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.
