To further improve the quality and transparency of China's foreign-related data and fully embody the fruits of the RMB internationalization, the People's Bank of China (PBC) and the State Administration of Foreign Exchange (SAFE) have recently disseminated the data on China's foreign exchange reserves, gold reserves and full-scale external debt as required by the Special Data Dissemination Standards (SDDS) of the International Money Fund (IMF). China's external debt includes external debt in RMB after the adjustment of the coverage of the external debt. Responsible persons of the PBC and the SAFE took questions from reporters.

I. What is the SDDS?

A: SDDS stands for the Special Data Dissemination Standard of the IMF, a global benchmark established in 1996 by the IMF for disseminating countries' economic and financial statistical data.

To enhance the transparency of the macroeconomic statistical data of its member countries, the IMF has established two data dissemination standards, namely, General Data Dissemination Standard (GDDS) and Special Data Dissemination Standard (SDDS). The two standards are under similar overall frameworks, but the SDDS imposes higher requirements on data coverage, periodicity, timeliness, and quality, as well as access by the public. Countries that subscribe to the SDDS should disseminate the data on five sectors, namely, the real economic, fiscal, financial, external and socio-demographic sectors, as required by the SDDS.

At present, 73 economies have subscribed to the SDDS, including all developed economies and major emerging market economies such as Russia, India, Brazil and South Africa. China has been a participating country of the GDDS to disseminate its macroeconomic data before.

II. Why would China subscribe to the SDDS?

A: As economic globalization deepens, a consensus has been achieved on improving data quality, narrowing data gaps, increasing data comparableness and enhancing data transparency. China has actively responded to the initiatives to get aligned with the universal data standards worldwide. In November 2014, President Xi Jinping officially announced at the G20 Summit in Brisbane that China will subscribe to the Special Data Dissemination Standards (SDDS) of the IMF. The conditions for disseminating the data required by the SDDS have been met after technical preparations.

Compliant with China's demand for further reform and opening up, subscription to the SDDS is conducive to improving the transparency, reliability and global comparableness of the macroeconomic statistical data to perfect the statistical methods, to developing a deeper understanding of the macro-economy to provide grounds for making macroeconomic decisions and guard against and address economic risks, and to China's active participation in global economic cooperation to boost the confidence of the international community and the public in China's economy.

III. What data on foreign exchange reserves should be disseminated as required by the SDDS?

A: The data on foreign exchange reserves disseminated as required by the SDDS contain two parts, namely, "official reserve assets" and "data template for international reserves and foreign currency liquidity". The former includes foreign exchange reserves, reserve position in Fund, SDR, gold and other reserve assets, of which the foreign exchange reserves refer to the size of foreign exchange reserves China usually unveils. The latter is comprised of four forms, respectively on official reserve assets and other foreign currency assets, expected net outflow of foreign currency assets in the short term, contingent net outflow of foreign currency assets in the short term and MOU.

Regarding data periodicity, these data will be disseminated on a monthly basis, of which the "official reserve assets" for the previous month will be disseminated no later than the seventh day of each month and the "data template for international reserves and foreign currency liquidity" for the previous month will generally be released at the end of each month. Since this is the first time we have disseminated the data, we release both parts at the same time for your reference, and will disseminate them separately in the future, in their respective time frame.

The statistics collection will be conducted in line with the uniform standards of the IMF.

IV. What are the highlights of the data disseminated this time, compared with the size of foreign exchange reserves previously disseminated?

A: The highlights are as follows:

(1) The foreign exchange reserves disseminated this time are identical to the foreign exchange reserves previously unveiled in terms of data coverage. The foreign exchange reserves previously unveiled were collected based on the methodology and standards required by the SDDS. As at the end of June 2015, China's foreign exchange reserves amounted to USD 3.69 trillion.

(2) Other foreign currency assets are also disseminated. As at the end of this June, the PBC reported USD 232.9 billion in other foreign currency assets.

(3) The size of gold reserves is increased. As at the end of this June, China's gold reserves were 53.32 million ounces (or 1,658 tons).

V. China's gold reserves increased by 604 tons from the end of April 2009, according to the gold reserves data disseminated this time. Why did China increase its gold reserves?

A:Gold reserve has been a key part of countries' diversified international reserves and many central banks have gold as part of their international reserves. So does China. As a special asset with properties of financial assets and commodities, gold, together with other assets, is conducive to adjusting and optimizing the overall risk and return characteristics of the portfolios of international reserves.From the long-term and strategic perspectives, we will dynamically adjust the configuration of the portfolios of international reserves when necessary, to ensure the security, liquidity, value preservation and appreciation of international reserve assets.

VI. The global gold prices have been fluctuating sharply in recent years. When and through which channels did China increase the gold reserves unveiled this time? Will China continue to do so in the future?

A:The global gold prices go up and down like those of other commodities and financial assets. Over the past few years, gold prices have declined after climbing to its historical peak. Based on our assessment of the asset value and analysis of the price changes of gold, we accumulated these gold reserves through multiple domestic and overseas channels, while making sure the market was not impacted and influenced. The channels include purification of mixed gold in China, production and storage of gold, and domestic and foreign trade.

With special risk and return characteristics, gold is a desirable investment category in a given period. But as the capacity of the gold market is smaller than the size of China's foreign exchange reserves, the market will be impacted if plenty of gold is bought in the short run using foreign exchange reserves. In China, the largest gold producer and a major gold consumer worldwide, it is a commonplace that people buy and keep gold. In the future, we need to take into consideration both private demand for investments and the requirements for allocation of international reserve assets and take flexible measures.

VII. Will the SAFE further enhance the transparency of foreign exchange reserves information after disseminating the data required by the SDDS?

A: The transparency of the foreign exchange reserve information has been enhanced in recent years. Foreign exchange reserve information has been disseminated through the SAFE's website, press conference, media interviews, forums with experts, as well as the annual reports and the balance of payments reports by the SAFE. Changing from participating in the GDDS to subscribing to the SDDS is also a new measure to further enhance the transparency of the foreign exchange reserve information in line with international standards.

We will continue to take into consideration the security of foreign exchange reserve assets and the requirements for operations to ensure the continued enhancement of the transparency of the foreign exchange reserve information, in accordance with the national laws and regulations and international standards.

VIII. What are the background and implications of this adjustment of external debt coverage?

A: According to the Interim Measures for the Administration of the External Debt, jointly released by the NationalDevelopmentandReformCommission, the Ministry of Finance and the SAFE in 2003, external debt in China refers to the debt owed by a domestic institution to a non-resident, which are denominated in a foreign currency and exclude external debt in RMB, indicating the coverage of China's external debt is narrower than the international standard coverage. As the external debt in RMB has increased in recent years along with the boom of the cross-border RMB business, the SAFE classified and collected statistics on China's external debt in the early stage as per SDDS and disseminated the full-scale total external debt while unveiling the international investment position (IIP) form, in a bid to fully reflect the overall size of China's external debt. To adopt the SDDS in an all-round way, the SAFE has disseminated the full-scale data on China's external debt on a quarterly basis since the beginning of 2015, so that the public could understand China's external debt in more detail. Including the external debt in RMB in the overall external debt is just an adjustment of statistical method and does not increase the amount of external debt to be serviced. Given this, the adjustment of the data coverage of external debt will not change China's liabilities to service its external debt.

With the above adjustment, the data coverage of the external debt China unveils to the public will be further improved and get aligned with the latest international standards, which will be conducive to improving the standards and international comparableness of the data on China's external debt.

IX. Why does the balance of the full-scale external debt rise?

A: As at the end of March 2015, China's outstanding full-scale external debt amounted to RMB 10.2768 trillion (equivalent to USD 1.6732 trillion), due to the adjustment of the statistical coverage of external debt. To be specific, the amount of outstanding external debt in RMB that was included in the statistical scope for the first time was RMB 4.9424 trillion (equivalent to USD 804.7 billion), accounting for 48.1% of the outstanding full-scale external debt. Calculated by the coverage (external debt in foreign currencies) before the adjustment, China's outstanding external debt was down by 3% from the end of 2014.

X. What would you say about China's external debt in RMB accounting for nearly half of its full-scale external debt?

A:China is a highly open economy that ranks No. 2 worldwide. Since the initiation of the RMB internationalization in July 2009, RMB cross-border settlement has grown rapidly in size, with the value settled rising from RMB 3.6 billion in 2009 to nearly RMB 10 trillion in 2014. The cross-border receipts and payments in RMB has climbed year by year as a percentage of the cross-border receipts and payments in RMB and in foreign currencies in China, say, from 1.7% in 2010 to 23.6% in 2014 and further to 27.7% in January to May 2015, and RMB has become the second most used currency in cross-border receipts and payments in China. Statistics of the Society for Worldwide Interbank Financial Telecommunication (SWIFT) show that RMB remained stable in its position as the world's No. 5 payment currency in May 2015, 14 places ahead of the ranking for the beginning of 2012; its market share was 2.18%, 8.7 times that of the beginning of 2012; and RMB also remained stable in its position as the second most used currency in trade finance.

At the end of this March, non-resident deposits and external debt in RMB under trade finance constituted the majority of China's external debt in RMB, making up nearly 60% of the nation's total external debt. The non-resident deposits refer to the external debt incurred by the RMB deposits of overseas institutions in domestic banks. Considered as external debt in statistics, these deposits differ largely from the external debt directly owed by domestic institutions to overseas parties, indicating non-residents are very willing to hold RMB assets, which is conducive to pressing ahead with the RMB internationalization. Against the backdrop of import and export trade, external debt in RMB under trade finance refers to the external debt incurred by provision of financing products by a domestic financial institution to importers and exporters. In essence, the external debt is a natural result of the increased percentage of RMB settlement in China’s cross-border trade.

As the international use of the RMB is expanding in terms of area and scope, which has injected new life into the global financial market, overseas players' demand for holding RMB assets is surging, thus improving the position of the RMB in the global market. This embodies the global confidence in China's economic development and confirms the results of China's reform and opening up, indicating that the RMB internationalization is speeding up. Along with the fast economic and financial development, and the deepening of the reform and opening up in China, especially the implementation of the One Belt and One Road strategy, the RMB internationalization will go deeper, and the external debt in the form of RMB assets held by non-residents will continue to grow.

XI. What are the differences between external debt in RMB and that in foreign currencies?

A:The external debt in RMB and that in foreign currencies are essentially different in quote currency and payment currency, and in impact on a country's foreign exchange reserves due to the sharp fluctuations of exchange rate and servicing of external debt, thus resulting in different impacts on the economic operation and financial system of the country. To be specific, external debt in foreign currencies is vulnerable to the fluctuations of exchange rate and may increase burden on the debtor to service debt amid a crisis, while the external debt in RMB is immune from the monetary mismatch risk and the foreign exchange rate risk, especially the risk associated with foreign exchange payments, and does not consume foreign exchange reserves directly.

At the international level, since the currencies of developed economies such as Europe and the US are highly internationalized and have become the major international reserve currencies, their external debt in domestic currency takes up a large percentage. In US and Germany for example, their external debt in domestic currency accounted for 93% and 72% respectively in their total external debt as at the end of 2014. In other economies with a low level of currency internationalization, the external debt in foreign currencies constituted the majority of their external debt, with a low proportion of external debt in domestic currency. In comparison, the percentage of China’s external debt in RMB, 48.1%, is lower than those of developed economies such as Europe and the US but higher than the major emerging market economies in Asia. Given this, the external debt in domestic currency of a debtor, especially a developing debtor country, is less vulnerable to the changes in exchange rate, exposed to lower external uncertainties and less risky than the external debt in foreign currencies (see table 1).

XII. How risky is China's external debt? Will the high percentage of China's short-term external debt expose China to a structural risk?

A: According to the Global Development Finance 2012 and the Little Data Book on External Debt 2012 released by the World Bank, the average external debt ratio, debt ratio, debt servicing ratio, and the ratio of foreign exchange reserves to short-term external debt in middle-income countries in 2010 were 69%, 21%, 10% and 137% respectively, compared with 35%, 8.6%, 1.9% and 562% in China in 2014 (see table 2), indicating the sustainability of China's external debt measured by those indicators is high and the overall risk is modest.

In terms of debt maturity, the percentage of China's short-term external debt by the end of this March was higher than 70%, but of the debt that matures within one year, more than half is credit associated with trade. Since China is a foreign trade giant, the percentage of credit associated with trade, such as inter-company trade credit, trade finance of banks, and debt for financing like short-term notes associated with trade, is also high. Of China's short-term external debt, this part of external debt has genuine trade background, indicating the solvency risk is limited. Moreover, given the small size of China's short-term external debt versus the sizes of foreign trade and foreign exchange reserves, the risks associated with short-term external debt are within control.

Table 1 External Debt Position of Selected SDDS Subscribers by the End of December 2014: Debt in Foreign Currencies and Domestic Currency

In USD 100 million

Source: Quarterly External Debt Statistics of World Bank

Table 2 Major Indicators of External Debt Risks in China by the End of 2014

Source: National Bureau of Statistics, State Administration of Foreign Exchange