The State Administration of Foreign Exchange (SAFE) recently disseminated the official data on the balance of payments (BOP) for the first quarter of 2016. The press spokesperson of the SAFE answered media questions on relevant issues.
Q: The data recently disseminated by the SAFE show that the surplus in the current account plunged in the first quarter of 2016 on a year-on-year basis. What are the main reasons behind? What are the outlooks for the current account?
A: The current account registered a surplus of USD 39.3 billion in the first quarter of 2016, down by 54% year on year (same below) for the reasons as follows:
First, the surplus in trade in goods fell. Trade in goods in the balance of payments registered a surplus of USD 103.9 billion in the first quarter, down by 11%. Dragged by sluggish demand in global markets, exports dropped by 12%, versus growth of 0.3% in the same period last year, while imports fell by 12%, lower than 16% in the same period last year, thanks to the stable domestic economy and pick-up of commodity prices, which, coupled with a high export base, resulted in a lower surplus in trade in goods.
Second, the deficit in trade in services grew. Trade in services registered a deficit of USD 57.6 billion in the first quarter, up by 47%. The major component of the deficit was the deficit in travel, which hit USD 55.4 billion, up by 33%. This shows that, driven by China's enhancing economic strength and its people's increasing income, people's actual power for overseas purchasing has been strengthened and their demand for traveling, studying and seeking medical help abroad is enhancing.
It is expected that the current account will remain in surplus in the near future, with its ratio to GDP still at an international rational level. First, trade in goods will remain in surplus. The slow recovery of the global economy has been favorable for stabilizing China's external demand, with its exports recovering in March-May, but as global commodity prices remain low, and China's domestic demand stays stable, its imports will continue to be greatly lower than exports. Second, trade in services and other accounts will remain in deficit. Overall, the current account led by trade in goods will continue to register a surplus, and its ratio to GDP is expected to be consistent with the level for recent years.
Q: The data recently disseminated by the SAFE show that the non-reserve financial account remained in deficit in the first quarter of 2016. What would you say about this? What are your perspectives into the future BOP status?
A: The deficit in the non-reserve financial account (excluding reserve assets, same below) shows domestic players have made heavier outbound investment and reduced their external debt. In the first quarter of 2016, the financial account recorded a deficit of USD 123.3 billion, up by 9% year on year and down by 26% quarter on quarter. On the one hand, domestic players participated in international economic activities more actively but were more sensible than in the fourth quarter of 2015. External assets for the first quarter rose by USD 109.8 billion, which was up by 35% year on year or down by 3% quarter on quarter. Those in direct investment and other investment went up by USD 57.4 billion and USD 28.7 billion respectively, which was up by 77% and 26% year on year, or down by 13% and 6% quarter on quarter. On the other hand, Chinese companies' external debt fell further, but they were slow in deleveraging. The external debt for the first quarter dropped by USD 13.5 billion, which was down by 57% year on year or 75% quarter on quarter. Net outflows under other external debt for investment amounted to USD 38.5 billion, down by 67% year on year and quarter on quarter respectively. But overseas capital under direct investment recorded heavy net inflows, showing overseas long-term capital remains confident in China.
The pressure on China from cross-border capital outflows has been relieved recently. The deficit in banks' settlement and sales of foreign exchange dropped by 35% and 47% in April and May on a quarter-on-quarter basis. The deficit in banks' foreign-related receipts and payments for customers was down by 66% quarter on quarter in April, but banks' foreign exchange receipts and payments for customers turned around in May. The balance of foreign exchange reserves fell by a monthly average of USD 10.4 billion in April and May, much lower than the monthly average decrease of USD 39.3 billion in the first quarter.
China's BOP is expected to find a basic level of equilibrium in 2016, with continued surpluses in the current account and deficits in the capital and financial account. On the one hand, driven by policies and measures for economic restructuring, production capacity adjustment and industry upgrading, China's economy will sustain a mid-to-high growth rate, the current account led by trade in goods will remain in surplus, foreign exchange reserves will continue to be adequate, and its capability against the impact from cross-border capital flows will be strong, which will make China attractive to long-term foreign investment. On the other hand, under the new normal of economic transformation and upgrading, domestic players will raise their awareness of participation in international economic development, which will drive them to make rational arrangements for cross-border investment and financing based on domestic and overseas situations and their development needs. Under such circumstances, China's BOP is expected to find a basic level of equilibrium as its cross-border capital will display a pattern of alternation of inflows and outflows and bidirectional fluctuations.
