The State Administration of Foreign Exchange (SAFE) recently released data on foreign exchange settlement and sales by banks as well as banks' foreign-related receipts and payments for customers for August 2018. The SAFE press spokesperson answered media questions on recent cross-border capital flows.
Q: Could you brief us on China's cross-border capital flows for August 2018?
A: China's foreign exchange market supply and demand continues to stay stable. At the end of August 2018, China's foreign exchange reserve balance was USD 3109.7 billion, down by USD 8.2 billion from the end of July, a drop of 0.26%. In August, Banks registered a deficit of USD 14.9 billion in foreign exchange settlement and sales, and an accumulated deficit of USD 10.5 billion so far this year, down by 91% year-on-year. The deficit in foreign-related receipt and payment of non-bank sectors such as domestic enterprises was USD 4.4 billion, narrowed by 63% month-on-month.
The wider opening of the capital market to the outside world continues to attract international capital into China, and the purchase of foreign exchange by enterprises and individuals is rational and orderly. First, the net inflow of cross-border capital under portfolio investment increased rapidly. In August, the portfolio investment posted a surplus of USD 17.5 billion in foreign-related receipt and payment, rose by 2.9 times month-on-month. The portfolio investment registered a surplus of USD 4.3 billion in foreign exchange settlement and sales, which is the highest since July 2015. Second, the import trade financing of enterprises continued to increase. In August, the balance of cross-border financing for import trade such as refinancing and forward L/C grew by USD 2.3 billion month-on-month, and increased by USD 16.9 billion cumulatively so far this year. Third, the deficit in forward foreign exchange settlement and sales contracts narrowed down. In August, the deficit in forward foreign exchange settlement and sales contracts was USD 5.4 billion, down by 65% month-on-month. In addition, foreign exchange purchase under returns of investment fell due to seasonal factors, down by 33% month-on-month; individuals' purchases of foreign exchange picked up in the summer overseas travel season and the period before the back-to-school season, but fell by 2% year on year.
At present, international trade frictions are intensifying, geopolitical tensions are rising, and economic and financial turmoil in some emerging market countries is expanding. However, China's foreign exchange market has still maintained overall stability in adverse external environment. In the future, although there still will be many external uncertainties, along with the transformation and upgrade of industries as well as the steady and thorough advancement of China's opening up, China's economic operation will continue to maintain in a reasonable range, the two-way fluctuation of RMB exchange rate is expected to become increasingly resilient, and the measures for macro-prudential management of cross-border capital flow will continue to play a role in counter cyclic adjustment. Therefore, China can effectively cope with external shocks, and safeguard the smooth operation of foreign exchange market.
