-
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) 2017-01-19/en/2017/0119/1244.html
-
The State Administration of Foreign Exchange (SAFE) has recently released the Balance of Payments and the International Investment Position for 2016, and its spokesperson answered media questions on relevant issues. Q: Could you brief us on China's balance of payments for 2016? A: In 2016, China's balance of payments continued to present the pattern of "one surplus and one deficit", namely, surplus under the current account and deficit under the capital and financial account (excluding reserve assets). In 2016, the surplus under the current account remained at a reasonable level in China. The surplus hit USD 196.4 billion in the year, accounting for 1.8% of GDP. In particular, a surplus of USD 494.1 billion was registered under trade in goods, down by 14% from the historical high of last year, but remaining much higher than the levels of 2014 and the years before, showing China was still competitive in foreign trade. A deficit of USD 244.2 billion was recorded under trade in services, up by 12%, chiefly due to a growing deficit under tourism, suggesting that the Chinese residents' spending on travel and study abroad is rising alongside the increase in people's income and the opening up of relevant policies, but the deficit under tourism grew at a slower pace of 6% only in 2016, which was down by 6 percentage points year on year. The pressure from cross-border capital outflows was relieved to some extent, but went through ups and downs in the four quarters. In 2016, a deficit of USD 417 billion was registered under the non-reserve financial account, down by 4% year on year. To be specific, a deficit of USD 126.3 billion was recorded under this item for the first quarter, down by 16% from USD 150.4 billion for the fourth quarter of 2015; the deficit contracted significantly to USD 52.4 billion in the second quarter but rebounded remarkably to USD 135.1 billion in the third quarter, the highest quarterly deficit in 2016, but remaining much lower than the deficits for the third and fourth quarters of 2015; and then the deficit shrank to USD 103.1 billion in the fourth quarter, down by 31% year-on-year. Q: Could you tell us why the surplus under the current account for the fourth quarter of 2016 dropped by more than USD 20 billion from the preliminary statistics? A: In the fourth quarter of 2016, China posted USD 11.8 billion in the surplus under the current account, about USD 26 billion less than the preliminary statistics of USD 37.6 billion. This is chiefly because: First, the profit of foreign-funded enterprises estimated based on the latest data rose, leading to increases in the expenses under ROI and in the deficit under primary income. In China's Balance of Payments, the profits generated by FDI that belong to foreign parties are the profits of foreign-funded enterprises above designated size and the investment enterprises from Hong Kong, Macao and Taiwan calculated by the National Bureau of Statistics. The statistics show that enterprises' operations picked up as China's economic performance was being stabilized. In 2016, the total profits from industrial enterprises above designated size grew by 8.5% from that of the previous year. In particular, the total profits of foreign-funded enterprises and investment companies from Hong Kong, Macao, and Taiwan went up by 12.1%. But as the Balance of Payments was prepared, no data for the whole year were disseminated, and as a result, the preliminary estimates were USD 20 billion lower than the official data. But considering the preliminary data covered all the profits remitted outward, the undervalued RMB 20 billion in the expense under ROI was still recorded under the inflows of FDI under the financial account in recording the expense on ROI under the current account in the Balance of Payments, based on accrual accounting since the expense was not remitted outward. Such recording will affect the structure — but not the overall situation—of the Balance of Payments. Second, as the way the statistics on travel income and expense was adjusted, with payment channel data used, the deficit under tourism rose. In the new method, the revenue and expense under tourism were compiled based on the payment channel data such as credit card, debit card, remittance and banknotes. The deficit under tourism for the four quarters estimated using the new method was USD 6 billion higher than the preliminary statistics. At the same time, retrospective adjustment was made to all of the revenues and expenses under tourism for the quarters since 2014, which were recorded under relevant entries under the financial account, instead of the current account. Q: Could you brief us on the features of cross-border capital flows for 2016? A: In 2016, Chinese market players continued to increase their holding of external assets, and saw the conversion of net outflows of external debts in the last year into net inflows. On the one hand, the domestic market players have diversified the ways of using external funds, with ODI, portfolio investments and other investments on an upward trend. In 2016, the external assets held by domestic market players in various forms grew by USD 661.1 billion, up by 98% year on year. To be specific, a net increase of USD 217.2 billion was registered under ODI, up by 25%; a net growth of USD 103.4 billion was recorded under external portfolio investment, up by 41%; and a net increase of USD 333.6 billion in other investments such as overseas deposits and external loans, climbing by 305%. On the other hand, as the domestic securities market is liberalized and the demand for financing rebounds among enterprises, net inflows of external debt have replaced net outflows of the previous year. In 2016, a net inflow of USD 244.1 billion was registered under foreign investments such as FDI, portfolio investments and other investments, compared with USD 101.0 billion in net outflows for 2015. In particular, a net outflow of USD 13.5 billion was registered in the first quarter, but a net inflow had been recorded and risen quarter after quarter since the second quarter, hitting USD 77.1 billion, USD 84.2 billion and USD 96.3 billion respectively. First, foreign capital under direct investment sustained net inflows, which amounted to USD 170.6 billion throughout the year, including USD 95.8 billion for the second half, up by 28% from the first half. Second, foreign portfolio investment maintained a net inflow of USD 41.2 billion, 512% higher than that of the previous year, which indicated China's increasing attractiveness to foreign capital and deepened liberalization. Third, a net inflow of USD 30.1 billion in other foreign investments was recorded, compared with the net outflow of the previous year, suggesting domestic market players' servicing of foreign debt has come to a halt, and the demand for cross-border financing is rising. Q: Could you tell us about the changes in international investment position at the end of 2016? A: In 2016, China's external financial assets, liabilities and net assets all registered growth. As at the end of 2016, China posted external financial assets of USD 6.4666 trillion, external debt of USD 4.666 trillion, up by 5% and 4% year on year respectively, and net external assets of USD 1.8005 trillion, a year-on-year increase of USD 127.7 billion, or 8%. The external assets held by the private sector have for the first time accounted for more than half of the total. As at the end of 2016, the balance of international reserve assets reached USD 3.0978 trillion, including USD 3.0105 in the balance of foreign exchange reserves. The reserve assets took up 48% of China's external financial assets, still topping China's reserve assets, but the ratio dropped by 7 percentage points year on year, the lowest level since China began to disseminate the international investment position data in 2004. That the proportion of the external assets held by the private sector exceeded half of the total shows that China's external economic and financial communication are shifting from the focus on commodity exports to equal importance of commodity exports and capital exports, and from the focus on external investing by official authorities to the equal importance of outbound investments by official authorities and the private sector. The rises in external debt were primarily contributed by the sustained growth in FDI and the increases in other foreign investments. By the end of 2016, of China's external debt, FDI hit USD 2.8659 trillion, up by 6% year on year, and continued to take the first place among external debt, accounting for 61%, indicating foreign investors are still optimistic about making long-term equity investments in China. Moreover, external debt from investments such as non-resident deposits and external loans reached USD 984.9 billion, down by 2% year on year and accounting for 21% of total debt. Q: What are your expectations of China's balance of payments for 2017? A: Overall, China's balance of payments for 2017 will continue to present the landscape of "surplus under the current account and deficit under the capital and financial account (excluding reserve assets, the same below)", and cross-border capital flows will continue to develop towards an equilibrium. The surplus under the current account will continue to remain within the reasonable range. First, a surplus will continue to be registered under trade in goods. With regard to exports, though trade frictions will potentially threaten China's exports, yet the stable global economic growth in 2017 will continue to provide a basic guarantee for stable external demand in China. Moreover, as relevant cooperation projects such as the Belt and Road Initiative are stably advanced, the countries within the region will benefit in exports. As for imports, China's economic fundamentals will remain sound, and the global prices of commodities will pick up, and therefore, the imports are expected to stay stable. Second, the growth of deficits under trade in services will be stabilized. Tourism has constituted the majority of the deficits under trade in services. As the consumption demands for travel and study abroad are unleashed quickly, the deficit under tourism has begun to be stabilized over the past two years; and as Chinese enterprises are adjusting the revenues from trade in services and their spending structure, the deficits in trade in services other than tourism have contracted substantially. Third, as investments such as ODI by the private sector are on the rise, China is expected to see growing returns from outbound investments. It is expected that the surplus under the current account as a percentage of GDP will hit a balanced and reasonable level in 2017. The deficit under the capital and financial account is expected to contract. On the one hand, due to unstable and uncertain international environment, the market sentiment may often change, thus leading to the interim volatilities in China's cross-border capital flows. On the other hand, the factors that are favorable for the equilibrium between inflows and outflows of cross-border capital will continue to play positive roles. First, China's economy has remained stable recently, with relevant risks being controllable, and the government has introduced policy measures to expand opening up and actively leverage foreign capital, and the foreign investment environment has been optimized further, which will be conducive to boosting the inflows of long-term capital. Second, as Chinese enterprises' comprehensive strength is strengthened and the global demand for resource allocation is enhanced, China has embraced high-speed growth in ODI in recent years. After achieving fast growth in the short term, enterprises' awareness of investment risks will be raised, and their outbound investment will be more reasonable and stable. Third, turning to the policy of expanding the opening up of the financial market, China has implemented the policies such as macro-prudential management of full-coverage cross-border financing, boosting the further opening up of the interbank bond market, and deepening foreign exchange administration for QFII and RQFII, which have produced positive outcomes, and will continue to attract the sustained inflows of cross-border capital. As the market-oriented RMB exchange rate formation mechanism reform is being stably pressed ahead with, the elasticity of the RMB exchange rate will be enhanced, which will be favorable for the inflows and outflows and two-way fluctuations of cross-border capital in China. 2017-04-24/en/2017/0424/1259.html
-
The State Administration of Foreign Exchange (SAFE) has recently disseminated the data on banks' foreign exchange sales and settlement and their foreign-related receipts and payments for customers for February 2017. The press spokesperson of the SAFE answered media questions on the recent cross-border capital flows. Q: China registered remarkably lower pressure from cross-border capital flows in January 2017. What about the performance in February? A: The supply and demand of foreign exchange reached a basic equilibrium in February. First, the deficit in banks' foreign exchange sales and settlement continued to contract. In February, banks recorded a deficit of USD 10.1 billion in their foreign exchange sales and settlement, down by 47% month on month and 70% year on year. In particular, a deficit of USD 10.1 billion was registered in foreign exchange sales and settlement by non-banking sectors such as enterprises and individuals, down by 36% month on month and 71% year on year, while banks registered a deficit of USD 20 million in foreign exchange sales and settlement for themselves. Second, forward settlement and sales of foreign exchange by banks turned from a deficit into a surplus. In February, the number of contracts signed between banks and clients for forward settlement of foreign exchange rose by 58% month on month, while the number of contracts signed between banks and clients for forward sales of foreign exchange went down by 52%, resulting in a surplus of USD 4.7 billion, versus a deficit of USD 8 billion for the previous month. Considering the balances of spot and forward foreign exchange settlement and sales, China's foreign exchange presented a basic equilibrium in the supply and demand of foreign exchange in February. Third, the foreign-related receipts and payments of the non-banking sectors turned from 19 months' deficit into a surplus. In February, a surplus of USD 1.9 billion was registered in foreign-related receipts and payments by the non-banking sectors, compared with a deficit of USD 9.7 billion for January. To be specific, a surplus of USD 7.4 billion was registered in foreign exchange receipts and payments, 3.3 times that of the previous month, and a deficit of USD 5.5 billion was recorded in the RMB receipts and payments, representing a decrease of 52%. Cross-border capital flows through major channels turned around for the better. First, net inflows were registered in cross-border capital under trade in goods. Due to the Chinese spring festival, China posted a small deficit in the import and export under trade in goods in February, but as collection from export has been on the rise in the year to date, the cross-border receipts and payments and foreign exchange sales and settlement under trade in goods were both in surplus. Second, enterprises' foreign exchange financing continued to recover. In February, the balance of import financing such as refinancing and forward L/C went up by USD 9.3 billion month on month, representing the 12th consecutive monthly increase. The enterprises' purchases of foreign exchange to service domestic foreign exchange loans had hit rock bottom since March 2010 and was 35% lower month on month. The balance of domestic foreign exchange loans rose by USD 5.3 billion in February, a margin higher than that of January. Third, domestic market players were more rational in purchasing foreign exchange. In February, the ratio of foreign exchange purchases by bank clients to foreign-related foreign exchange payments was 66%, down by 5 percentage points from January. To be specific, foreign exchange purchases under enterprises' ODI and ROI fell, foreign exchange purchases under individuals' travel and study abroad continued dropping, and the balance of individual foreign exchange deposits turned from increase to decrease. China's economic fundamentals that support the equilibrium of cross-border capital flows have been more stable. Since the beginning of this year, China's economic performance has got off to a good start, further strengthening the confidence of the market. For example, in February, PMI rose on a month-on-month basis and remained within the expansion range for the 7th consecutive month. Imports climbed significantly on a month-on-month basis, indicating the dynamics of the domestic economy. Going forward, alongside the deepening of the supply-side structural reform, the domestic industrial structure will continue being upgraded, and China will witness better and more efficient economic growth. As new progress will be achieved in the liberalization of the financial markets, China's cross-border capital inflows and outflows will become more balanced, indicating strengthening capability of withstanding and adapting to the adjustments of the external environment. 2017-04-19/en/2017/0419/1254.html
-
The State Administration of Foreign Exchange (SAFE) has recently disseminated the data on banks' foreign exchange sales and settlements, and their foreign-related receipts and payments for customers. Its press spokesperson has answered media questions on recent cross-border capital flows. Q: Could you brief us on cross-border capital flows for October? A: In October, China was faced with less pressure from cross-border capital outflows. First, a narrower deficit was registered under banks' sales and settlements of foreign exchange. The deficit for October was USD 14.6 billion, down by 49% month-on-month. Of note is that a deficit of USD 10.2 billion was recorded under non-banking sectors like enterprises and individuals, down by 62% month-on-month. Second, a lower deficit was posted under foreign-related receipts and payments by non-banking sectors. The deficit for October was USD 14.1 billion, a month-on-month decrease of 69%. To be specific, a surplus of USD 14.8 billion was registered under foreign exchange receipts and payments, versus a deficit of USD 800 million for the previous month; and a deficit of USD 29 billion was posted under RMB receipts and payments, down by 35% month-on-month. Some factors that help find an equilibrium between supply and demand of foreign exchange have played their roles. First, market players' willingness to settle foreign exchange remained stable, and the proportion of foreign exchange purchases represented a month-on-month decrease. In October, the ratio of banks' settlement of foreign exchange for customers to foreign-related foreign exchange receipts was 58%, which was stable on the whole; but the ratio of the bank's sales of foreign change to customers to foreign-related foreign exchange payments was 69%, down by 3 percentage points from September. Second, market players' foreign exchange financing rose steadily, and deleveraging slowed down further. At the end of October, the balance of cross-border foreign exchange financing for imports such as refinancing and forward L/C picked up by USD 1 billion month-on-month, representing the eighth consecutive month of growth. In the month, market players' purchases of foreign exchange to repay domestic foreign exchange loans were down by 34% month-on-month. Third, overseas institutions continued to increase their investments in the domestic bond markets. As at the end of October, the balance of domestic bonds held by overseas institutions rose by USD 20.7 billion against September, the eighth consecutive month of growth. Fourth, the seasonal efforts to purchase foreign exchange under ROI and travel declined. In the month, foreign exchange purchases under ROI slumped by 56% month-on-month, and those under travel dropped by a slight 5%. Fifth, Customs foreign trade surplus went up, driving up the surplus in foreign exchange sales and settlement under trade. In October, Customs reported a foreign trade surplus of USD 49.1 billion, up by 17% month-on-month, and the surplus in banks' foreign exchange sales and settlements for customers under trade in goods rose by 46% month-on-month. The domestic economic growth has become more stable recently, which is favorable for consolidating the foundation for the overall stableness in China's cross-border capital flows. In October, China's official manufacturing PMI hit 51.2%, the highest within more than 2 years; the non-manufacturing PMI was 54.0%, the highest since the beginning of this year; the PPI was up by 1.2% year-on-year, which was higher than before; China's fixed asset investment for the first 10 months grew by 8.3%, up by 0.1 percentage point than the first 9 months. Overall, as China's economy operates more stably, its economic structure are being optimized, and the internal impetus for economic growth becomes stronger, the advantages of its economic fundamentals will be more evident, which will be favorable for withstanding external impact and ensuring the stability of China's cross-border capital flows in the mid and long term. 2016-12-19/en/2016/1219/1236.html
-
The State Administration of Foreign Exchange (SAFE) has recently disseminated the data on banks' sales and settlements of foreign exchange and their foreign-related receipts and payments for customers for January 2017. The SAFE press spokesperson answered media questions on relevant issues to make further clarification. Q: Could you brief us on the new changes in China's cross-border capital flows since the beginning of the year 2017. A: Since the beginning of 2017, the pressure from cross-border capital outflows facing China has been relieved remarkably. First, the deficit in banks' sales and settlements of foreign exchange has contracted. In January 2017, a deficit of USD 19.2 billion was registered under banks' sales and settlements of foreign exchange, down by 59% month on month and 65% year on year. In particular, a deficit of USD 15.6 billion was recorded under sales and settlements of foreign exchange in the non-banking sector such as enterprises and individuals, down by 64% month on month and 77% year on year. Second, a declining deficit was recorded under foreign-related receipts and payments in the non-banking sector. In January, the non-banking sector posted a deficit of USD 9.7 billion under foreign-related receipts and payments, down by 21% month on month and 83% year on year. To be specific, a surplus of USD 1.7 billion in foreign exchange receipts and payments, and a deficit of USD 11.4 billion in RMB receipts and payments were posted. The recent positive changes in the supply and demand of foreign exchange in China are multifaceted. First, market participants prefer settling foreign exchange to buying foreign exchange. In January, the ratio of customers' foreign exchange settlements with banks to the banks' foreign-related foreign exchange receipts was 62%, up by 4 percentage points month on month, while the ratio of customers' foreign exchange purchases with banks to the banks' foreign-related foreign exchange payments was 71%, down by 3 percentage points. Second, enterprises' cross-border foreign exchange financing has risen stably, and their repayment of domestic foreign exchange loans has dropped further. In January, the balance of cross-border financing for imports such as refinancing and forward L/C went up by USD 4.1 billion month on month, marking growth for the 11th consecutive month; enterprises' purchases of foreign exchange to service domestic foreign exchange loans had hit rock bottom since March 2013, down by 45% month on month. Last but not least, domestic players' demand for purchasing foreign exchange has been further stabilized. In January, for example, enterprises' purchases of foreign exchange with ODI funds dropped by 8% month on month, and with ROI, by 20% month on month; and individuals' purchases of foreign exchange under travel for trips and study abroad fell by 28% month on month. China's overall cross-border capital flows are presenting a more remarkable feature of reaching an equilibrium. Despite the many uncertainties in the external environments that are easy to trigger short-term fluctuations in global financial markets, China's middle and long-term development trends of cross-border capital flows will remain unchanged, with the economic fundamentals still serving as the fundamental support. Since the beginning of 2017, China's economy has continued to operate within a reasonable range. In January, the official manufacturing PMI remained above the boom and bust line for the 6th consecutive month, and PPI rose positively for the 5th consecutive month. Moreover, China's import and export of goods secured rapid year-on-year growth. 2017-02-17/en/2017/0217/1249.html
-
The State Administration of Foreign Exchange (SAFE) has recently disseminated the initial data on the Balance of Payments for the third quarter and the first three quarters this year. The SAFE press spokesperson answered media questions on relevant issues. Q: What new changes were there to the balance of payments for the third quarter this year? A: First, the surplus under the current account went up, accounting for 2.5% of GDP for the period, which was within a reasonable range. In the third quarter, the surplus under the current account was USD 71.2 billion, up by 11% quarter-on-quarter. In particular, the surplus under trade in goods hit USD 137.1 billion, up by 9% quarter-on-quarter. Alongside the slow recovery of domestic and overseas markets, imports and exports of goods increased. But a deficit of USD 69.5 billion was registered under trade in services, an increase of 25% quarter-on-quarter, due to seasonal factors. July and August are the peak seasons for overseas travel. As a result, a deficit of USD 62.9 was recorded under travel for the first three quarters, up by 26% quarter-on-quarter. Second, a deficit of USD 207.3 billion (including net errors and omissions) was posted under the non-reserve financial account, due to active allocation of external assets by domestic players. Of external assets, a net increase of USD 55 billion was recorded under ODI, down by 14% quarter-on-quarter. Incomplete statistics show a net increase of more than USD 30 billion in external portfolio investments including QDII and southbound trading, and of more than USD 40 billion in external debt. Of external liabilities, FDI represented a net increase of USD 23.6 billion, suggesting China is still attractive to long-term investors. Meanwhile, as corporate deleveraging came to a halt, net inflows under portfolio investment and loan liabilities recovered. For example, a net inflow of more than USD 40 billion was recorded under purchases of stocks and bonds by foreign institutions. Overall, China's economy will continue to grow at a middle and high speed, with the current account led by trade in goods remaining in surplus and its attractiveness to long-term capital to be strong still. As the RMB officially joined the SDR basket, the two-way liberalization of financial markets is pressed ahead with, and domestic stock markets, bond markets and foreign exchange markets are further opened, domestic players' initiative for rationally arranging for cross-border investment and financing will be further strengthened, while international investors will have much stronger demand for China's assets. All these will work together to guide China's cross-border capital towards a pattern of two-way fluctuations featuring alternation between inflows and outflows. 2016-12-19/en/2016/1219/1235.html
-
Q: According to the latest data on foreign exchange reserves released by the People's Bank of China, China's foreign exchange reserves as at the end of March increased by USD 4 billion month on month. Could you tell us why such a change occurred to foreign exchange reserves? A: As of March 31, 2017, China posted USD 3.0091 trillion in foreign exchange reserves, up by a slight USD 4 billion or 0.1% month on month and rising for the second consecutive month. In March, the global financial market stayed stable, while China's cross-border capital flows continued to present a healthy development landscape of combination of inflows and outflows, and two-way fluctuations towards an equilibrium. The exchange rates of non-USD currencies against the USD appreciated slightly in the month, and asset prices changed a little, while the currencies and assets invested with foreign exchange reserves went through alternate rises and falls and were fragmented, and foreign exchange reserves remained stable. In the first quarter of 2017, China's foreign exchange reserves dropped by USD 1.4 billion, much lower than those of the previous two quarters, which shows that China's economic performance is being stabilized, the pressure from cross-border capital outflows is somewhat relieved, and the changes to foreign exchange reserves are also being stabilized. China's economic fundamentals are sound for the moment, featuring great potential and strong resilience. Going forward, China's economy will continue to grow stably and rapidly, the surplus under the current account will remain within a reasonable range, cross-border capital flows will evolve towards an equilibrium, the reform of the market-oriented RMB exchange rate formation mechanism will be steadily pressed ahead with, and foreign exchange reserves may be stabilized further. 2017-04-24/en/2017/0424/1261.html
-
Q: The foreign exchange reserves data recently disseminated by the People's Bank of China (PBC) show that China's foreign exchange reserves by the end of December 2016 dropped by USD 41.081 billion month-on-month, and the figure in 2016 fell by USD 319.844 billion year-on-year. Could you explain these declines in foreign exchange reserves? A: As at December 31, 2016, China's foreign exchange reserves amounted to USD 3010.517 billion, down by USD 41.081 billion or 1.3% month-on-month. The factors that influenced the changes in foreign exchange reserves mainly include: 1. the central bank's operation in the foreign exchange market; 2. Price fluctuations of investment assets in foreign exchange reserves; 3. As the US dollar is the measurement currency of foreign exchange reserves, the changes in foreign exchange rate of other currencies against the US dollar may lead to the changes in China's foreign exchange reserves; 4. according to the IMF definition, the foreign exchange reserves used to support "going global" will be recorded beyond rather than under foreign exchange reserves, and vice versa. In December, the central bank provided foreign exchange to the market to rebalance the supply and demand of foreign exchange, respond to the depreciation of non-USD currencies against the US dollar, among others, and consequently resulted in the drops in foreign exchange reserves. Throughout the year, the central bank's effort to stabilize the RMB exchange rate was the primary cause behind the decreases in foreign exchange reserves. When it comes to evaluation, the depreciation of non-USD currencies against the US dollar and the changes in asset prices also contributed to the declines. To sum up, the decreases in foreign exchange reserves for 2016 shrank by USD 192.812 billion year-on-year. 2017-01-07/en/2017/0107/1242.html
-
The State Administration of Foreign Exchange (SAFE) recently released the data on foreign exchange settlement and sales by banks and foreign-related receipts and payments by banks for customers for December 2015. The spokesperson of the SAFE answered press questions on related issues. Q: What would you say about the cross-border capital flows in China in 2015? What are the characteristics? A: Overall, China witnessed net outflows of cross-border capital in 2015, but the pressure from outflows in the fourth quarter was lower than it was in the third quarter. Below are the major characteristics: First, foreign exchange settlement and sales by banks and foreign-related receipts and payments by banks for customers were both in deficit. In 2015, in dollar terms, foreign exchange settlement by banks was down by 9% from 2014, and foreign exchange sales by banks were up by 24%, indicating a deficit of USD 465.9 billion; foreign-related receipts by banks for customers were slightly down by 0.8%, and foreign-related payments by banks for customers were up by 6%, suggesting a deficit of USD 200.9 billion, including a deficit of USD 253.8 billion in foreign-related foreign exchange receipts and payments. Second, cross-border capital flows fluctuated drastically. For foreign exchange settlement and sales by banks, a deficit of USD 91.4 billion was recorded in the first quarter, which declined to USD 13.9 billion in the second quarter, expanded to USD 196.1 billion in the third quarter and then dropped to USD 164.4 billion in the fourth quarter. For foreign-related foreign exchange receipts and payments by banks for customers, deficits of USD 25.3 billion, USD 1.6 billion, USD 163.7 billion and USD 63.1 billion were posted in the first, second, third and fourth quarters respectively. Net foreign exchange outflows in the fourth quarter were down by 61% quarter-on-quarter. Third, companies actively repaid domestic foreign exchange loans and cross-border financing and released the risks of high-leverage operation and currency mismatch in an orderly way. The foreign exchange sales rate that measures the motivation for purchasing foreign exchange, or the ratio of foreign exchange sales by banks for customers to foreign-related foreign exchange payments, was 81% in 2015, 12 percentage points higher than it was in 2014, indicating an increasing part of foreign exchange payments by companies was made for foreign exchange purchases while a smaller part was for financing. Accordingly, the balance of domestic foreign exchange loans dropped by USD 100.6 billion in 2015, compared with an increase of USD 21.7 billion in 2014. The cross-border trade finance for imports such as refinancing and forward L/C fell by USD 115.1 billion in 2015, compared with a drop of USD 44.9 billion in 2014. Fourth, letting people hold more foreign exchange was pushed ahead with and outbound investments by companies for going global were accelerated. The foreign exchange settlement rate that measures the willingness to settle foreign exchange, or the ratio of foreign exchange settlement by banks for customers to foreign-related foreign exchange receipts, was 68% in 2015, 3 percentage points lower than 2014, suggesting companies and individuals were more willing to hold foreign exchange income. While more foreign exchange was used to repay domestic foreign exchange loans and cross-border financing, the balance of companies' foreign exchange deposits as a whole went up by USD 24.9 billion in 2015. The balance of individuals' domestic foreign exchange deposits climbed by USD 18.4 billion, up by USD 13.3 billion than 2014. Chinese companies made ODI of USD 161.4 billion in 2015, up by 90% from 2014. Fifth, banks posted a deficit in forward settlement and sales of foreign exchange, which dropped significantly in the fourth quarter. In 2015, the value of contracts signed between banks and customers in respect of forward settlement of foreign exchange dropped by 56% compared with that of 2014 and the value of contracts signed between banks and customers in respect of forward sales of foreign exchange went up by 33%, indicating a deficit of USD 194.2 billion. Specifically, the deficit was USD 47 billion in the first quarter, dropped to USD 21.5 billion in the second quarter, expanded to USD 99.3 billion in the third quarter and then fell by a staggering 73% quarter-on-quarter to USD 26.3 billion in the fourth quarter. Q: What is your view of the recent significant changes in Chinas' cross-border capital flows? A: The current cross-border capital flows are reflective of the adjustment of the structure of external assets and liabilities in China. According to the data in the International Investment Position, China's net external assets amounted to USD 1.54 trillion as at the end of September 2015. For statistical reasons, this figure is not comparable to that of the end of 2014, but is USD 136 billion higher than the comparable figure of the end of March 2015. Specifically, holders of external assets have shifted from the central bank to market players. As official reserve assets drop, the assets of Chinese market players, such as ODI, securities investments and overseas deposits and loans, have increased, with the figures of the end of September climbing by USD 52.5 billion, USD 8.8 billion, and USD 87.8 billion from the end of March respectively. As for external liabilities, foreign investments in securities and foreign loans in China are dropping, with the figures of the end of September decreasing by USD 180.4 billion and USD 71.5 billion from the end of March. Meanwhile, China's FDI has increased by USD 100.5 billion, indicating continuous inflows of funds for long-term investments. For the moment, China's balance of payments remains stable, suggesting the risk of cross-border capital flows is within control. First, China continues to post a current account surplus, with the causes and structure of the surplus being reasonable, and still ranks No. 1 worldwide by the size of foreign exchange reserves, which was USD 3.33 trillion as at the end of 2015, much higher than USD 1.2 trillion in Japan, the No. 2 country, and USD 600-odd billion in Saudi Arabia, the No. 3 country. This indicates that the usual payments of the balance of payments are fully ensured. Second, the external solvency risk is in good order and within control. Some companies have recently adjusted their structure of assets and liabilities, leading to a drop of USD 143.4 billion in the balance of external debt at the end of September 2015 from the figure with comparable coverage at the end of March 2015, which is conducive to reducing the risk of repaying external debts in the future. As for solvency, China's external debt critical indictors have been within the international safe standards over the years. For example, as at the end of September 2015, the ratio of full-scale outstanding short-term external debt in both domestic and foreign currencies to the balance of foreign exchange reserves was 29.1%, down by 2.5 percentage points from the end of March and much lower than the international safe standard of 100%. Last but not least, the impact of cross-border capital outflows on domestic liquidity and economic and financial operation is within control. Q: What's your view of the impact of the Fed's interest rate rise on China's cross-border capital flows? If the Fed continues to slowly raise interest rates in 2016, what changes will occur to China's cross-border capital flows? What will be the mid- and long-term impact? A: The Fed's interest rate rise will boost the cyclical adjustment of the relevant structure of assets and liabilities of Chinese market players, which is in line with the market law and a necessary phenomenon. Over the past years, as developed economies such as the US adopted QE, emerging economies witnessed large-scale cross-border capital inflows. During this period, Chinese market players also showed a preference for foreign exchange financing to holding foreign exchange assets, which was a reasonable choice in face of unilateral appreciation of the RMB and low cost of foreign exchange financing, but was at risk of excessive adjustment and increased cross-border capital inflows in China. As the Fed recently exited from QE and began raising interest rates, Chinese enterprises adapted to the changes in the environment, optimized the structure of assets and liabilities in domestic and foreign currencies and adjusted the behavior of holding assets in domestic currency and owing debt in foreign currencies that has continued for years. For example, the SAFE statistics show that companies' cross-border financing for imports such as refinancing and forward L/C dropped from the peak of USD 367.4 billion in June 2014 to USD 164.6 billion at the end of 2015, which was equal to the level prior to the Fed's exit from the second round of QE in 2011. This change helped release the external financing risk accumulated by Chinese enterprises as developed economies adopted QE. The Fed's interest rate rise will pose a challenge to most emerging economies, but China has relatively strong capability to resist the external impact. An analysis of the impact of the Fed's past and recent interest rate rises on emerging economies shows that hard-hit countries are usually those struggling with obviously deteriorated economic fundamentals, continued current account deficit, and heavy reliance on external financing. China's overall economic fundamentals are sound, its economic growth is at the forefront among major economies despite a large economic size, its industrial structure is diversified with great potential, strong resilience, and large leeway, and its financial system is robust. China's balance of payments is stable and healthy, trade in goods and current accounts continue to post a surplus, long-term capital continues to flow in, foreign exchange reserves are abundant, and the marketization of the foreign exchange rate formation mechanism is being deepened. The Fed's interest rate rise will not upset the basic equilibrium of China's balance of payments in the mid- and long-term. The purpose of this round of interest rate rise by the Fed is to normalize the monetary policy, not to cool the overheated economy, but its direct or indirect impact on the US economy and finance will be taken into consideration, including changes of other economies due to the spillover, which may impact the US instead. As a result, the Fed's interest rate rise may be a slow and cautious process as we expect, the US Dollar Index will fluctuate prior to and post the interest rate hike, and part of the market impact of the interest rate hike may be digested step by step. The normalization of the Fed's monetary policy somehow indicates the promising prospects of the US economic recovery, which will be favorable for stabilizing China's external demand. But it is sure that China's cross-border capital flows are essentially dependent on China's domestic economic fundamentals. In the coming years, as China's economic structure is optimized and upgraded, and the dividends of reform are yielded, China's domestic economy is expected to stabilize and grow after the adjustment is completed, which will strengthen the foundation for the basic equilibrium of China's balance of payments. Q: China's balance of foreign exchange reserves dropped by USD 512.7 billion year on year as at the end of 2015. Where have these foreign exchange reserves been used? A: As at the end of December 2015, the balance of China's foreign exchange reserves was USD 3.33 trillion, down by USD 512.7 billion year on year. Many factors have contributed to the changes in China's foreign exchange reserves, such as the Central Bank's operation in the foreign exchange market, the price fluctuations of foreign exchange reserves as investment assets, the changes in foreign exchange rate and support of the "going global" effort by foreign exchange reserves. Major factors are as follows: First, changes in non-trading value like foreign exchange rate and price led to a decrease of more than USD 100 billion in the book value of foreign exchange reserves, which is different from outflows of foreign exchange from foreign exchange reserves. According to the balance of payments data, in the first three quarters of 2015, foreign exchange reserves obtained from the trading of foreign exchange dropped by USD 227.2 billion accumulatively, while the balance of the book value of foreign exchange reserves fell by USD 328.9 billion, indicating the book value of foreign exchange reserves was down by USD 101.7 billion due to the valuation factors such as conversion of foreign exchange rates. As foreign exchange reserves are denominated in the US dollar, changes in the exchange rates of other currencies against the US dollar will lead to changes in the size of foreign exchange reserves. For example, as the US Dollar Index went up by 9% in 2015, foreign exchange reserves denominated in the US dollar will shrink when non-US dollar assets like the euro in foreign exchange reserves are converted into the dollar. Second, Chinese market players including companies optimized the structure of domestic assets and liabilities in domestic and foreign currencies, increased foreign exchange deposits and repaid foreign exchange loans. In 2015, corporate and individual foreign exchange deposits in China increased by USD 24.9 billion and USD 18.4 billion respectively, and domestic banks increased USD 102.4 billion in foreign exchange position to satisfy companies' demand for the maintenance of value in the long term. Meanwhile, the balance of domestic foreign exchange loans of companies fell by USD 100.6 billion. Third, companies and individuals made net payments in foreign exchange such as overseas investments, consumption and repayment of debt. In 2015, non-banking sectors such as domestic companies and individuals made net cross-border payments of USD 253.8 billion in foreign exchange, for ODI, securities investments under QDII, repayment of overseas financing, studying abroad and travel. But huge net inflows of foreign exchange were registered under FDI and overseas securities financing by Chinese companies. Fourth, as defined by the IMF on foreign exchange reserves, foreign exchange reserves used to support the "going global" effort would be deducted from total foreign exchange reserves when being calculated. As the economic and financial environments both at home and abroad are still complex and changing, it is normal to see foreign exchange reserves fluctuating. As the formation mechanism for the marketization of the RMB exchange rate is improved, the balance of payments will achieve basic equilibrium and fluctuations of foreign exchange reserves may become a new normal. Q: China's foreign exchange reserves have been shrinking recently, which have sparked concerns that the liquidity of foreign exchange reserves may be exhausted. What would you say about this? A: The increase and decrease in foreign exchange reserves are the results of macroeconomic operation. The recent changes in the size of foreign exchange reserves are reflective of the adaptive adjustments of assets and liabilities in domestic and foreign currencies by domestic market players, which send some positive signals, and future changes need to be viewed in a sensible way. As far as liabilities are concerned, China's external liquidity risk is in a good order and within control. Of the outstanding external debt of USD 1.53 trillion as at the end of September 2015, USD 506.3 billion was mid- and long-term external debt and half of the short-term external debt was trade-related credit. 47% of external debt was denominated in the RMB. Moreover, companies are actively pushing forward deleveraging of external debt. After their balance sheets are recovered, the financial situation will become healthy, which will be more favorable for structural adjustment. The amount of external debt is within the bearable range of foreign exchange reserves, which are more than USD 3 trillion at the moment. As for assets, companies are the key holders of foreign exchange in the effort of letting people hold more foreign exchange, and they focus on ODI, which has produced significant results in recent years. The International Investment Position data show that the ODI assets of Chinese market players went up by USD 52.5 billion as at the end of September 2015 from the end of March. Individuals purchase foreign exchange mainly for two purposes: first, traveling, shopping and studying abroad, which are the objective results of Chinese economic growth. Second, individuals' wealth management demand to allocate foreign currency assets. Given the real interest differentials between domestic currency and foreign currencies, the benchmark yields of RMB financial products in China still can reach 4%, much higher than the US dollar deposit interest rates and the yields of financial products in other currencies in China, indicating foreign currency assets are not the ideal wealth management channels for Chinese individuals. As for individual use of foreign exchange, no changes have occurred to the policies for purchases of foreign exchange within the quota of USD 50,000 or for purchases of foreign exchange of over USD 50,000 under the current account based on the transaction certificates. Therefore, individuals need to purchase and hold foreign exchange in a sensible way. Overall, measured by the absolute amount of foreign exchange reserves or by other adequacy indicators such as the shares of foreign exchange reserves in GDP, imports and external debt, China's foreign exchange reserves are abundant, which lays a strong foundation for the state to withstand external impact. Q: Will the SAFE introduce new management measures in respect of cross-border capital flows? Will measures be taken to restrict purchases of foreign exchange and capital outflows? A: Given the current situation of cross-border capital flows, the logic that the risk bottom line should be safeguarded while the overall principle of supporting reform and opening up should be followed in foreign exchange administration will remain unchanged. In recent years, under the uniform arrangements of the CPC Central Committee and the State Council, efforts have been made to support the development of the real economy, promote administration streamlining and power delegation, and facilitate trade and investment activities in foreign exchange administration. At the same time, further efforts have been made to strengthen monitoring and early warning of the balance of payments statistics, improve ongoing, ex-ante and macro-prudential management, and enhance offsite verification and onsite inspections so as to guard against unusual cross-border capital flows. This is the direction that has been followed in foreign exchange administration as boosting reform while guarding against risks have been the responsibilities and primary tasks of foreign exchange authorities. As a result, the principle of supporting and facilitating normal and reasonable use of foreign exchange by market players has not been changed. To prevent drastic fluctuations of cross-border capital, the SAFE has taken some measures, particularly heightened monitoring, standardization of business, crackdown of speculations and irregularities, but no new regulations on restricting purchases and payments of foreign exchange have been introduced. For example, the policy for individual purchases and payments of foreign exchange remains unchanged. The annual quota for individual purchases of foreign exchange of USD 50,000 per person or the equivalent has not been restricted or slashed and such purchases can be done through multiple channels including bank counters, online banking, self-service terminals, telephone banking and mobile banking. Purchases of foreign exchange under the current account of more than USD 50,000 or the equivalent can be handled at bank counters by presenting transaction certificates provided that the transaction background is authentic. Meanwhile, the requirements for heightening regulation of the authenticity and compliance of foreign exchange receipts and payments have not been changed either. The prerequisites for the facilitation and liberalization of foreign exchange administration remain to be authenticity and compliance. The requirements for authenticity and compliance do not conflict with facilitation. As the demand of the real economy is satisfied and the normal order of the foreign exchange market is maintained, trade and investment facilitation could obtain real and effective guarantee, and benefit the absolute majority of market players. Going forward, foreign exchange authorities will supervise the implementation of the regulatory requirements for authenticity and compliance through offsite monitoring and onsite inspections. Foreign exchange authorities will focus their monitoring and verification on foreign exchange receipts and payments by banks and companies, guide banks to handle foreign exchange business under the principles of "knowing you customer", "understanding your business" and "due diligence" to perform their responsibilities for authenticity and compliance reviews. Moreover, foreign exchange authorities will continue to conduct related inspections of foreign exchange business, crack down on regulatory and legal offences such as fabricated foreign exchange transactions without an authentic transaction background and underground banks. 2016-02-14/en/2016/0214/1186.html
-
The State Administration of Foreign Exchange (SAFE) recently released Preliminary Data on China’s Balance of Payments Statement for the Fourth Quarter and the year of 2015. The press spokesperson of the SAFE answered press questions on China's balance of payments as follows: Q: Could you brief us on China's balance of payments for 2015? A: China witnessed new changes to its balance of payments in 2015, with the twin surpluses that have continued for a long time replaced by the current account surplus and the capital and financial account (excluding reserve assets) deficit. First, the current account surplus grew to nearly USD 300 billion. The current account surplus was USD 293.2 billion in 2015, up by 33% year on year, and the current account surplus as a percentage of GDP was 2.7%, compared with 2.1% in the previous year. The surplus of trade in goods hit a new record high. In 2015, the surplus in trade in goods under balance of payments reached USD 578.1 billion, up by 33% year on year. The income from trade in goods was USD 2.145 trillion, down by 4%, while the expenditure was USD 1.5669 trillion, down by 13%. Trade in services continued to be in deficit. In 2015, the deficit of trade in services was USD 209.4 billion, up by 39% year on year. The income from trade in services was USD 230.4 billion, down by 1%, while the expenditure reached USD 439.7 billion, up by 15%. Travel racked up the highest deficit among the items under trade in services, which was USD 195 billion in 2015, up by 81% year on year. The reason was Chinese residents' strong demand for study, travel and shopping abroad. The deficit in primary income expanded. In 2015, the deficit in primary income (previously called primary yield) hit USD 59.2 billion, up by 74% year on year. The income was USD 230.1 billion, up by 8%, and the expenditure reached USD 289.3 billion, up by 17%. The cause of the deficit was that due to the heavy stock of FDI, the expenditure on return on investment grew faster than the income from the return on China's ODI. The deficit in secondary income contracted. In 2015, the deficit in secondary income (previously known as current transfers) hit USD 16.3 billion, down by 46% year on year. The income was USD 37.9 billion, down by 8%, and the expenditure was USD 54.2 billion, down by 24%. Second, the financial account was in deficit. China's non-reserve financial account deficit was USD 504.4 billion in 2015 (including net errors and omissions in the fourth quarter, but it is expected that the actual data may be lower than this figure). Net inflows from direct investments dropped. In 2015, net inflows from direct investments reached USD 77.1 billion, down by 63% year on year. On the one hand, net outflows for ODI hit USD 167.1 billion, up by 108% year on year, suggesting that as the Belt and Road Initiative was promoted, Chinese enterprises became optimistic about the prospects for overseas investments and stepped up efforts to go global. On the other hand, net inflows from FDI reached USD 244.2 billion, down by 16% year on year, which, however, suggested that overseas investors remained optimistic about the long-term prospects for investing in China and net inflows from FDI remained high. Third, foreign exchange reserves fell. As at the end of 2015, the balance of China's foreign exchange reserves was USD 3.3 trillion, down by USD 512.7 billion or 13% year on year. Specifically, the foreign exchange reserves arising from international transactions dropped by USD 342.3 billion, and the carrying value of the foreign exchange reserves arising from non-transaction factors such as changes of foreign exchange rates and asset prices fell by USD 170.3 billion. Q: Why did the current account surplus increase significantly amid capital outflows in 2015? Will capital outflows put China's balance of payments at risk? A: To answer this question, we should first look at the preparation of the Balance of Payments Statement. By the latest international standards, the Balance of Payments Statement contains the current account, and the capital and financial account. If errors and omissions are not taken into consideration, the absolute value of the current account surely equals that of the capital and financial account, and the sum of the two accounts is zero. This means that if the current account is in surplus, the capital and financial account is in deficit, to be sure. The larger the current account surplus, the higher the capital and financial account deficit. According to the recording principle of the Balance of Payments Statement, the increase in external assets or the decrease in liabilities is recoded as capital outflows. This means that the deficit of the capital and financial account indicates the increase in China's net external assets. Previously, when the current account surplus was heavy, China achieved the equilibrium of the balance of payments by increasing reserve assets or making outbound investments with reserve assets, which are shown as capital outflows. But this changed dramatically in 2015, with capital outflows arising from significant increase in reserve assets replaced by capital outflows arising from significant increase in net external assets held by other private sectors. The capital outflows in 2015 were the results of domestic banks' and enterprises' voluntary increase of their external assets and repayment of previous foreign financing, which were substantially different from withdrawal of foreign capital. In the year, reserve assets arising from international transactions dropped by USD 342.9 billion, and were shown as capital inflows in the Balance of Payments Statement while net capital outflows of USD 504.4 billion were recorded in the non-reserve financial account. This means while reserve assets were decreasing, net external assets held by the private sector were increasing. In the first three quarters (the data for the fourth quarter are unavailable), China witnessed an increase of USD 272.7 billion in external assets. To be specific, ODI as a result of the going global efforts went up by USD 115 billion, stock and bond investments through the Shanghai-Hong Kong Stock Connect or QDII, USD 57.3 billion, and other investments such as overseas deposits and foreign loans, USD 96.9 billion. External debt fell by USD 32.1 billion, while continued inflows of USD 184.1 billion were recorded under FDI. The decrease in external debt was chiefly due to the decreased non-resident deposits and the repayment of trade finance of previous years. Generally speaking, the current capital outflows from China are the result of the shift of China's external assets from reserve assets to the private sector, and China's external assets and liabilities structure ensures the stability of its foreign-related economy and its capability to withstand strong impact. First, China's current account has remained in surplus and its net external assets are immense. As at the end of September 2015, China posted USD 6.28 trillion in external financial assets, USD 4.74 trillion in external debt and USD 1.54 trillion in net assets, which enabled it to remain at the world's second place by net assets. So long as the current account remains in surplus, there will surely be capital outflows as a result of the increase in net external assets, which will either be in the form of reserve assets or be held by the private sector. Second, the central bank has an enormous amount of foreign exchange reserves, which will be favorable for the government to concentrate resources to withstand possible impact from capital flows. By the end of 2015, China's reserve assets amounted to USD 3.33 trillion, which was the highest worldwide, nearly 3 times that of Japan (USD 1.2 trillion), the No. 2 worldwide, and 5 times that of Saudi Arabia (more than USD 600 billion), the No. 3 worldwide. Third, unlike other countries' external debt that is mainly comprised of short-term stocks of foreign-owned companies and bond investments, China's external debt is mainly FDI, which is made for the purpose of long-term and stable operation. As at the end of September 2015, China's stock of FDI amounted to USD 2.85 trillion, accounting for 60% of its total liabilities. As these investments have been integrated into the real economy, if foreign companies want to withdraw their investments, they need time to cash in the land, plants and machinery they have, and enough support from cash flows even if they want to remit out the accumulated undistributed profits. Fourth, the additional net external assets of the private sector are mostly productive assets, such as ODI, which are the positive results of making better use of domestic and overseas markets and resources. Both theories and practices show that it is a trend that the private sector will allocate productive and financial resources at the global level at a certain stage of economic development. Last but not least, it is an objective economic law that capital inflows will alternate with capital outflows while the long-term large-scale capital inflows are not sustainable. Between 2000 and 2013, as international capital flooded into emerging markets, China witnessed an astonishing amount of net capital inflows, which amounted to USD 1.35 trillion. As the domestic and foreign economic environments change, it is inevitable that China will witness usual and orderly capital outflows. Therefore, we should objectively view the changes in the balance of payments such as the capital and financial account deficit and the decrease in foreign exchange reserves. Q: Could you please predict China's balance of payments in 2016? A: Overall, it is expected that the pattern of "current account surplus and capital and financial account (excluding reserve assets) deficit" will continue in China's balance of payments in 2016, with the balance of payments staying stable and cross-border capital flow risk within control. The current account will continue to be in surplus. On the one hand, trade in goods will be in surplus. The continued slow recovery of the world economy will help stabilize China's external demand. The IMF projection shows that the world economic growth will hit 3.4% in 2016, 0.3 percentage point higher than in 2015. Meanwhile, as the Belt and Road Initiative is implemented, bilateral and multilateral strategic cooperation will be deepened, providing new opportunities for exports. As the US dollar strengthens and the real demand remains sluggish, the commodity prices in the global markets will remain low, making it hard for import prices to rebound in the year. China's domestic demand will stay stable, so it is not very likely that imports will change dramatically and the import volume will remain lower than the export volume. On the other hand, trade in services will continue to be in deficit. Expenses on travel will still be the primary cause of the deficit as Chinese residents' consumption demand for travel and study abroad will remain strong. As a result, it is expected that the current account surplus, led by the surplus in trade in goods, will continue. The capital and financial account is expected to stay in deficit, with either cross-border capital outflows or inflows under different entries. First, overseas long-term capital will remain optimistic about China's economic prospects and market potential and foreign capital aimed at long-term investments will continue to flow in. China posted a net FDI inflow of USD 244.2 billion in 2015, and is expected to continue to witness a large-scale net FDI inflow in 2016. Second, the normalization of the US monetary policy and the operational risks facing the emerging markets will continue to heighten the fluctuations of China's cross-border capital flows, and domestic market players' demand for the allocation of overseas assets and the tendency to deleverage overseas liabilities will remain. If the US adjustment of its monetary policy is consistent with market expectations, its impact on the global financial markets will be gradually released and the capital outflows from China under the capital account will remain orderly and controllable. Overall, it is expected that China's balance of payments will remain stable and the cross-border capital flow risk will be within control in 2016. There are still many fundamental factors that support the stable and healthy operations of China's balance of payments. For example, with economic fundamentals having not changed substantially, China remains at the forefront among major economies by economic growth as its economic size keeps expanding, and the optimization and upgrading of its economic structure is accelerating. At the same time, China's current account remains in surplus, its foreign exchange reserves are still in abundance, and the outstanding short-term external debt as a percentage of the balance of foreign exchange reserves is far lower than 100%, the international security line. Therefore, China can fully ensure the receipts and payments in the balance of payments and is strong in withstanding the impact from cross-border capital flows. 2016-03-14/en/2016/0314/1193.html