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    Foreign Exchange Receipts and Payments Data for the First Half of 2021 -- Press Conference Transcript
Foreign Exchange Receipts and Payments Data for the First Half of 2021 -- Press Conference Transcript

The State Council Information Office (SCIO) held a press conference at 4:00 PM on Friday, July 23, 2021. Wang Chunying, Deputy Administrator and Press Spokesperson of the State Administration of Foreign Exchange (SAFE), was invited to share the data on foreign exchange receipts and payments for the first half of 2021 and answer questions from the press.

Xing Huina, Deputy Head of the Press Bureau of the SCIO and Spokesperson for the SCIO:

Ladies and gentlemen, good afternoon. Welcome to the press conference of the SCIO. Today, we are pleased to welcome Ms. Wang Chunying, Deputy Administrator and Press Spokesperson of the SAFE. She will share with us the data on China’s Foreign Exchange Receipts and Payments for the first half of 2021, and answer the questions of your concern.

Now I will give the floor to Ms. Wang.

2021-07-23 16:00:07

Wang Chunying, Deputy Administrator and Press Spokesperson of the SAFE:

Good afternoon, everyone! Welcome to today’s press conference. First, I’d like to brief you on the foreign exchange receipts and payments situations for the first half of 2021. Then I will take your questions.

In the first half of 2021, facing lingering challenges of COVID-19 around the world, the recovery of the global economy was still uneven, and the international financial market was in a state of complexity and volatility. China’s economy has sustained with a stable recovery, showing a steady and sound growth momentum. China’s foreign exchange market operated soundly on general. The renminbi exchange rate went through ups and downs but remained basically stable within a reasonable and balanced range. The foreign receipts and payments transactions became more active, and the foreign exchange market is expected to be in a stable and orderly manner.

According to the data on foreign exchange settlement and sales by banks in the first half of this year, banks settled US$1.2101 trillion and sold US$1.0745 trillion in foreign exchange, representing a surplus of US$135.6 billion, or in renminbi terms, banks settled 7.8 trillion yuan and sold 7.0 trillion yuan, recording a surplus of 876 billion yuan. As showed by the data on banks’ foreign-related receipts and payments on behalf of customers, in US dollar terms, banks handled foreign-related receipts of US$2.8419 trillion and payments of US$2.6529 trillion for customers, representing a surplus of US$189 billion, or in renminbi terms, banks handled foreign-related receipts of 18.4 trillion yuan and payments of 17.2 trillion yuan for customers, recording a surplus of 1.2228 trillion yuan.

2021-07-23 16:08:32

Wang Chunying:

China’s foreign exchange receipts and payments showed the following features in the first half of 2021:

First, a surplus was registered in both foreign exchange settlement and sales by banks and cross-border receipts and payments. In the first half of this year, foreign exchange settlement and sales by banks reached a surplus of US$135.6 billion and banks’ foreign-related receipts and payments on behalf of customers reached a surplus of US$189 billion. This was mainly attributed to the relatively high level of receipts and settlements of foreign exchange under trade in goods, which reflected steady improvement of the domestic economy and the orderly resumption of work and production. Data shows that, in the second quarter, the surplus for foreign exchange settlement and sales by banks was US$47 billion and that for banks’ foreign-related receipts and payments on behalf of customers was US$67.7 billion.

Second, the foreign exchange sales rate was generally stable, and the cross-border financing by enterprises increased steadily. In the first half of this year, the foreign exchange sales rate, the measurement of customers’ desire to buy foreign exchange, or the ratio of foreign exchange purchased by customers from banks to foreign-related foreign exchange payments made by customers, stood at 64%, slightly down by 0.7% from the second half of 2020 and remained stable overall. In terms of foreign exchange financing, by the end of June, the outstanding domestic foreign exchange loans rose by US$37.7 billion from the level at the end of 2020, with a rather steep growth curve in the first quarter and a flat one in the second quarter. In the first half of this year, the balance of foreign currency financing for cross-border trade such as import refinancing and forward L/C increased by US$32.2 billion, generally in line with the high level of foreign trade.

Third, the foreign exchange settlement rate slightly increased and enterprises’ foreign exchange deposits rose up. The foreign exchange settlement rate, the measurement of customers’ desire to settle foreign exchange, or the ratio of foreign exchange sold by customers to banks to  foreign exchange received by customers, reached 67%, slightly up by 2% from the second half of 2020. By the end of June, the balance of domestic foreign exchange deposits held by enterprises and other market participants increased by US$65.8 billion compared with the end of 2020, mainly due to the growth in foreign exchange receipts from trade in goods.

2021-07-23 16:08:44

Wang Chunying:

Fourth, transactions of foreign exchange derivatives built up, and enterprises have shown stronger awareness of risk neutrality. In the first half of 2021, the foreign exchange derivatives, such as forwards and options, used by enterprises to manage exchange rate risks saw a growth of 94% year-on-year, 69 percentage points higher than that of the foreign exchange settlement and sales by banks in the same period. This growth rate was quite remarkable, as it pushed the hedging ratio of enterprises up to 22.8%. The hedging ratio of enterprises, as we previously explained, is the ratio of derivatives trades to spot trades plus derivatives trades by banks for their customers, in other words, the percentage of derivatives trades in the total foreign exchange settlement and sales by banks for their customers. We assume that the rising hedging ratio indicates stronger awareness of risk aversion, better adaptability to exchange rate fluctuations and enhanced risk-neutral business philosophy among enterprises.

Fifth, foreign exchange reserves were basically stable. By the end of June, the volume of China’s foreign exchange reserves registered US$3.214 trillion, equivalent to that at the end of last year. Foreign exchange reserves fluctuated to some extent in the first half of 2021, primarily driven by the combined factors of exchange rate conversion and asset price changes.

The above are the five characteristics and the major statistics I’d like to share with you on China’s foreign exchange receipts and payments in the first half of this year. Next, I will answer your questions.

2021-07-23 16:12:55

Xing Huina:

Thanks for your information, Ms. Wang. The floor is now open for questions. Please tell us your news agency before raising your questions.

2021-07-23 16:20:01


What is your comment on the changes in China’s foreign exchange market in the first half of this year? Where will the market go in the second half of this year in your opinion? Thank you.

2021-07-23 16:34:35

Wang Chunying:

Since the beginning of this year, the foreign exchange market has been operating generally soundly, market sentiment has been basically stable, exchange rate expectations have been reasonably differentiated, foreign exchange transactions have been rational and orderly, and the foreign exchange market has maintained in good order. The most prominent feature was reflected in the renminbi exchange rate, which was generally stable within the balanced and reasonable range despite stronger ups and downs. I’d like to share with you about our observation and understanding from two aspects.

First, renminbi exchange rate experienced stronger two-way fluctuations. On the first trading day of the first half of the year, the spot renminbi exchange rate against the US dollar appreciated to 6.4620. The trend remained relatively stable in January-February. It depreciated by 1.5% in March, appreciated by 3.1% in April and May, and depreciated by 1.6% in June. By the end of June, it closed at 6.4612 on its last trading day, eight basis points short of 6.4620 at the start of the year. One cent is for 100 basis points, that is to say, eight basis points mean that the rate has basically returned to the original level. Therefore, in the first half of the year, the ups and downs of the renminbi exchange rate were quite obvious.

We see some implications in it. First of all, two-way fluctuations reflect the complexity and unpredictability of changes in the international market. This year, with COVID-19 still spreading around the world, the recovery of the global economy is uneven, and the trend of inflation and employment in major developed economies are not clear, which has added to the uncertainty in the international financial market. Take the US dollar index as an example. It was up 2.6% in March on rising US inflation expectations. In April and May, it dropped 3.4% as the US economic recovery fell short of market expectations. In June, everyone noticed that the signals released by the Fed’s meeting on interest rates were “hawkish” and that the recovery of the US economy was gaining speed. As a result, the US dollar index turned to rise by 2.7%. Obviously, the repeatedly changing main situation of the international market also has impacts on the exchange rates of various currencies. Therefore, the stronger two-way fluctuations of renminbi do reflect the complexity and unpredictability of changes in the international market.

In addition, the two-way fluctuations of renminbi reflect the progress of the exchange rate marketization in China. In the first half of this year, according to our calculation, the historical volatility of the renminbi against the US dollar was 3.1%, closing to currencies of developed economies such as euro, sterling and yen and showing strengthening elasticity. Under the market-oriented adjustment mechanism, the two-way fluctuations of the renminbi exchange rate are quite timely and sufficient, accurately reflecting the changes in the international market and in domestic foreign exchange supply and demand. It was the first prominent feature of the renminbi exchange rate in the first half of this year.

Second, the renminbi exchange rate has remained basically stable within a reasonable and balanced range. In recent years, there has been consensus that more elasticity has been seen in renminbi, but its overall fluctuations are still lower than that of emerging economies’ currencies, not to speak of some currencies with frequent sharp fluctuations. The renminbi has shown relatively good stability in value, and we also have the following comments in this aspect.

Firstly, this reflects the momentum of long-term growth of the Chinese economy. According to the recent data released by the National Bureau of Statistics, the PMI of China’s manufacturing industry in June was 50.9%, which has been in the boom range for 16 consecutive months. China’s GDP grew by 12.7% in the first half of the year. China’s economy has recovered steadily, with an improving structure and significantly enhanced vitality. Economic fundamentals have played a very important role in stabilizing the renminbi exchange rate and boosting market confidence. Therefore, the fact that renminbi exchange rate remains basically stable within the proper range reflects this characteristics, or is supported by this.

Secondly, it shows China’s basically balanced international balance of payments. In recent years, the international balance of payments has maintained a generally balanced pattern and it has been continuously consolidated. For example, the current account surplus as a percentage of GDP has remained within 2% for five consecutive years, which is both a surplus and within a reasonable range. In the first half of this year, such a trend continued. The current account was still within a reasonable range, and cross-border capital flew in and out, in balance. Therefore, foreign exchange reserves are basically stable. According to the data we have released, in the first quarter, the current account had a surplus of US$69.4 billion, and the financial account excluding reserve assets had a deficit of US$34.5 billion, so the capital flow-in-and-out was basically kept in balance. Therefore, this is also a basis in terms of market supply and demand for renminbi to remain stable.

This trend will continue in the second half of the year. As we just mentioned, the supporting factors that enable the foreign exchange market and the renminbi exchange rate to show these characteristics and trends still exist, and the Chinese economy is still improving in the long run. In addition, the reform and opening up are constantly advancing, and the balance of payments operation continues to develop steadily. These factors provide good support for the stable development of the foreign exchange market. Of course, the exchange rate will be affected by many factors at home and abroad, and some international uncertainties and unstable factors still exist. Therefore, the renminbi exchange rate will still go up and down but will be basically stable within a reasonable range. Thank you.

2021-07-23 16:34:48

Phoenix TV:

Recently, the timing of the Fed’s plan to adjust its monetary policy has become the focus of market attention. How will China be affected in its cross-border capital flows if the Fed starts to taper its bond-buying program or raise interest rates? Thank you.

2021-07-23 16:37:54

Wang Chunying:
Thanks. You raised a hot issue. Generally speaking, the Fed’s balance sheet reduction and interest rate hike will boost the interest rate and exchange rate of the US dollar, which will have some impact on international capital flows, especially the cross-border capital flows in emerging economies. Recently, with the economic recovery and high inflation in the US, there have been increasing market expectations for the return of normal monetary policy by the Fed. We believe that the adjustment of the Fed’s monetary policy will indeed have more impact on the cross-border capital flow of economies outside the US, especially emerging ones, but the impact on different economies will vary. China as a relatively large emerging market, and in the view of this, we have compared China’s situation with that of many emerging economies in three aspects: first, the real economy; second, the financial market; and third, the balance of payments. From the above analysis, we believe that China has obvious advantages in dealing with external changes, so the impact of future Fed policy adjustments on China’s cross-border capital flows should be generally controllable.

In terms of the real economy, China has a clear lead in economic recovery and the epidemic prevention and control situation is generally stable, which is obvious to all. According to the World Bank’s forecast in June, China’s GDP is expected to grow 8.5 percent this year, 3.1% higher than that of developed economies and 2.5% higher than that of emerging economies. The growth rate would be the highest among G20 economies. Recently, the accelerated vaccination process has laid a very good foundation for economic stability and recovery. In addition, some macro indicators also present many supporting factors. For example, the consumer price index is relatively stable. In addition, the macro leverage ratio, which we are more concerned about, has also been on a steady decline. All these show that the fundamentals of China’s economy are sound and such a solid foundation can help withstand external shocks.

At the financial market level, the price-quality ratios of renminbi assets are relatively high, and demands for renminbi assets are stronger than other emerging economies in global assets allocation. At present, Chinese stocks have relatively low P/E ratios compared with those in developed markets and most emerging economies, so their investment value is still relatively high. Bonds also have relatively good investment returns. For example, the 10-year treasury bond yield has stabilized at around 3%, significantly higher than that of the bonds in countries with zero or even negative interest rates. At the same time, we also observe the evaluation indicators related to international sovereign credit. China’s sovereign credit risk is relatively low, and the value of the renminbi is stable. All of this show good investment value.

2021-07-23 16:40:04

Wang Chunying:

Currently, the proportion of renminbi assets in global assets allocation is higher than that of other emerging economies. According to data recently released by the IMF, at the end of the first quarter, renminbi accounted for 2.45% of global foreign exchange reserves, amounted to US$287.5 billion. This proportion is also higher than before, and now renminbi is the fifth largest official reserve currency in the world. This reflects a need for official allocation. From the perspective of allocation demands among market institutions, the weight of renminbi bonds and stocks, after their inclusion in major international mainstream indexes, also top the emerging economies. Therefore, renminbi assets have relatively high price-quality ratios and obvious growth value. We believe that despite some external changes, the corresponding investors cannot fail to consider these factors, because it is an advantage that cannot be ignored.

From the perspective of balance of payments, China maintains a long-term current account surplus, so its external financing needs are relatively low. Because of its current account surplus, China as a whole presents itself as a country with net foreign assets. At the end of the first quarter, China’s net foreign assets reached US$2.1 trillion, of which reserve assets have always been the world’s largest. The private sector also holds a large amount of foreign exchange assets, which can better cope with changes in external liquidity and adjustments to external liabilities. At the same time, the degree of dependence on external financing, that is, the level of external debt, is actually rather low. The current ratio of the balance of external debt to GDP is lower than that of major emerging and developed economies. In addition, with increased elasticity in recent years, the renminbi exchange rate can better play its role as an automatic stabilizer for regulating macroeconomy and balance of payments.

From the analysis of these aspects, China’s economy is in an advantageous position for coping with the changes in the external environment. At the same time, we should also see that the fiscal deficit and financial market valuation in the US are both at historical highs, and this, as the market believes, will restrict the speed and pace of the Fed’s monetary policy adjustment. Therefore, the future adjustment of the Fed’s monetary policy may be gradual. Despite the above analysis, we still pay great attention to the risks that the Fed’s monetary policy adjustments may bring, and we will be prepared for them. Thanks.

2021-07-23 16:51:12

China Daily:

My question is that, in recent years, the balance of China’s external debt has continued to grow. What is the main driving force behind it? How do you view the future development trend of external debt? Thank you.

2021-07-23 17:08:08

Wang Chunying:

Thank you for your question. In recent years, China’s external debt has steadily increased, and this trend is continuing. China’s outstanding foreign debt stood at US$2.5 trillion at the end of March, up 5% from the end of last year. The quarterly growth rate was about the same as the growth rate of each quarter in the past few years. Therefore, the scale of China’s external debt is steadily increasing.
You just asked what is the driving force? Let’s look at the composition of the increase in external debt. First, the recent increase in China’s external debt is mainly because foreign investors hold more China’s bonds. Since 2020, foreign purchasers of domestic bonds have accounted for about half of the overall increase in external debt. This is mainly because China’s economy is the first to recover, its bond market continues to open, and renminbi assets yield good returns and have a stronger safe haven status. In this category of foreign debt investors, more than half are foreign central banks and institutions like sovereign wealth funds. The investment targets are mainly bonds issued by government departments, which are relatively stable. We have observed changes in related long-term capital remittances. Since 2019, the foreign exchange market has borne pressures sometimes from supply side and sometimes from demand side, thus the US dollar index sometimes rose and sometimes fell, and so did the renminbi. No matter what the situation is, there has always been an inflow of investment funds since 2019, and there has been a net inflow for 30 consecutive months. Thus, it mainly reflects the choices and needs of foreign investors in diversifying assets allocation and seeking stable income.

What’s next? The factors as I just mentioned to attract these investors remain. As a result, foreign investors will continue to invest in our bonds, and the future growth of external debt will be dominated by such funds. In October of this year, China’s treasury bonds will be officially included in the FTSE World Government Bond Index, so that all major international related indexes will include renminbi bonds. At the end of June, foreign investment accounted for 3.1% of the amount of domestic bonds under custody, and there is a large room for future improvement. But at the same time, it will not grow rapidly, because the global economy will recover and external liquidity and interest rates will return to normal. Therefore, the pace of foreign investment in domestic bonds will be more stable, focusing on long-term investment and diversified asset allocation.

Second, since last year, the growth of non-resident deposits has accounted for about 30% of the total increase in external debt. Non-resident deposits are mainly attributed to the increase in bank deposits of overseas Chinese-funded enterprises. Many enterprises have listed and issued bonds in Hong Kong and then deposited the raised funds back in domestic commercial banks. For domestic commercial banks, these deposits are passive liabilities rather than those arising from active financing. Under the circumstances of sufficient liquidity in domestic foreign exchanges, commercial banks are more inclined to use this part of the funds abroad, which is generally reflected as “coming from and going to abroad”. Another feature is that, in general, non-resident foreign exchange deposits, except for QFII funds, are not allowed to be settled, and the withdrawal of such deposits will not involve the purchase of foreign exchanges. Therefore, “coming from and going to abroad” does not involve the settlement or purchase of foreign exchanges, and hence has nearly no impact on the net cross-border capital flows and the supply and demand in the foreign exchange market.

Third, traditional external debt arising from financing, such as loans and trade credits, are generally stable. By the end of March, the balance of this type of external debt remained the same as at the end of 2020, and was lower than the historical high at the end of 2014. It shows that, despite relatively abundant external liquidity, Chinese enterprises have relatively stable expectations. Their cross-border financing is rational and orderly, without any obvious large-scale leveraging up.

Fourth, some have asked whether an external debt of US$2.5 trillion is too large and posing too high risks. Some macro indicators show that China has better currency and maturity structures in its external debt and a generally strong ability of repayment. By the end of March, of the total outstanding external debt, renminbi external debt accounted for 43%, an increase of 1.3% from the end of last year, and the mid- and long-term external debt accounted for 45%, maintaining at a relatively high level. In terms of the safety index of external debt, as of the end of last year, debt-to-GDP ratio, debt service ratio and external debt to exports ratio were all within the international safety line, and were lower than the overall level of developed countries and emerging markets. Sometimes people say that there are too many special terms in the field of foreign exchange, so I would like to explain them to you. The debt-to-GDP ratio is the ratio of the outstanding external debt at the end of the year to the GDP of the year. The external debt to exports ratio is the ratio of the outstanding external debt at the end of the year to the income from exports of goods and services of the year. The debt service ratio is the ratio of the amount of interest and principal payments of the year to the income from exports of goods and services of the year. Therefore, regardless of the three types of structures just analyzed, or in general, the external debt risk is controllable. We will continue to monitor and pay attention to, especially the changes in currency and structure. We will also focus on guiding market participants to pay attention to risks, strengthen risk awareness, and rationally arrange their own asset-liability structure. This is an answer to your question. Thanks.

2021-07-23 17:08:18

The Paper:

Recently, the Executive Meeting of the State Council proposed to study and deepen the work of financial opening-up. What arrangements will SAFE make in this regard? Thanks.

2021-07-23 17:11:09

Wang Chunying:
Thanks for your question. In the next step, taking the two-way opening-up of the financial market as focus, SAFE will continue to deepen the reform and opening up in the field of foreign exchange in accordance with the decisions and deployments of the CPC Central Committee and the State Council. I want to share with you in the following aspects.

First, we will steadily and orderly promote the capital account opening-up at a high level, improve the foreign exchange management of overseas institutions’ domestic issuance of stocks and bonds, support private equity investment funds in cross-border industrial investment, and expand the pilot projects for qualified domestic limited partners and qualified foreign limited partners, namely the QDLP and QFLP. At the same time, we will promote the reform in foreign debt registration to facilitate cross-border financing of innovative enterprises, and we will launch the pilot project of fund pools with both domestic and foreign currency for multinational enterprises.

Second, we will expand the pilot project to facilitate trade receipts and payments. Some regions are now piloting cross-border payments for new forms of trade such as offshore trade, cross-border e-commerce and market procurement. The Executive Meeting of the State Council also proposed to support the development of new forms of trade.

Third, we will build an open, diversified and well-functioning foreign exchange market. We will support financial institutions to launch more foreign exchange derivatives that meet market demand. We will further enrich foreign exchange market products and domestic and foreign participants, and constantly improve the infrastructure system of the foreign exchange market.

Fourth, we will support innovation in regional opening-up and the development of special regions, and study and implement pilot projects of high-standard opening-up for cross-border trade and investment.

This is my answers to your question. In this regard, we will continue to explore and make adjustments and improvements based on market demand and changes. Thanks.

2021-07-23 17:11:48

China News Service:

Since the beginning of this year, China has maintained a high surplus in its current account. The COVID-19 has recurred in neighboring countries and the global economic recovery has been uneven. How do you expect China’s current account to change in the future? Thank you.

2021-07-23 17:24:34

Wang Chunying:

The COVID-19 can be said to have very direct, significant and immediate impact on the global economy. In the first quarter of last year, China’s current account was in deficit. However, our economy recovered quickly. In coordinating epidemic prevention and control with economic and social development, we have achieved very good results. Since the second quarter of last year, the balance of current account has turned into a surplus and increased against the trend.

At present, the epidemic situation in neighboring countries is repeated and the global economic recovery is uneven. In the first quarter of this year, China’s current account still recorded a small surplus. We have already released some preliminary data on trade in goods and services for the second quarter. Based on the data, we have made some forecasts. The current account surplus should remain at a reasonable scale in the first half of the year and for some time in the future. We will show you the composition of the current account balance and the future trend item by item.

In the first half of this year, the trade surplus in goods has further expanded, and is likely to stably grow in the future. Customs statistics show that, in comparison to the same period in 2019, the year before the outbreak of COVID-19, exports in goods increased by 30% and imports of goods increased by 27% in the first half of this year, resulting in a surplus of US$251.5 billion, an increase of 42%. At present, the external demand is still picking up, which is conducive to boosting exports. However, export growth may tend to stabilize in the future, in consideration of the fact that production in developed countries is also recovering and the high base of comparison of last year. Meanwhile, domestic demand recovers and international commodity prices remain high. Under such circumstance, imports will also maintain a certain degree of growth. Therefore, the trade surplus in goods may stabilize. This is our view on the main component of the current account–trade in goods.

2021-07-23 17:24:48

Wang Chunying:
The trade deficit in service continues to run at a low level, and it will take time to return to the level before the COVID-19. The deficit in the first five months of this year registered US$37.8 billion, which was still at a very low level, as compared to 2019. Among them, the travel account recorded a deficit of US$37.9 billion, down by 60%. This shows that the spread of the epidemic abroad is still imposing a strong restriction on cross-border travels and studying abroad. The deficit of transportation account narrowed by 69% to US$6.9 billion, mainly due to the increase in transportation revenue. Another outstanding feature in case is that there was a deficit of US$12 billion in the account of the use of intellectual property. In the context of the epidemic, the scale of the receipts and payments under this item has increased by 20%, reflecting the win-win results of China’s expansion of international cooperation in the field of intellectual property protection. Looking ahead, although the vaccination in advanced economies is picking up speed, and cross-border study and travels that determine the balance of service trade are expected to restart, but we think that it might be a gradual process. It is expected that the trade deficit in service will remain low in the short term.

The income from investment, whether the investment is from or to China, is recovering substantially, but the balance remains stable. In the first five months, income from investments abroad rebounded sharply from 2020 lows. Supported by the steady growth of the domestic economy, income from foreign investment in China has continued to keep well and is at a relatively high level in history. The income from the two-way investment is at a relatively high level. Meanwhile, under the condition that the investment income from foreign exchange reserves remains stable, the balance of investment income account will remain basically stable.

The above are our explanations on the major components of the current account and the basic trends of the future.

In the longer term, China will accelerate the establishment of a new pattern of development with prioritizing internal flows and interplay between internal and external flows. The foundation for balanced economic development internally and externally will be more solid. All this will lay a very good foundation for the stable operation and basic balance of the current account. Therefore, regardless of the recurrence of the surrounding epidemics and the recovery of the global economy, we have made some possibility analysis accordingly and believe that the balance of current account will remain in a basic equilibrium.

2021-07-23 17:27:41

Hong Kong Economic Herald:
In recent years, the two-way fluctuations of the renminbi exchange rate against the US dollar become stronger. What has SAFE done to manage the risks of exchange rate fluctuations? Thanks.

2021-07-23 17:49:28

Wang Chunying:

Thank you for your interest in the work of SAFE. I remember, in the last several press conferences, I had mentioned that we attached great importance to the management of exchange rate risks, and gave top priority in our work the promotion of the concept of risk neutrality of exchange rate. Indeed, this year, we have actively supported enterprises to carry out more work on exchange rate hedging.
First, we have taken the initiative to strengthen collaboration with the People’s Bank of China, the Ministry of Commerce, and the State-Owned Assets Supervision and Administration Commission of the State Council. We have made concerted efforts on policy support, publicity and training, and this is what we have already started.

Second, we have guided branches of SAFE and banks to carry out targeted publicity, training and door-to-door instructions, mainly to help enterprises understand exchange rate hedging policies and how to use exchange rate hedging tools.

Third, a column entitled “Corporate Exchange Rate Risk Management” was opened on SAFE’s WeChat public account. In the column, we interpret the concept of exchange rate risk neutrality, explain transaction cases of foreign exchange derivatives, and share the experience of how various enterprises manage exchange rate risk. In addition, we have selected many different cases across the country, whether through banks or branch bureaus, for sharing. This kind of live and tangible cases may be more helpful to enterprises and enable them to better improve their exchange rate risk management. These are the major tasks we have already carried out.

Obviously, it seems that our efforts have paid off. There have been some positive changes, and hedging awareness among enterprises was further raised. I just mentioned a figure, the hedging ratio in the first half of this year was 22.8%, up by 7.5% year-on-year. The scale of derivatives transactions by banks for their customers was close to US$600 billion, a substantial increase of 94% over the same period in 2020.

In the future, we will continue to push forward previous effective work and create conditions to support enterprises in managing exchange rate risks. First, we will continuously promote the depth and width of the foreign exchange market by opening up wider, with efforts including research on new hedging products that have market demand. Second, we will improve the transparency of the foreign exchange market, with more data released and interpreted, helping enterprises gain in-depth understanding of policies, understand and judge changes in the situation and in turn get better equipped for risk management. Third, we will guide and support banks to further improve their foreign exchange operations, and better serve enterprises to manage foreign exchange risks. Fourth, we will continue to strengthen cooperation with relevant ministries and commissions, and explore policies to better support enterprises, especially small and medium-sized enterprises in exchange rate risk management. This is my answer in respect of the efforts, achievements and plans of our work on exchange rate risk management. Thank you.

2021-07-23 17:49:39

China Radio International:

In the first half of this year, China’s foreign-currency bank deposits continued to accumulate and exceeded the US$1 trillion mark in the second quarter. How do you view this? Thanks.

2021-07-23 17:49:55

Wang Chunying:

Thank you for your question. This issue has indeed been a cause of widespread concern, and certainly we have also noticed it. In April, the balance of foreign-currency bank deposits had surpassed US$1 trillion. We have made some analysis and judgment on this matter, which I’m glad to share with you.

First let’s look at the source: the foreign and domestic entities each have contributed half in the recent increase in the foreign-currency bank deposits. By the end of June, foreign-currency bank deposits exceeded US$1 trillion, of which about one-third were held by foreign non-residents and two-thirds by domestic residents. In terms of growth structure, foreign-currency bank deposits increased by US$129.7 billion in the first half of this year, among which, bank deposits held by foreign non-residents hit US$64 billion, accounting for 49% of the total increase in deposits, while bank deposits held by domestic residents recorded US$65.8 billion, accounting for 51%. This is the explanation for the composition of the US$1 trillion foreign-currency bank deposits, and its increment.

The deposits held by foreign non-residents are mainly funds raised and deposited back by overseas Chinese-funded enterprises through overseas IPO and bond issuance, and they have little impact on the net cross-border capital flows and foreign exchange supply and demand. As I mentioned above, in my response to another question, such “coming and going abroad” funds, except for QFII funds, cannot be settled, and their withdrawals do not involve foreign exchange purchases. But this “coming and going abroad” approach is premised on the sufficient liquidity of foreign currencies domestically and the demand for them is not strong. Since the funds are passively deposited, they are basically used overseas by banks.

Changes in domestic foreign-currency bank deposits mainly reflect the surplus of trade in goods, which is the main cause of the increment. Historically, foreign-currency bank deposits grew faster when the trade surplus in goods was large, and vice versa. In the first half of this year, the trade surplus in goods was close to US$160 billion, up by 74% year-on-year. Therefore, in general, domestic enterprises have sufficient foreign currency liquidity, which is one reason for the growth of foreign-currency bank deposits.

The recent increase in domestic foreign-currency bank deposits also reflects that corporate expectations are very rational. In recent years, the exchange rate expectations of enterprises and other market entities have become stabler, foreign exchange transactions have become more mature, and the operation of domestic and foreign currency funds has become more rational, without forming a particularly strong expectation for unilateral appreciation or depreciation. In the case of the two-way floating of the renminbi exchange rate, enterprises were not impatient to settle their foreign exchange in the renminbi appreciation stage, and this obviously showed that enterprises’ expectations were relatively rational.

In addition, the rise in domestic foreign-currency bank deposits has increased the external assets of banks, helping to achieve an autonomous balance of payments. The current account surplus of the corporate sector has not been settled but deposited in banks. Since the beginning of this year, the banking sector has used part of its deposits abroad to increase its net overseas assets. In the balance of payments, since there are some inflows in the current account, i.e. a surplus, and some outflows in the capital and financial accounts, i.e. a deficit, there are no changes in the reserves. Therefore, this part of funds actually contributes to the autonomous balance of payments.

In the future, the foreign-currency bank deposits tend to be stable. As production and life at home and abroad are returning to normal, the trade in goods will be more stable. At the same time, the conditions in external financial markets will also undergo some changes. Therefore, the growth rate of foreign-currency bank deposits will be stabilized. Judging from the situation in May and June, the growth rate of foreign-currency bank deposits has gradually slowed down.

Finally, SAFE will continue to promote the two-way opening-up of the financial market, so as to help domestic entities make better use of both domestic and international markets and resources, and to better serve the real economy through policy support and adjustment.

Thank you.

2021-07-23 17:51:03

Xing Huina:

One last question.

2021-07-23 17:51:26

Nihon Keizai Shimbun:

With regard to the Pudong New Area of Shanghai, The State Council has proposed to carry out the pilot project for trading of renminbi foreign exchange futures, which may attract more speculative funds. How will the Chinese market regulate speculative funds while advancing these financial liberalization measures? Thank you.

2021-07-23 17:53:48

Wang Chunying:

Thanks for your question. Your concern is ours. Like all of you, we have seen the official document issued by the CPC Central Committee and the State Council, which supports the Pudong New Area in carrying out high-standard reform and opening-up and building it into a leading area for socialist modernization. We attach great importance to this. The document did mention the research and exploration of pilot projects for renminbi foreign exchange futures trading at the China Foreign Exchange Trading Center. In this regard, we will earnestly implement the spirit of the document, adhere to the principle of actual needs and risk neutrality, and actively carry out research and promotion on matters related to foreign exchange futures. At the same time, we will also support enterprises to make full use of existing foreign exchange market products to manage exchange rate risks.

Regarding to what you just mentioned, I think it is consistent with our principles. SAFE will always focus on cracking down on illegal foreign exchange activities, constantly improve the integrated management framework of “macro-prudence and micro-regulation” and safeguard the order of the foreign exchange market and the national economic and financial security. This is my response to your question. Thanks.

2021-07-23 17:54:21

Xing Huina:

Thank you, Ms. Wang. Thank you, friends from the press. This is the end of today’s press conference.

2021-07-23 17:54:35

(The original text is available on


Wang Chunying, Deputy Administrator and Press Spokesperson of the State Administration of Foreign Exchange (SAFE)(photographed by Xu Xiang)


Press conference rostrum (photographed by Luan Haijun)

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