-
The State Administration of Foreign Exchange (SAFE) has recently disseminated China's external debt data as at the end of December 2017, and an official from the SAFE answered media questions on relevant issues regarding China's external debt. Q: Could you brief us on the overall changes in external debt for 2017? How to evaluate the external debt risks facing China now? A: China's external debt was on the rise in 2017. As at the end of December, the full-scale outstanding external debt (including domestic and foreign currencies) hit USD 1.7106 trillion, up by USD 294.8 billion year on year. In terms of quarters, external debt rose fastest in the second and third quarters, amounting to USD 124.9 billion and USD 117.2 billion respectively; the outstanding external debt climbed by USD 35.5 billion in the fourth quarter, which was very low. As for debt vehicles, the growth in external debt in China was primarily driven by the increases in currencies & deposits, and debt bonds, with their contribution to the overall expansion of external debt reaching 42% and 37% respectively. The external debt risks facing China are within control now. As at the end of 2017, the liability ratio, or the ratio of outstanding external debt to GDP was 14%; the debt ratio, or the ratio of outstanding external debt to export income from trade in goods and services was 71%; the debt servicing ratio, or the ratio of payments of principal and interest on external debt in the middle and long term and payments of interest on external debt in the short term to export income from trade in goods and services, was 7%, and the ratio of short-term external debt to foreign exchange reserves was 35%. All of the above indicators are below the internationally accepted safe levels. Q: What are the drivers of the growth in China's outstanding external debt? A: In 2017, the growth in China's outstanding external debt was primarily driven by the stable macro economic performance and the yielding of policy dividends. On the one hand, China witnessed stable economic development with strong momentum for growth and steady increase in economic development indicators. China's GDP for 2017 hit RMB 82.7 trillion, up by 6.9% year on year; imports and exports totaled RMB 27.8 trillion, up by 14.2% year on year; the two-way fluctuations of RMB exchange rate were more resilient, with RMB exchange rate expected to stay stable. All of these are the basic drivers of the growth in China's external debt. On the other hand, a wealth of reformative measures were introduced, enhancing the facilitation of cross-border financing by domestic players. In the year, the People's Bank of China (PBC) and the SAFE stepped up their efforts to improve the macro-prudential administration policy for full-scale cross-border financing, actively supporting financial institutions and enterprises to carry out cross-border financing in domestic and foreign currencies on their own and enabling domestic institutions to expand financing channels and reducing financing costs by making full use of the two markets and two types of resources. Moreover, the inter-bank bond market was more liberalized. In particular, the Bond Connect between the mainland and Hong Kong opened the domestic financial market wider to foreign investors, arousing foreign institutions' interest in holding more domestic bonds, and as a result, the domestic bonds they hold kept rising. Going forward, the PBC and SAFE will implement the requirement of improving the framework of regulation underpinned by monetary policy and macro-prudential policy, which was proposed at the 19th CPC National Congress. They will improve the macro-prudential administration policy with focus on bank and short-term capital flows, and make full use of its roles in counter-cyclical adjustment. While effectively preventing risks, they will step up efforts to serve the real economy and promote sustainable and healthy economic development. 2018-03-29/en/2018/0329/1422.html
-
The State Administration of Foreign Exchange (SAFE) has recently published the Balance of Payments and the International Investment Position for the third quarter and the first three quarters of 2017, and its press spokesperson answered media questions regarding relevant issues. Q: Could you brief us on China's balance of payments for the first three quarters of 2017? A: China witnessed twin surplus under the current account and the financial account in the Balance of Payments (excluding reserve assets) and increased reserve assets for the first three quarters of 2017. A surplus was registered under the current account. In the first three quarters, a surplus of USD 109.8 billion was recorded under the current account, contributing 1.3% to China's GDP, which remained reasonable. To be specific, a surplus of USD 334.7 billion was registered in trade in goods in the Balance of Payments, with exports of USD 1.5953 trillion and imports of USD 1.2605 trillion, which increased by 10% and 17% year on year respectively, indicating stronger momentum for the recovery foreign trade. A surplus was registered under the financial account that excludes reserve assets. A surplus of USD 112.1 billion was registered under the financial account that excludes reserve assets in the first three quarters of 2017, compared with a deficit of USD 313.9 billion for the same period the previous year. On the one hand, outbound investments remained steady. China posted a net increase of USD 213 billion in external financial assets due to the balance of payments transactions in the first three quarters. Specifically, net ODI went up by USD 65.1 billion; net external securities investment rose by USD 64.1 billion; and other investments such as external deposits and loans increased by USD 85.8 billion net. On the other hand, overseas investors continued to increase investments in China. In the first three quarters, the net external liabilities grew by USD 325.1 billion. To be specific, FDI climbed by USD 87.9 billion net; securities investment in China rose by USD 82.1 billion net; and other investments such as non-resident deposits attracted and loans obtained jumped by USD 155.9 billion net. An increase was recorded in reserve assets. In the first three quarters, China's reserve assets rose by USD 58.9 billion due to the balance of payments transactions (excluding non-trading factors such as exchange rate and price), compared with a decrease of USD 294.1 billion the same period of the previous year. In particular, foreign exchange reserves went up by USD 59.8 billion and reserve position in the IMF went down by USD 900 million. As the sustained recovery of the global economy helps strengthen the external demand, China's economy is operated within a reasonable range and the financial market is further opened up, China's balance of payments is expected to continue the basic equilibrium going forward. Q: What would you say about China's International Investment Position as at the end of September 2017? A: As at the end of September, China witnessed increased external financial assets and liabilities against the end of the previous year. China posted USD 1.7064 trillion in net external assets as at the end of September, including USD 6.7928 trillion in external assets, USD 5.0864 trillion in external liabilities, which went up by 5.0% and 9.0% respectively against the end of the previous year (same below). External assets were on an upward trend. To be specific, ODI rose by USD 75.9 billion or 5.8%; securities investment grew by USD 88.7 billion or 24.3%; financial derivative instruments went up by USD 1.5 billion or 28.8%; other investments increased by USD 53.6 billion or 3.2%; and reserve assets climbed by USD 106.5 billion or 3.4%. External liabilities continued to recover. Specifically, FDI grew by USD 87.4 billion or 3.0%; securities investment rose by USD 162.1 billion or 20.0%; financial derivative instruments went down by USD 1.8 billion or 26.8%; and other investments rose by USD 172.7 billion or 17.5%. In terms of the composition of external assets, reserve assets was USD 3.2044 trillion, 47% of total assets; ODI was USD 1.3931 trillion, 21% of total assets; securities investment was USD 453.8 billion, 7% of total assets; financial derivative instruments was USD 6.7 billion, 0.1% of total assets; and other investments hit USD 1.7347 trillion, 26% of total assets. With regard to the composition of external liabilities, FDI was USD 2.9533 trillion, 58% of total liabilities, the highest among external liabilities; securities investment was USD 970.7 billion, 19% of total liabilities; financial derivative instruments was USD 4.8 billion, 0.1% of total liabilities; and other investments reached USD 1.1576 trillion, 23% of total liabilities. Overall, China sustained its No. 1 position worldwide by reserve assets. With orderly outbound investments and rising inbound investments, China's international investment position is robust. 2017-12-28/en/2017/1228/1388.html
-
The State Administration of Foreign Exchange (SAFE) has recently released the data on banks' foreign exchange settlement and sales and their foreign-related receipts and payments for clients for January 2018, and its press spokesperson answered media questions on recent cross-border capital flows. Q: China's cross-border capital flows found an equilibrium in 2017. What have been the trends of cross-border capital flows since the beginning of 2018? A: China has seen a basic equilibrium between foreign exchange supply and demand since the very beginning of this year. First, the balance of foreign exchange reserves has been rising. According to the data on foreign exchange reserves released on February 7, the balance of foreign exchange reserves as at the end of January stood at USD 3.1615 trillion, up by USD 21.5 billion month on month, as a result of the equilibrium in the domestic supply and demand of foreign exchange, the foreign exchange rate appreciation of non-USD currencies and changes in asset prices. Second, banks' foreign exchange sales and settlements and domestic supply and demand of foreign exchange have remained in balance. Banks' foreign exchange settlements went up by 28% year on year and banks' foreign exchange sales grew by 11% year on year in January, leading to a deficit of USD 900 million, which was down by 95% year on year, indicating slight surplus and deficit have continued to alternate. If the impact of forward trading and options trading of enterprises were taken into consideration, the domestic supply and demand of foreign exchange would have reached a basic equilibrium in January. Third, the non-banking sectors' foreign-related receipts and payments have been in surplus. In January, the non-banking sectors such as enterprises and individuals registered a surplus of USD 24.6 billion in foreign-related receipts and payments, including a surplus of USD 25.7 billion in foreign exchange capital receipts and payments. The supply and demand of foreign exchange from major channels have stayed stable. On the one hand, foreign exchange sales and settlements under trade in goods and the capital and financial accounts have continued to register surpluses. In January, the sales and settlements of foreign exchange under trade in goods for clients recorded a surplus of USD 18.7 billion, the sales and settlements of foreign exchange under the capital and financial accounts for clients registered a surplus of USD 4.2 billion. In particular, direct investment and portfolio investment recorded a surplus of USD 900 million and USD 1.9 billion respectively. On the other hand, enterprises' returns on investment and individuals' purchases of foreign exchange have remained low. In January, foreign exchange purchases under the return on investment went down by 31% month on month and 23% year on year; and individuals' purchases of foreign exchange climbed by 11% month on month, indicating more foreign exchange was used by individuals under travel before the Chinese New Year, but it declined by 12% year on year. The development trend that two-way cross-border capital flows will remain generally balanced has taken shape in China. Recently, the steady economic growth in China has gained momentum. The market views of major currencies have been rationally diverged, with stable growth expected; the RMB exchange rate has presented a trend of ups and downs and two-way fluctuations, promoting cross-border capital flows to be more stable in China, and the foreign exchange market to achieve a balance on its own. Going forward, as the supply-side structural reform goes deeper, China's economic structure will be further optimized and its momentum for endogenous growth will be strengthened, suggesting China will witness stable and rapid economic growth. Globally the economy will continue to recover, but the global financial performance and the normalization of the monetary policies of major developed economies will continue to suffer from instability and uncertainties. Under such circumstances, the two-way fluctuations of the RMB exchange rate will become a norm and the RMB exchange rate will stay basically stable at a reasonable and balanced level, which is favorable for China's cross-border capital to flow in two ways and remain generally balanced in the medium and long term. 2018-02-26/en/2018/0226/1419.html
-
The State Administration of Foreign Exchange (SAFE) has recently released the data on banks' foreign exchange settlements and sales and their foreign-related receipts and payments for clients for February 2018, and its press spokesperson answered media questions on recent cross-border capital flows. Q: Could you brief us on China's cross-border capital flows for February 2018? A: The domestic foreign exchange market remained self-balanced in February 2018. First, foreign exchange supply and demand maintained a basic equilibrium in China. A deficit of USD 8.2 billion was registered in banks' foreign exchange sales and settlements in the month, higher than a month ago, but other factors that impact foreign exchange supply and demand continued to play a balancing role. For example, as banks' foreign exchange positions reduced by USD 6 billion, foreign exchange supply increased in the month. Second, non-banking sectors such as enterprises witnessed slight fluctuations in foreign-related receipts and payments. A deficit of USD 6.2 billion was recorded in foreign-related receipts and payments in the month, versus a surplus in January because of high export receipts among Chinese enterprises and foreign capital inflows in the run-up to the Chinese Spring Festival. In the two months, foreign-related receipts and payments registered an accumulated surplus of USD 18.5 billion, versus a deficit of USD 7.8 billion for the same month last year. In addition, the balance of foreign exchange reserves as at the end of February declined month on month due to exchange rate conversion and recovery of asset prices, but the supply and demand of foreign exchange still maintained an equilibrium. The supply or demand of foreign exchange through major channels stayed stable. According to the data for January and February, after adjustment of the impact of the Chinese Spring Festival, the surplus of foreign exchange sales and settlements under trade in goods has grown stably since the beginning of the year, and foreign exchange sales and settlements under trade in goods for clients by banks recorded a surplus of USD 35.8 billion, up by 16% year on year; foreign exchange sales and settlements under direct investment continued with a surplus; foreign exchange settlements under FDI continued to rise, and foreign exchange purchases under ODI remained stable in January and February; enterprises' ROI and personal purchases of foreign exchange fell stably. Recently, despite heightened volatility of the global financial markets, domestic economy has operated stably, market expectations have been reasonably diverged, the RMB exchange rate against US dollars has continued with two-way fluctuations and remained stable, and the domestic supply and demand of foreign exchange has maintained a self-balance, indicating a stronger momentum for two-way cross-border capital flows and general equilibrium at present. 2018-03-19/en/2018/0319/1421.html
-
Q: The latest data on foreign exchange reserves disseminated by the People's Bank of China (PBC) show that China's foreign exchange reserves as at the end of December 2017 went up by USD 20.7 billion month on month. Could you brief us on the causes of such a change? What will be the future trends? A: As at the end of December 2017, China's foreign exchange reserves hit USD 3.1399 trillion, up by USD 20.7 billion or 0.66% month on month, marking the 11th month of consecutive growth. In December, China's cross-border capital flows and trading by domestic and foreign market participants stayed stable and balanced. Globally, the financial markets fluctuated slightly. The foreign exchange rates of major non-USD currencies and asset prices rose, driving China's foreign exchange reserves to go up. Through out the year, China's foreign exchange reserves recovered stably after a drop to USD 2.9982 trillion in January, with the figure for the yearend climbing by USD 129.4 billion or 4.3% from that of the beginning of the year. China's macroeconomic performance remained stable in the year with a strong momentum for growth, boosting cross-border capital flows to be more stable and balanced. The equilibrium of the balance of payments provided a guarantee for the continuous and steady recovery of foreign exchange reserves. 2018 is the first year to implement the spirit of the 19th CPC National Congress, key to building a moderately prosperous society in all respects and implementing the 13th Five-year Plan. Under the leadership of the CPC Central Committee with Comrade Xi Jinping at its core, China will adhere to the general work guideline of making progress while maintaining stability, the new development philosophy and the requirement for high-quality development, to enhance the stability and resilience of economic performamce and ensure the development trend of mainitaing stability with a strong moement for grwth. As external demand rises, finanical marketa are further liberalized and market expectations are improved alongside the continuous global econonic recovery, China's balance of payments and foreign exchange reserves will remain stable and balanced going forward. 2018-01-07/en/2018/0107/1393.html
-
The State Administration of Foreign Exchange (SAFE) has recently disseminated the data on the Balance of Payments for the fourth quarter of 2017 and the whole year. On that basis, its press spokesperson answered media questions on relevant issues. Q: Could you brief us on China's balance of payments for 2017? A: The preliminary data in the Balance of Payments for 2017 show twin surplus under the current account and the financial account (excluding reserve assets) (including net errors and omission for the fourth quarter, the same as below), and increases in reserve assets. First, a reasonable surplus was registered under the current account and foreign trade rose on a year-on-year basis. In 2017, a surplus of USD 172 billion was recorded under the current account, and its ratio to GDP for the same period was 1.4%. Trade in goods in the Balance of Payments registered a surplus of USD 476.1 billion, with exports and imports of goods rising by 11% and 16% respectively, suggesting a stronger trend for recovery and growth in foreign trade. Second, the financial account (excluding reserve assets) became a surplus. In 2017, a surplus of USD 82.5 billion was posted under the financial account (excluding reserve assets), versus a deficit of USD 475.2 billion in the comparable coverage in 2016. In particular, direct investment recorded a net inflow of USD 63.8 billion, compared with a net outflow of USD 46.6 billion in 2016. Specifically, a net outflow of USD 101.4 billion was recorded under ODI, and a net inflow of USD 165.3 billion under FDI, which were high in both directions. Third, reserve assets were on the rise. In 2017, China witnessed an increase of USD 91.5 billion in reserve assets as a result of BOP transactions (excluding non-transaction factors such as foreign exchange rates and prices), versus a decrease of USD 443.7 billion in 2016. To be specific, foreign exchange reserves climbed by USD 93 billion, while the reserve position in the IMF declined by USD 1.5 billion. Overall, China's BOP remained robust in 2017, with cross-border capital flows changing from net outflows into a basic equilibrium. As China's economy remains steady with a stronger momentum for growth, the foundation for the general equilibrium in BOP will be stronger going forward. 2018-02-08/en/2018/0208/1417.html
-
Q: The latest data on foreign exchange reserves disseminated by the People's Bank of China show that China's foreign exchange reserves for February 2018 fell by USD 27 billion month on month. Could you brief us on the causes of such changes? What are the trends in foreign exchange reserves for the future? A: As at the end of February 2018, China's foreign exchange reserves hit USD 3.1345 trillion, down by USD 27 billion or 0.85% month on month. In February, China posted stable cross-border capital flows and trading behaviors of domestic and foreign players, indicating the foreign exchange market maintained a basic equilibrium. Under the combined impact of heightened volatility in global financial markets, adjustments in foreign exchange rates, callback of asset prices, and the depreciation of major non-USD currencies against the USD, China's foreign exchange reserves declined slightly. Currently, China's economy sustains medium and high-speed growth and the supply-side structural reform is being advanced, presenting a good picture where growth and quality, structure and benefits are mutually complementary. The development trend that two-way cross-border capital flows will remain generally balanced has taken shape in China. Looking ahead, China's economy will be capable and mature to continue stable development with a strong momentum for growth. Spurred by fundamentals, the two-way fluctuations of RMB exchange rate will become a normal, which is favorable for the two-way and generally balanced cross-border capital flows in the medium and long term. On the other hand, the global economy will continue to recover, and major central banks will tighten their monetary policies, leading to heightened uncertainties in the financial market. Under the effect of both domestic and foreign factors, China will see stable foreign exchange reserves in the future. 2018-03-07/en/2018/0307/1420.html
-
Q: The latest data on foreign exchange reserves disseminated by the People's Bank of China show that China's foreign exchange reserves as of the end of January 2018 rose by USD 21.5 billion month on month. Could you brief us on the causes of such changes? What are the trends in foreign exchange reserves in the future? A: As at the end of January 2018, China's foreign exchange reserves hit USD 3.1615 trillion, up by USD 21.5 billion or 0.68% month on month. In January, China posted stable cross-border capital flows and trading behaviors of domestic and foreign players. In the global financial markets, foreign exchange reserves grew slightly under the combined impact of rises in foreign exchange rates of non-USD currencies and changes in asset prices. Going forward, China will accelerate the adjustment, optimization and upgrade of its economic structure and the economic fundamentals are expected to continue its stable growth and good momentum. As the global economy recovers, central banks will tighten their monetary policies. Boosted by fundamental factors, China's cross border capital flows and foreign exchange supply and demand will be further balanced, and the two-way fluctuations of RMB exchange rate will be more obvious. In the face of domestic and foreign economic and financial conditions, China will see stable foreign exchange reserves in the future. 2018-02-07/en/2018/0207/1416.html
-
Q: Recent media reports say China is considering stopping buying or buying less US treasury bonds. Is this true? A: We have noted it from some media reports. We believe this may be a citation from wrong sources or even false news. China has always made investment with or managed foreign exchange reserves following the principle of diversification and fragmentation, in order to ensure the overall security, value preservation and growth of foreign exchange assets. Like other investments, investing in US treasury bonds with foreign exchange reserves is a market behavior that is subject to professional management based on market situations and investment needs. For both foreign exchange reserves and the market involved, China's foreign exchange reserves operation and management authorities are responsible investors, and their investing activities have boosted the stability of global financial markets and the value preservation and growth of China's foreign exchange reserves. 2018-01-11/en/2018/0111/1394.html
-
The State Administration of Foreign Exchange (SAFE) has recently disseminated the data on banks' foreign exchange settlement and sales as well as their foreign-related receipts and payments for customers for September 2017. Its press spokesperson answered media questions on relevant issues. Q 1: Could you brief us on the characteristics of China's cross-border capital flows in the first three quarters of this year? A: China's cross-border capital flows found an equilibrium in the first three quarters, and the supply and demand of foreign exchange has been balanced recently. The main characteristics are as follows: First, the deficits in banks' settlement and sales of foreign exchange and in their foreign-related receipts and payment contracted significantly. In the first three quarters, the deficit in banks' settlement and sales was USD 112.9 billion, down by 54% year on year, versus a deficit of USD 3.8 billion in August, and a surplus of USD 300 million in September. In the same period, banks' foreign-related receipts and payments for customers recorded a deficit of USD 111.5 billion, down by 56% year on year, compared with a deficit of USD 3.5 billion in August, and a further deficit of USD 1.7 billion in September. Second, the sales rate of foreign exchange plummeted on a year-on-year basis and corporate demand for foreign exchange financing was on the rise. In the first three quarters, the foreign exchange sales rate that measures the motives of companies for purchasing foreign exchange, or the ratio of customers' purchase of foreign exchange from banks to customers' foreign-related foreign exchange payments, reached 66%, down by eight percentage points year on year. In particular, the rate was 68%, 67% and 63% in the first, second and third quarters respectively, suggesting companies are more sensible in buying foreign exchange, and have conducted foreign exchange financing based on demand, with their purchases of foreign exchange to service debt becoming a rarer case. The domestic outstanding foreign exchange loans by the end of September dropped slightly from the end of the previous year, and went down by more than USD 70 billion year on year. Third, the sales settlement rate rose on a year-on-year basis while maintaining stability, and companies' and individuals' desire to hold foreign exchange was weakened. In the first three quarters, the sales settlement rate that measures the desire to settle foreign exchange, or the ratio of customers' sales of foreign exchange to banks to customers' foreign-related foreign exchange receipts was 63%, up by two percentage points year on year. The ratio was 62%, 63% and 64% in the first, second and third quarters respectively. As for companies' domestic foreign exchange deposits, the balance rose by nearly USD 40 billion in the first quarter, compared with an increase of USD 9 billion in the second quarter and a decrease of USD 25.3 billion in the third quarter. According to the individuals' domestic foreign exchange deposits, the balance rose slightly by USD 300 million in the first quarter, versus a deficit of USD 2 billion in the second and third quarters respectively, indicating a weaker desire to hold foreign exchange among domestic market participants, and a rise in using self-owned foreign exchange in making external payments. Fourth, banks' forward foreign exchange sales and settlement recorded a surplus. In the first three quarters, the value of foreign exchange contracted for forward settlement by banks for customers grew 1.2 times year on year, while that of foreign exchange contracted for forward sales dropped by 5%, leading to a surplus of USD 7.7 billion, compared with a deficit of USD 58.1 billion for the same period last year, indicating markedly weaker expectations of RMB depreciation, and the demand for forward foreign exchange settlement and sales was adjusted. Fifth, the foreign exchange market recorded a basic equilibrium between supply and demand, boosting the balance of foreign exchange reserves to rise continuously. As at the end of September, China's balance of foreign exchange reserves hit USD 3.1085 trillion, up by USD 98 billion from the end of 2016. In particular, the balance of foreign exchange reserves went up for eight consecutive months from February to September. Q2: Could you explain why China's cross-border capital flows have been further balanced recently? What would you say about the prospects? A: China's cross-border capital flows have been increasingly balanced since the beginning of this year, which indicates the developments and changes in the economic and financial environment both at home and abroad. Firstly, China, perseverant in implementing new development concepts in building its economy, deepens the supply-side structural reform, enhances the quality and benefits of developments, and optimizes its economic structure, leading to an obvious trend of more stable economy with a good momentum for growth and stronger internal foundation. Specifically, the new open economic system has been refined, the reform and opening up measures in the financial market have been implemented and the equilibrium of cross-border capital flows has been boosted, including the optimization and improvement of the RMB exchange rate market formation mechanism, introduction of a series of policies for fueling the growth of foreign-owned enterprises, the official launch of the Bond Connect between mainland China and Hong Kong, as well as the inclusion of A shares in the MSCI Emerging Markets index. Secondly, the global economy continues to recover, and the financial markets have been less fluctuating, suggesting a stable external environment. The latest projections from the International Monetary Fund (IMF) show that the global economy will grow at a rate of 3.6% in 2017, 0.4 percentage point faster than in 2016. Moreover, although the FED has raised the interest rates for two times thus far and plans to shrink the balance sheet, market expectations are stable, and the USD exchange rates have been depreciating since the beginning of this year. Going forward, China's cross-border capital flows will continue to stay stable, which is supported by three fundamentals. Firstly, the economic fundamentals will be stronger. Since the beginning of this year, international organizations have revised upward their projections of China's economy for 2017 many times. The IMF, for example, increased its expectations from 6.5% that was projected at the beginning of this year to the current 6.8%, and the World Bank, from 6.5% to 6.7%, denoting the international community is more optimistic about China's economy. China will continue to implement the new development concepts and build a modern economic system to boost the sustained and healthy development of the economy. Secondly, the policy fundamentals will provide guarantee. China will participate more in and boost economic globalization and developed a higher-level open economy. On the one hand, along with the improving business environment in China and the implementation of opening up policies, foreign capital inflows will continue to stay stable. On the other hand, the domestic bond and stock markets will cement their ties with global markets and relevant facilitation measures will be introduced, which will be helpful to promote overseas investors to invest in the domestic capital market. Thirdly, the market fundamentals will be strengthened. The enhancement of the RMB exchange rate formation mechanism, further diversified market participants, and weaker expectations of one-way sustained appreciation and depreciation will help to curb the significant fluctuations of cross-border capital and ensure the overall equilibrium between supply and demand of foreign exchange. The above fundamentals will continue to play a fundamental role in the future. In particular, after the success of the 19th CPC National Congress, China will secure a decisive victory in building a moderately prosperous society to achieve its first centennial goals and open up a new chapter to build a modern socialist country with Chinese characteristics to move on to achieve its second centennial goals. Under such circumstances, there surely will be a stronger confidence in the long-term economic and social development of China in both domestic and overseas markets, and a more solid foundation for stable cross-border capital flows in China. Q3: What impact will the Fed's shrinking of the balance sheet on China's cross-border capital flows? A: The Fed's interest rate hikes and shrinking of the balance sheet will not fundamentally shake the stability of China's cross-border capital flows. Since the Fed's first interest rate hiked at the end of 2015, China has witnessed a process from outflows to equilibrium in its cross-border capital flows. The main causes are: First, a gradual process will remain as the main characteristics of the Fed's boost to the normalization of its monetary policy. Since the Fed began to raise the interest rates, the gradual process has proved to have weakened the impact on the markets. After the September FOMC meeting, the chair of the Fed stressed in answering media questions that "the balance sheet will be shrunk in a gradual and predictable process". As a matter of fact, this accords with the economic and financial performance in the US. Given that the US' long-term economic growth prospects remain weak, an in-depth analysis shall be required on the impact of the Fed's monetary policy adjustment on its economy; the US' inflation has been low with fluctuations recently; and the rapid growth in the US' asset prices in recent years has drawn wide concern in the market that the fast adjustment of the Fed's monetary policy will prick the asset bubble. Second, the US' interest rates and exchange rates are exposed to more diversified factors, including the Fed's monetary policy adjustment. As for interest rates, after the first interest rate hike at the end of 2015, the Federal Funds rate rose by one percentage point overnight, but the longer-term interest rates have grown in a descending order, indicating market interest rate will also be impacted by the long-term prospects of economic growth. As for foreign exchange rates, there are complex contributing factors, such as the US economic performance, and the economic and financial conditions in other major economics, in addition to the Fed's monetary policy. For example, during the Fed's balance sheet expansion, the USD exchange rate did not fall continuously, but featured two-way fluctuations; but since the beginning of this year, the Fed has raised interest rates for two times, but the USD exchange rate has depreciated. Third, China has been stronger in adapting and responding to the changes in external environment. Firstly, China still has various fundamental advantages, such as relatively higher economic growth, a stable big picture, robust financial market, surplus under the current account, and adequate foreign exchange reserves. Secondly, China's ability to make response has been strengthened, such as a more remarkable momentum for growth in China's economy while maintaining stability, further opening up of domestic markets, enhanced RMB exchange rate formation mechanism, and more sensible investing and financing activities among market participants. Q4: Since the beginning of this year, China has witnessed strengthened elasticity in two-way fluctuations of the RMB exchange rate. Do you have any ideas on hedging against exchange rate risk? Will the SAFE enhance relevant education and training? A: As the RMB exchange rate is increasingly volatile, exchange rate risk management is more crucial to companies' production and operation. But some domestic enterprises have to raise their awareness of hedging against exchange rate risks: firstly, exchange rate risk shall be looked at in an objective manner. Some enterprises lack the concept of risk neutrality, and are used to betting on unilateral direction such as appreciation or depreciation, thus replacing precise risk management with subjective market judgment. Secondly, an accurate understanding of hedging shall be developed. Some enterprises are reluctant to pay for hedging, or use hedging as a profit tool, neglecting its essential function of risk aversion by locking up the impact of exchange rate uncertainties on companies' profits from primary business. The SAFE will continue to guide the market to accurately understand exchange rate risk and improve exchange rate risk management. Firstly, boosting the in-depth development of the foreign exchange market by supporting financial institutions to make innovations to serve the real economy and foreign exchange products that adapt to the market demand. Secondly, guiding banks in prudential operations and urging banks to ensure customer risk education and management. Thirdly, guiding enterprises to build an accurate awareness of exchange rate risk, develop an accurate understanding of exchange rate risk aversion instruments, and hedge exchange rate exposure, avoiding deviation from principal business and reality. Our experience and recommendation of corporate exchange rate hedging: enterprises shall adapt to the normal of two-way fluctuations of RMB exchange rate, change the uncertainties into certainties of two-way fluctuations through hedging, with a focus on primary business; enterprises shall understand their transactions, valuate derivatives before transaction and decide on the level of risk restriction; enterprises shall also engage in proper hedging, regarding derivative deals as the instruments to lock up risks rather than a way to make money. For enterprises, hedging against foreign exchange rate risk through RMB foreign exchange derivatives requires continuous education on risks to investors, and also is a process of learning from doing and accumulation. Q5: As China's cross-border capital flows are being stabilized with a good momentum, what changes will take place to the orientation of policies for foreign exchange administration? A: Going forward, foreign exchange authorities will get united around the CPC Central Committee with Comrade Xi Jinping at its core and implement the gist of the 19th CPC National Congress. They will support the unified leadership of the CPC Central Committee on finance and carry out the decisions and plans of the CPC Central Committee and the State Council. With a focus on serving the real economy, guarding against financial risks and deepening financial reform, they will strive to enhance cross-border trade and investment facilitation, boost sustained and healthy economic development, guard against cross-border capital flow risks, and safeguard China's economic and financial security, so as to make great contribution to the fulfillment of the two centennial goals and the realization of the Chinese dream of the great renewal of the Chinese nation. Two basic principles shall be adhered to in foreign exchange administration: first, foreign exchange administration shall serve the real economy and the reform and opening up, and support and boost the two-way liberalization of the financial market to enhance trade and investment facilitation. Second, efforts shall be made to guard against risks arising from cross-border capital flows, protect the macro-economy and financial stability from being impacted by disorderly and high-intensity cross-border capital flows and maintain the stability of the foreign exchange market, in a bid to create a healthy, benign, and stable foreign exchange market environment for reform and opening up. Four basic connotations shall be stressed on the orientation of policies: first, adhering to reform and opening up and refining the foreign exchange administration framework to further promote trade and investment facilitation and ramp up the efficiency and level of foreign exchange administration in serving the real economy. Second, stably realizing capital account convertibility to drive reform and opening up in finance in an active and prudent way. Third, establishing a macro-prudential administration and micro market regulation system for cross-border capital flows, and cracking down on foreign exchange irregularities to maintain China's financial stability and economic security. Fourth, refining the RMB exchange rate formation mechanism to drive the in-depth development of the foreign exchange market. Efforts shall be made to preserve and grow the value of foreign exchange reserves while ensuring the security and liquidity of foreign exchange reserves. 2017-10-19/en/2017/1019/1377.html