Congress; in 2001 we joined the WTO, which injected strong impetus for the fast development of China's economy and society. Since the outbreak of the global financial crisis in 2008, China has entered into a new normal of economic development along with the changes in environment and conditions internally and externally, and its foreign exchange reserves have declined from a high level after the long-term growth. But overall, China's foreign exchange reserves remain adequate and within a reasonable range. China has taken the top spot worldwide for years for high foreign exchange reserves. Along with the establishment of the socialist market economic system and the deepening of the opening-up strategy, China has adapted to the holistic development trends of the world economy, and actively participated in the international division of labor and cooperation. In the midst of expanding opening-up, China has borne witness to rapid economic growth for consecutive years, fast expansion in foreign trade, use of foreign capital and outbound investments, and continued surpluses in the balance of payments. As a result, China's foreign exchange reserves hiked from USD 21.7 billion in the beginning of 1992 to a historical high of USD 3.99 trillion in June 2014. Statistics show that the top 10 countries/regions by foreign exchange reserves as at the end of March 2017 include China, Japan, Switzerland, Saudi Arabia, Taiwan, Hong Kong, Brazil, South Korea, India and Russia. To be specific, China's foreign exchange reserves accounted for 28% of the world's total, far higher than those of the rest of the world. China's foreign exchange reserves are characterized by cyclical changes. Since the advent of this century, China has seen two stages in the changes of its foreign exchange reserves. In the first stage, which began in 2000 and ended in 2013, a tremendous amount of global capital flew into emerging economies and sent China's foreign exchange reserves surging, from USD 154.7 billion at the beginning of 2000 to USD 3.82 trillion in 2013, representing an annual increase of more than 26%. In the second stage that began in 2014, along with the outflows of global capital from emerging economies, China's foreign exchange reserves peaked in June 2014 and dropped afterwards. China's foreign exchange reserves are adequate. However, there is no universal metric on how much foreign exchange reserve a country holds should be reasonable. In the 1950s to 1960s, the widest used metric for foreign exchange adequacy ratio was the import for 3-6 months. Later as the demand for foreign exchange reserves expanded to guarding against the inadequate debt servicing capability, the widest used metric for the adequacy ratio became the 100% short-term debt. Since 2011, the International Monetary Fund (IMF) proposed the comprehensive standard for foreign exchange adequacy ratio, based on the capital demand of every country for guarding against crises. Foreign exchange reserve is a continuous variable that dynamically changes under the impact of various factors, and therefore, in measuring whether foreign exchange reserves are at a reasonable level, the macroeconomic conditions, level of economic liberalization, capability of using foreign capital and international financing, and maturity of the economic and financial systems of a country should be taken into full consideration. In China, no matter which metric is adopted, its foreign exchange reserves are adequate and help satisfy the demand for economic and financial development. Second, foreign exchange reserves are crucial to promoting China's economic development Since the 18th CPC National Congress was held, Secretary-general Xi Jinping has proposed the thoughts of building a community of shared future for mankind, achieving mutual benefit and seeking common development in promoting opening up in all respects, based on his understanding of the current international trends of peace, development, cooperation and win win. Based on in-depth study and their understanding of Secretary-general Xi Jinping's new thoughts on opening up, foreign exchange authorities have been active in innovating and improving the foreign exchange reserve management system and utilization mechanism, and played a critical role in adjusting macro policy, serving the national strategy and maintaining financial security. Foreign exchange reserves are key to ensuring the robust performance of China's macro-economy. For the moment, China adopts the well-organized floating foreign exchange rate system that is adjusted based on the supply-demand in the market with reference to a basket of currencies. As an important stabilizer of macroeconomic performance, foreign exchange reserves play a key role in maintaining the capability of international payment, guarding against financial risks, and withstanding the impact of crises. When the global liquidity is adequate, market participants will sell the redundant foreign exchange funds to promote the growth of foreign exchange reserves. When the global liquidity tightens, market participants will hold more foreign exchange assets and reduce overseas debt, leading to lower foreign exchange reserves. Foreign exchange reserves actually function like a reservoir that avoids significant inflows and outflows of cross-border capital and resulting deviation from the economic fundamentals, and makes room for economic restructuring and industrial transformation and upgrading. The adequate foreign exchange reserves also help China withstand the significant external impact from the Asian Financial Crisis of 1997 and the global financial crisis of 2008, safeguarding China's economic and financial security. Foreign exchange reserves have effectively served the opening-up strategy. Secretary-general Xi Jinping stressed that opening up is a must at the new stage of development, with focus on cooperation and mutual benefit. Following the opening-up strategy, foreign exchange authorities have coordinated big pictures in China and the rest of the world, and expanded diversified use of foreign exchange reserves in the principle of "ensuring paid use of foreign exchange reserves with higher benefits and effective regulation in compliance with laws and regulations", providing significant amount of funds for the economic development of China and the world. In recent years, foreign exchange authorities have developed and expanded various channels such as entrusted loans and equity investment to provide foreign exchange funds to financial institutions and physical economic sectors such as commercial banks and policy banks, establishing the mechanism for use of foreign exchange reserves featuring clearly defined roles and responsibilities, definite goals, multiple tiers, and diverse products, with focus on supporting the Belt and Road Initiative, international production capacity and outfit manufacturing cooperation, enterprises going global, and imports and exports in key areas, so as to serve the development of the real economy. As the world economy is recovering slowly, and economic and trade globalization are faced with serious challenges, diversified use of foreign exchange reserves will be favorable for Chinese companies to effectively use the domestic and overseas markets and resources, facilitate the organic integration of China into the international community, and promote international cooperation in economic affairs. Reasonable utilization of foreign exchange reserves has helped achieve the goal of "letting the public hold more foreign exchange". In the face of the demand of market participants for purchasing foreign exchange and their willingness to hold foreign exchange, foreign exchange authorities have deepened the foreign exchange administration reform, yielded policy dividends, and made exchange easier, which have boosted the endeavor to let the public hold more foreign exchange. As for the holders, China has diverse forms of outbound investors such as foreign exchange reserves, China Investment Corporation, social insurance funds, financial institutions and enterprises, indicating remarkable progress has been achieved in the diversification of foreign exchange holders. From the second quarter of 2014 to the end of 2016, foreign exchange reserves in China's International Investment Position fell by around USD 1 trillion, matching with residents' net foreign assets that rose by USD 0.9 trillion, which is a direct testimony to "letting the public hold more foreign exchange". For the private sector, the foreign exchange they held in the period was to fund ODI, servicing of foreign debt, travelling and studying abroad by domestic residents. For the government sector, as foreign exchange reserves on the asset side of the central bank drop, those on the liability side will fall accordingly, showing "letting the public hold more foreign exchange" does not displace the balance in the central bank's balance sheet that adopts the double-entry bookkeeping system. Horizontally, by the third quarter of 2016, China's foreign exchange reserves as a percentage of external assets are at a reasonable and medium level among major developing countries. Vertically, as at the end of 2016, the share of the external assets held by the private sector surpassed 50% for the first time, the highest level since China began to disseminate the data on international investment position in 2004; foreign exchange reserve assets accounted for 48%, down by nearly 20 percentage points from the level of the end of 2009. This shows that China's external economic and financial exchanges are shifting from the dominance of government investments to equal investments by the public and the private sectors. It should be emphasized that China is not interested in strengthening competitiveness through currency depreciation, and does not need to do so. The central bank provides the market with foreign exchange liquidity, avoiding exchange rate overshooting and the herd effect, and safeguarding stability in the market. China's endeavor to strike a balance between enhancing exchange rate flexibility and maintaining exchange rate stability will be favorable for the international community, effectively avoiding the negative spillover effect due to the disorderly adjustment of the RMB exchange rate and the competitive depreciation among major currencies. Third, effectively use foreign exchange reserves to serve the reform and opening up, and international cooperation in economic affairs Reform and opening up is the necessary path towards national prosperity. Carrying out opening up in all respects is a key strategic step proposed by Secretary-general Xi Jinping at the new historical starting point. Foreign exchange authorities must develop the concepts of development that stress innovation, coordination, green, opening-up and sharing, with focus on accelerating the building of the new open economic system, and making full use of foreign exchange reserves' role in the construction of an open economy to make new contributions to realize the two centenary goals (namely, to complete the building of a moderately prosperous society in all respects when the Communist Party of China celebrates its centenary in 2021, and to turn China into a modern socialist country that is prosperous, strong, democratic, culturally advanced and harmonious when the People's Republic of China celebrates its centenary in 2049) and the Chinese dream of the great renewal of the Chinese nation and the prosperity and development of the world economy. Foreign exchange reserves will be stabilized amid volatility. The economic and financial variables often fluctuate and develop in cycles, rather than taking the form of linear transformation. This holds true for the changes in foreign exchange reserves. Despite many uncertainties in external environment, China's economic and financial fundamentals will remain stable with strong momentum for growth in the long term, and cross-border capital flows will evolve towards an equilibrium. First, China's economy remains in the mid and high-speed growth range, and as the supply-side structural reform advances, the quality and efficiency of its economic development will be enhanced in the future. China's economic fundamentals will continue to ensure the stable position of the RMB in the global currency system, and the RMB exchange rate will remain stable at a reasonable and even level. Second, the external debt deleveraging has been basically completed and Chinese enterprises' use of external debt has rebounded since the second quarter of 2016. Third, the surplus under the current account in China has remained at the reasonable level. As anticipated by the IMF, China will continue to post surpluses under the current account in the coming five years, which will ensure the stable supply of foreign exchange in China. Fourth, as the RMB joins the SDR basket and the reform, opening-up and development of China's financial market are deepened, the RMB assets will become an important part of the global allocation of financial assets and attract foreign investors to invest in the Chinese market, and the foreign exchange under the financial account will be stably supplied. Fifth, the complementarity of currencies and asset prices in the international financial market, coupled with the diversified layout of China's foreign exchange reserves, will ensure sound diversification and be favorable for the stability of China's foreign exchange reserves. Overall, China's foreign exchange reserves will be stabilized in the midst of volatility going ahead. Further efforts shall be made to optimize the role of foreign exchange reserves in stabilizing the balance of payments. The general work guideline of making progress while maintaining stability is an important principle of the CPC in state governance and a methodology for ensuring sound economic performance. Following the logic of stable macro policy, foreign exchange authorities shall go all out to ensure stable growth and provide a favorable external environment for the stable and healthy development of the economy, and for the stability and harmony of society. In the complex and changing economic and financial environments, internally or externally, foreign exchange reserves need to recover the basic feature of maintaining the stability of the balance of payments, which is a necessary requirement for settling major contradictions and problems in China's economic development and for ensuring robust macroeconomic performance. The purpose of foreign exchange administration and utilization is to serve the economic development in China and the world, and therefore foreign exchange reserve administration and utilization shall be integrated into the big picture of the CPC and the state to align domestic development with opening up, and the domestic development with the world development, in a bid to promote common development. Following the work plans of the CPC and the State Council and the general work guideline of making progress while maintaining stability, foreign exchange authorities shall take up responsibilities and forceful measures to coordinate the diversified use of foreign exchange reserves, and invest its funds in the strategic areas that ensure the Belt and Road Initiative, international production capacity and outfit manufacturing cooperation, and to promote common development and prosperity between China and the rest of the world. The operation and administration of China's foreign exchange reserves shall be enhanced. In the principle of safety, liquidity, value preservation and growth, efforts shall be made to conduct prudent, standardized and professional investment and operation with regard to foreign exchange reserves, optimize and dynamically adjust investment portfolios and strategies, and show respect for rules and practices in international markets so as to maintain and promote the stability and development of the international financial market. (The original text is available in the 13th issue of Qiushi Journal for 2017.) 2017-07-07/en/2017/0707/1288.html
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The State Administration of Foreign Exchange (SAFE) has recently held the 2017 High-level Seminar for Branch Directors to implement the gist of the National Financial Work Conference, and analyze the economic and financial conditions both at home and abroad and the foreign exchange situations in China, based on the priorities of foreign exchange administration for the second half. Pan Gongsheng, secretary of the CPC Leadership and administrator of the SAFE made systematic arrangements for the implementation of the gist of the National Financial Work Conference and for the Seminar for Presidents of Branches and Sub-Branches of the People's Bank of China. Attendees include deputy directors, chief accountants, and heads of the branches of the SAFE (foreign exchange administrative departments), as well as heads of the organs and units directly under the SAFE. It was unanimously agreed at the meeting that under the leadership of the CPC Central Committee with Comrade Xi Jinping at its core, China has achieved significant accomplishments in China's financial development and reform advancement since the 18th CPC National Congress. This national financial work conference, an important meeting held in the run-up to the 19th CPC National Congress, shows the CPC Central Committee's emphasis of the financial work. In his speech, Secretary-general Xi Jinping took a big-picture approach to analyzing the current financial situation and elaborating on the guidelines, rules and tasks for financial work under the new normal of economic development, based on the laws of financial development. He gave a comprehensive account of many key issues such as how to enhance the efficiency and level of financial services supporting the real economy, guard against systematic financial risks, be determined to deepen the financial reform and further liberalize the financial market, and refine the CPC's leadership in financial work. Therefore, this conference is an instruction and guide for ensuring a good performance in financial work, and promoting the benign circulation and healthy development of the economy and finance under the new circumstances. Premier Li Keqiang made arrangements for financial work in the new era and raised clear requirements. Deputy Premier Ma Kai made specific arrangements for implementing the gist of the National Financial Work Conference. The officials and staff in the foreign exchange administration system are required to carefully learn to develop a right and thorough understanding of the gist and arrangements and be determined to implement them. According to the conference, in the face of complicated economic and financial conditions both at home and abroad since the beginning of 2017, foreign exchange authorities have adhered to the general work guideline of making progress while maintaining stability and adapted to the new normal of foreign exchange administration under the leadership of the CPC Central Committee and the State Council as well as the CPC Committee of the People's Bank of China. They are committed to balancing the relations between facilitation and risk mitigation, effectively guarding against risks associated with cross-border capital flows while enhancing the level of foreign exchange administration serving the real economy, and therefore effectively safeguard the national economic and financial security. By deepening the reform of delegation, regulation and service, foreign exchange authorities support the stable development of foreign trade, and the two-way opening up of the financial markets. By adhering to the bottom line of foreign exchange administration in guarding against risks, they are dedicated to strengthening their capabilities in ongoing and ex-post administration, intensifying authenticity and compliance management, and cracking down against foreign exchange irregularities to ensure the health and stability of the foreign exchange market. They devote themselves to optimizing the operation and management of foreign exchange reserves to ensure the security, liquidity, value preservation and growth of foreign exchange reserves. They also enhance and improve CPC building to implement the "two responsibilities" in strengthening the Party's self-discipline in an all-round way. New achievements have been made in all respects. It was pointed out at the meeting that since the 19th CPC National Congress will be held in the second half, delivering a good performance in foreign exchange administration is of great significance. Foreign exchange authorities shall align their thoughts and actions with the judgments, decisions and arrangements of the CPC Central Committee on economic and financial conditions to strengthen their sense of responsibility, mission and urgency in foreign exchange administration. They are required to step up the implementation with a focus on serving the real economy, guarding against financial risks and deepening financial reforms. First, further promoting cross-border trade and investment facilitation to enhance the efficiency and level of foreign exchange administration serving the real economy. Foreign exchange authorities are required to duly support and ensure authentic international payments and transfers under the current account in compliance with regulations to support the development of new trading formats. They also shall support capable Chinese enterprises that meet conditions to make authentic outward investments in line with regulations, and optimize foreign exchange administration services for FDI, to create a fairer, more open and convenient business environment for both Chinese and foreign enterprises. Second, building the macro-prudential management and micro market monitoring system for cross-border capital flows. Efforts shall be made to intensify ongoing and ex-post regulation, crack down on foreign exchange irregularities such as underground banks, and guard against risks associated with cross-border capital flows to safeguard a healthy and stable foreign exchange market and China's financial stability and economic security. Third, further deepening the foreign exchange administration reform to systematically push for the two-way opening up of the financial market and convertibility under the capital account. A favorable policy environment for foreign exchange administration shall be built to better support the Belt and Road Initiative. Fourth, enhancing the operations and management of foreign exchange reserves to maintain and grow the value of foreign exchange reserves while ensuring the security and liquidity of foreign exchange reserves. According to the meeting, foreign exchange authorities must uphold the centralized and uniform leadership and the authority of the CPC Central Committee, and implement the policies, guidelines, decisions and arrangements made by the CPC Central Committee on financial work, to ensure the accurate orientation of the financial reform and development. They shall study the gist of Secretary-general Xi Jinping's speeches and his new philosophy, concepts and strategies on state governance, and strengthen their consciousness of the need to maintain political integrity, think in big-picture terms, uphold the leadership core, and keep in alignment. They also shall implement the requirements on strengthening the CPC's self-discipline, enhance education on dreams and beliefs, the spirit of the CPC, and the discipline, clean up undesirable work styles and uphold integrity, and comply with political discipline and regulations. Versatile financial talents with strong political consciousness shall be cultivated, selected and used to provide talent guarantee for the reform and development of foreign exchange administration. Officials and staff in the foreign exchange administration system are required to gather around the CPC Central Committee with comrade Xi Jinping at its core, and work hard with more courage and determination as well as a strong sense of responsibility, in an attempt to ensure sound foreign exchange administration under the new circumstances and embrace the 19th CPC National Congress with outstanding performance. 2017-07-28/en/2017/0728/1290.html
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The State Administration of Foreign Exchange (SAFE) has recently disseminated the initial data on the balance of payments for the second quarter and the first half of 2017, and its press spokesperson answered media questions on relevant issues. Q: Could you brief us on the latest changes in China's balance of payments for the first half of 2017? A: In the first half, the initial data in China's Balance of Payments show that twin surplus was registered under the current account and the financial account excluding reserve assets (including net errors and omissions for the second quarter, the same below), suggesting an increase in reserve assets. First, a reasonable surplus was sustained under the current account, and foreign trade recorded growth on a year-on-year basis. In the first half, China posted USD 71.2 billion in the surplus under the current account, accounting for 1.3% of its GDP for the period. To be specific, trade in goods in the balance of payments registered a surplus of USD 215.4 billion, down by 7% year on year, but import and export of goods were up by 12% and 18% year on year respectively, indicating foreign trade remained steady with a good momentum for growth thanks to the continuous improvements in domestic and foreign demand. In comparison, trade in services recorded a deficit of USD 135.1 billion, up by 24% year on year, chiefly because of an increase of 26% under transport driven by import growth, and travel registered an increase of 19% in deficit. Second, the financial account excluding reserve assets registered a surplus. In the first half, China witnessed a surplus of USD 15.6 billion under the financial account excluding reserve assets, versus a deficit of USD 225.9 billion for the same period last year on a comparable basis. In particular, direct investment recorded a net inflow of USD 14.2 billion, compared with a net outflow of USD 49.4 billion for the same period last year. Specifically, ODI registered a net outflow of USD 40.4 billion, and FDI, a net inflow of USD 54.6 billion, indicating investment has sustained a certain scale in both directions. Third, reserve assets increased. In the first half, China's reserve assets rose by USD 29 billion due to the balance of payments transactions (excluding non-trading factors such as exchange rate and price), versus a decline of USD 157.8 billion for the same period last year. To be specific, foreign exchange reserves rose by USD 29.4 billion, and reserves position in the IMF dropped by USD 400 million. Overall, China witnessed robust balance of payments in the first half, with cross-border capital flows getting stabilized with a good momentum for growth. In the future, the overall equilibrium of the balance of payments will have a stronger foundation. 2017-08-07/en/2017/0807/1292.html
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FILE: Template on International Reserves аnd Foreign Currency Liquidity(as at Dec 31 2015) 2016-02-01/en/2016/0201/599.html
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From July 27 to July 28, the People's Bank of China (PBC) and the State Administration of Foreign Exchange (SAFE) held a training course on Article VIII of IMF's Articles of Agreement in Hangzhou. Attendees include department representatives of the PBC and SAFE, and responsible persons from their branches and sub-branches who are committed to cross-border RMB management and foreign exchange administration under the current account. Ms. Katharine Christopherson, Assistant General Counsel at the International Monetary Fund (IMF), Ms. Kyung Kwak, Senior Counsel at the IMF and Mr. Aditya Gaiha, former Senior Financial Expert at IMF's Monetary and Capital Markets Department were invited to give lectures on the connotation and implementation of Article VIII of IMF's Articles of Agreement, and how government administrations could better perform their obligations as provided for in Article VIII. Since accepting the obligations of Article VIII of the IMF Articles of Agreement on December 1, 1996, China has been committed to advancing and deepening the foreign exchange administration reform, duly ensuring genuine international payments and transfers under the current account that are in compliance with regulations, and promoting trade and investment facilitation, in a bid to enhance the efficiency and level of serving the real economy. This training program will help China deepen its understanding of the obligations of Article VIII and draw on best practices and experience of member countries for regulation, and therefore is critical and positive for the country to perform its obligations as a member country of the IMF. The training program will also support China's efforts to further improve and refine the balance of payments regulation, better guard against the risks associated with cross-border capital flows and maintain an equilibrium of the balance of payments. 2017-08-02/en/2017/0802/1291.html
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Q: The latest foreign exchange reserves data released by the People's Bank of China (PBC) show that China's foreign exchange reserves as at the end of July 2017 went up by USD 23.9 billion month on month. Could you brief us on the causes behind such changes in foreign exchange reserves? A: As at the end of July 2017, China's foreign exchange reserves amounted to USD 3.0807 trillion, up by USD 23.9 billion or 0.8% month on month, recovering 6th-straight month. In July, China's cross-border capital flows remained stable, indicating a basic equilibrium between the supply and demand of foreign exchange; in global financial markets, non-USD currencies appreciated against the USD, boosting increases in foreign exchange reserves in USD terms. Since the beginning of this year, China's economy has been stable and improved, thanks to the more favorable factors that support the economy to achieve mid and high-speed growth and step onto the mid and high level. Global financial markets have stayed stable. Cross-border capital flows and the demand and supply of foreign exchange markets have found an equilibrium, and the RMB exchange rate has remained stable. Residents and enterprises have thus become more rational in buying foreign exchange. Going forward, as the supply-side structural reform goes deeper, and the innovation-driven development strategy is implemented at a faster pace, the positive changes in China's economic performance will continue to increase. Alongside the expansion and opening up of financial markets, foreign exchange markets will sustain healthy development, market expectations will stay stable, and the foundation for stable cross-border capital flows will be solidified, which will provide a further boost to the stability of foreign exchange reserves. 2017-08-07/en/2017/0807/1293.html
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FILE: Template on International Reserves аnd Foreign Currency Liquidity (as at Jan 31 2016) 2016-03-03/en/2016/0303/600.html
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FILE: SDDS Metadata For External Debt of China 2015-11-25/en/2015/1125/629.html
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The State Administration of Foreign Exchange (SAFE) has recently disseminated the data on bank’s foreign exchange settlement and sales as well as their foreign-related receipts and payments for customers for 2018. The SAFE spokesperson and Chief Economist Wang Chunying answered media questions on relevant issues. Q1: Could you brief us on the new characteristics of China’s foreign exchange receipts and payments situations in 2018? A: In 2018, China’s cross-border capital flow was stable on the whole, and foreign exchange supply and demand was basically balanced. Below are the major characteristics: First, banks registered a small deficit in foreign exchange settlement and sales as well as foreign-related receipts and payments for customers, which narrowed substantially as compared with that of 2017. In 2018, in dollar terms, foreign exchange settlement by banks was up by 15% year on year, and foreign exchange sales by banks, up by 11%, indicating a deficit of USD 56 billion, shrinking by 50%; banks' foreign-related receipts for customers were up by 16% year on year, and the payments up by 14%, leading to a deficit of USD 85.8 billion, shrinking by 31%. Specifically, foreign-related foreign exchange receipts and payments posted a deficit of USD 10.6 billion, narrowed by 48% from the 2017 level. Overall, due to the small deficit recorded by foreign exchange settlement and sales as well as foreign-related receipts and payments in 2018, combined with other foreign exchange trading factors on the inter-bank foreign exchange market, China’s foreign exchange market maintained basic equilibrium in terms of supply and demand, which served as the foundation of the overall stability of China’s foreign exchange reserves. Second, foreign exchange fund flow maintained slight bi-directional fluctuations, reflecting the stability of China's foreign exchange market operation. In 2018, according to statistics on banks’ foreign exchange settlement and sales, the first quarter witnessed a deficit of USD 18.3 billion, which turned into a surplus of USD 32 billion in the second quarter. A deficit of USD 41.8 billion was posted for the third quarter, which narrowed to USD 27.9 billion in the fourth quarter. Specifically, A deficit of USD 7.1 billion was recorded in December, narrowed down by 60% month on month; Statistics on bank’s foreign-related foreign exchange receipts and payments for customers indicated a surplus of USD 15.8 billion in the first quarter, a surplus of USD 4.6 billion in the second quarter, a deficit of USD 37.7 billion in the third quarter and a surplus of USD 6.8 billion in the fourth quarter. Specifically, a surplus of USD 8.2 billion was recorded in December. Third, foreign exchange sales rate was unchanged from 2017, while cross-border corporate financing remained relatively stable. In 2018, the foreign exchange sales rate that measures the willingness to buy foreign exchange, or the ratio of foreign exchange purchased by customers from banks to the customer's foreign-related foreign exchange payments was 65%, basically the same as in 2017. The sales rate was 64%, 63%, 68% and 67% respectively from the first quarter to the fourth quarter. Besides, the cross-border financing of enterprises was relatively stable, with the balance of cross-border financing for imports such as refinancing and usance letter of credit as of the end of 2018 witnessing a slight increase of 0.2% from the end of 2017. Fourth, the foreign exchange settlement rate rose, indicating market players' willingness to hold foreign exchange was weakened. In 2018, 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 65%, up by 2 percentage points from 2017. From the first to the fourth quarter of the year, the foreign exchange settlement rate was 62%, 70%, 68% and 62% respectively. As of the end of 2018, the balance of domestic foreign exchange deposits of banks dropped by USD 73 billion from the end of 2017. Fifth, in recent months, banks’ forward foreign exchange settlement and sales of banks turned into a surplus, and market expectations become more stable. In 2018, the value of contracts signed between banks and customers in respect of forward settlement of foreign exchange rose by 44% year on year, and the value of contracts signed between banks and customers in respect of forward sales of foreign exchange went up by 38%, indicating a deficit of USD 28.3 billion, slightly up by 9%. Since September, the forward foreign exchange settlement and sales contracts have maintained surplus continuously, with the surplus growing month by month to reach USD 9.6 billion in December. Q2: How do you view China's foreign exchange market operation in 2018 under the complex international situations? How do you judge the trends in 2019? A: China’s foreign exchange market remained basically balanced under the complex circumstances in 2018. In the past year, China’s foreign exchange market operated in a stable and orderly manner in spite of major changes in international environment and increased turbulence in emerging markets. It’s mainly reflected in the following aspects. Firstly, the RMB exchange rate is relatively stable as compared with other emerging market currencies. Due to the 4.4% rise in the US Dollar Index in 2018, the exchange rate of most non-USD currencies against the USD showed a downward trend. The emerging market currency index dropped by over 10%, the middle rate of RMB against USD depreciated by 4.8%, and that against the CFETS basket of currencies declined slightly by 1.7%. Secondly, cross-border capital flows were stable on the whole, and foreign exchange supply and demand maintained basic equilibrium. In 2018, the deficit of foreign exchange settlement and sales as well as foreign-related receipts and payments narrowed remarkably from the 2017 level, the domestic foreign exchange supply and demand was basically balanced on the whole and foreign exchange reserves maintained overall stability. Thirdly, the expectations and trading behaviors of market players were rational and orderly, and a sound market order was maintained. In 2018, enterprises’ utilization of foreign capital, investment abroad, cross-border financing as well as onshore guarantees for offshore loans remained basically stable. Foreign exchange purchases by individuals continued to remain stable with a slight decline in 2018, down by 7% from the 2017 level. In 2019, China’s foreign exchange market operation is expected to maintain the development trend of overall stability. Overall, the stable operation of China’s foreign exchange market in 2018 is mainly attributed to the sound foundations in terms of economy, policy and market, and such situations are expected to remain in 2019. Firstly, China’s good economic prospects in the long run will not be changed. China’s economy is still resilient enough and has great potential. China’s economic growth rate is expected to remain high with a larger base of economic aggregate, which will provide a solid economic foundation for effectively coping with changes in the external environment. Secondly, China's course of promoting all-around opening-up will remain unchanged. In 2019, China will provide greater support and more facilities in terms of market access, intellectual property rights protection, trade and investment facilitation as well as capital market opening, which will provide a solid foundation for overseas capital investment in the domestic market. Thirdly, the trend that China’s foreign exchange market operation mechanism will become increasingly mature will not be changed. Presently, the bi-directional floating of RMB exchange rate has been intensified, which is conducive to strengthening a more diversified and rational market expectation; Integrating macro-prudential and micro-regulatory approaches for cross-border capital flow can help maintain the healthy order of foreign exchange market, which will lay a sound market foundation for promoting the autonomous equilibrium of the balance of payments. Q3: What's your view of the impact of the Fed interest rate hike on China's foreign exchange market and cross-border capital flows? What will be the impact of a slowdown in Fed rate hike in 2019? A: In the past several years, external environment has undergone major changes such as adjustments in monetary policies by major developed economies, but China’s foreign exchange market has withstood such ordeals and has gradually improved its capabilities to make adjustment and take countermeasures. Since the Fed pulled out of the quantitative easing policy in the second half of 2014 and raised interest rates for the first time at the end of 2015, the monetary policy adjustments of the Fed has indeed created a strong spillover effect. Emerging economies in general are affected, especially those with fragile fundamentals, where their currency depreciation is large and capital outflow is aggravated. In some periods, China’s foreign exchange market and cross-border capital flow underwent apparent fluctuations as well. However, thanks to the high growth rate of China’s domestic economy, overall social stability, tremendous market potential, sustained advancing of opening-up and reform, as well as the proactive and effective macro-prudential and micro-regulatory measures, China successfully coped with challenges brought about by external shocks and achieved outstanding performance on the whole among emerging markets and even on a global scale. In recent years, China’s foreign exchange market has become more mature in the process of continuous development, making adjustments and coping with various situations. The expectations and behaviors of market players have become more rational, and their experience of taking countermeasures has been accumulated and enriched. In 2019, China’s foreign exchange market still has the solid internal foundation for smooth operation, and the slowdown in Fed interest rate hike and other external factors are also expected to provide more favorable conditions. In 2018, the Fed raised interest rates four times consecutively, which pushed up USD interest rate and exchange rate, making some emerging economies suffer considerable shocks. In 2019, if the Fed slows down its pace of interest rate hike, the marginal increase of USD interest rate will surely be reduced. In this scenario, monetary policy divergence between the US and other major developed economies may weaken, and the USD exchange rate will tend to stabilize as well. Of course the monetary policy adjustment of the Fed only constitutes one aspect of external environment, and there are many other factors which will influence the international environment in 2019. However, China’s economy will maintain sound development trend in the long run, efforts will be made to further advance reform and opening-up unswervingly, and the foreign exchange market is expected to become more mature and rational, thus better adapting to any changes in external environment. Q4: The structure of China’s balance of payments changed substantially in 2018. The surplus under the current account fell and the surplus under the financial account (excluding reserve assets) increased. How do you comment on this change? What would you say about the future trends? A: In 2018, China’s balance of payment presented a pattern of autonomous equilibrium. Based on preliminary statistics, China’s current account showed surplus of a certain scale in 2018 on the whole. Quarterly changes show that, although the current account posted a deficit in the first quarter, it maintained a surplus from the second quarter to the fourth quarter, which increased quarter by quarter. As a result, the surplus under the current account still remained within a reasonable range for the whole year. Meanwhile, the current account and financial account (excluding reserve assets) maintained autonomous equilibrium. Under this structure of balance of payments, China’s reserve assets remained basically stable in 2018 on the whole, and the RMB exchange rate throughout the year held relatively steady on a global scale. In the future, China is expected to maintain the development trend of basic equilibrium of current account and autonomous equilibrium of balance of payments. China’s current account balance will still remain within a reasonable range. Firstly, the domestic manufacturing industry boasts of mature infrastructure, complete industrial chain, and a large number of skilled workers. Coupled with continuous promotion of transformation and upgrade, the above advantages can facilitate relevant products to maintain strong international competitiveness and continue to own big market both at home and abroad. Secondly, with the improvement of domestic product quality, ecological environment, education and other soft power, domestic residents’ cross-border consumption will become more rational and stable, which is conducive to the smooth operation of current account. The overall stability of cross-border capital flows will remain relatively high, and capital inflows for medium- and long-term investment under the capital account have a large room for improvement. Based on data from the first three quarters of 2018, among all types of foreign capital inflows, the net inflow from FDI accounted for 36%, up by 9 percentage points year on year. With the further expansion of China’s opening-up areas and increasing importance of the domestic market, China will still have big potential in attracting direct investment. According to statistics of the United Nations Conference on Trade and Development (UNCTAD), China’s stock of FDI was 12% of GDP at the end of 2017, while the global average was 39%, and the average of developing countries was 33%. Besides, in the first three quarters of 2018, the net inflow from foreign securities investment in China accounted for 37%, representing an increase of 11 percentage points year on year. Specifically, debt securities investment increased more, which included inflow of funds from foreign central banks and other institutions for the purpose of medium- and long-term asset allocation. At present, the proportion of foreign investors in the domestic capital market is on the low side. In the future, with the policy of further opening-up and facilitation, China will become an important destination for the diversified asset allocation of international capital. Q5: What are the priorities of foreign exchange administration work in 2019? What measures will be taken in foreign exchange administration system reform, liberalization of the capital account and the management of cross-border capital flow? A: In 2019, the foreign exchange authorities will carry out the decisions and deployment of the CPC Central Committee and the State Council in an all-around manner, adhere to the key guideline of seeking progress in stability, stick to the structural reform on the supply side as the main line, persist in deepening market-oriented reform, expand high-level opening-up, deepening the reform of “delegation, regulation and service”, and thoroughly advance opening-up and reform in foreign exchange area according to the requirements of the “Six Stabilities”, so as to vigorously serve the sustained and sound development of the real economy. On the one hand, we will deepen reform and opening-up in the foreign exchange area. Efforts will be made in a steady and orderly manner to advance liberalization of the capital account, further improve qualified foreign institutional investor system, and make research on the foreign exchange administration framework for foreign-invested enterprises under the management system based on pre-establishment national treatment and negative list. The SAFE will further open up the foreign exchange market in both directions, enrich trading instruments, broaden trading entities, and build an open and competitive foreign exchange market. Efforts will be made to deepen foreign exchange administration reform of “delegation, regulation and service”, optimize foreign exchange administration services, promote trade and investment liberalization and facilitation at a higher level, further support the development of pilot free trade zones and Guangdong-Hong Kong-Macao Greater Bay Area, and support Hainan in deepening reform and opening-up in an all-around manner. On the other hand, the capabilities of preventing and resolving risks from cross-border capital flow should be enhanced. Efforts will be made to improve the two-pronged administration framework featuring macro-prudential and micro-regulatory approaches for cross-border capital flow, and adjust foreign exchange market fluctuations in a market-based and counter-cyclical manner, so as to maintain the stability, consistency and predictability of foreign exchange micro-regulation across the cycles. The SAFE will reinforce foreign exchange administration inspection and enforcement, crack down upon all kinds of illegal and irregular conducts, carry forward construction of digital foreign exchange administration” and “secure foreign exchange administration", improve foreign exchange reserve operation and management, so as to ensure the security, liquidity, value preservation and appreciation of foreign exchange reserves, maintain a sound order of the foreign exchange market and safeguard the national economic and financial security. 2019-01-18/en/2019/0118/1489.html
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国际储备与外币流动性数据模板 Template on International Reserves and Foreign Currency Liquidity 01 02 03 04 05 06 07 08 09 10 11 12 2019-12-31/en/2018/0517/1494.html