The State Administration of Foreign Exchange (SAFE) has recently disseminated the data on banks' foreign exchange settlement and sales and banks' foreign-related receipts and payments for customers for July 2019. SAFE Spokesperson and Chief Economist Wang Chunying answers media questions on foreign exchange receipts and payments for July 2019.
Q: What were the characteristics of China’s foreign exchange receipts and payments in July 2019? What changes have occurred recently?
A: Banks' foreign exchange settlement and sales and foreign-related receipts and payments were further balanced in July, indicating stable performance of the foreign exchange market. First, the deficit in banks' settlement and sales of foreign exchange registered a remarkable contraction. Banks' foreign exchange settlement and sales recorded a deficit of USD 6.1 billion in the month, down by 68% month on month. Other supply and demand factors e.g. forward settlement and sales of foreign exchange as well as options transactions indicate that supply and demand were basically balanced in the foreign exchange market. Second, non-banking sectors posted a balance in foreign-related receipts and payments. Non-banking sectors like enterprises and individuals recorded a slight deficit of USD 2.1 billion in foreign-related receipts and payments in July, versus a deficit of USD 9.1 billion in June.
Moreover, expectations in the foreign exchange market remained stable, and cross-border capital flows through major channels were stable and growing. On the one hand, market players were more willing to settle than to buy foreign exchange. The foreign exchange settlement ratio that measures the willingness to settle foreign exchange, or the foreign exchange sold by customers to banks as a percentage of their foreign-related foreign exchange income, was 67%, up by 5 percentage points month on month. The foreign exchange sales ratio that measures the willingness to buy foreign exchange, or the ratio of foreign exchange purchased by customers from banks to the customer's foreign-related foreign exchange payments was 69%, down by 1 percentage point from the previous month. On the other hand, ongoing net cross-border capital inflows were recorded under enterprises' trade in goods and direct investment, and foreign exchange purchases by individuals were further stabilized. In July, foreign-related receipts and payments and foreign exchange settlement and sales under trade in goods represented higher month-on-month surpluses, foreign-related receipts and payments and foreign exchange settlement and sales under direct investment and portfolio investment registered stable surpluses, while foreign exchange purchased by individuals fell by 8% year on year.
China's foreign exchange market has been in good order since the beginning of August. After the US unexpectedly announced the tariff measures at the beginning of August, global financial markets have responded dramatically and the RMB exchange rate also has undergone short-term adjustments. The foreign-related transactions by Chinese market players including enterprises and individuals show that banks' foreign exchange settlement and sales have registered a slight surplus, and cross-border receipts and payments have stayed basically stable since the beginning of August. This suggests that domestic economic fundamentals have played a significant role in underpinning the stability of China's foreign exchange market, and also indicates that as it becomes more mature and rational, China's foreign exchange market can better respond and adapt to the changing external environment. China will continue to ensure the continuity and stability of its foreign exchange administration policies, and step up efforts to liberalize and facilitate cross-border trade and investment, so as to lay a more solid foundation for stable performance of its foreign exchange market to serve the development of the real economy and the new landscape of comprehensive opening up.
