SCIO briefing on China's foreign exchange receipts and payments

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Speaker:

Wang Chunying, spokeswoman of State Administration of Foreign Exchange


Chairperson:

Xi Yanchun, vice director-general of Press Bureau, State Council Information Office


Date:

Jan. 18, 2018


CCTV:

I'm concerned with the issue of cross-border capital flow you just mentioned. I would like to hear your comment on the situation in 2017 and your prediction for the new year. 

Wang Chunying:

China's cross-border capital flow showed a trend towards achieving a basic balance in 2017. I believe you have all felt the changes long since. The data released also reflect some of the changes. Since you've raised this question, I'd like to share some of my perceptions with all of you. 

First, 2017 was a turning point for China's cross-border capital flow as the country saw a change from net capital outflow to a basic balance between inflow and outflow this year. Over the past three or four years, affected by both internal and external factors, China had experienced a change from long-standing net inflow to net outflow. The net outflow had continued for a time. However, new changes have taken place since 2017 began. First, China's forex reserves reversed the falls of 2015 (512.7 billion US dollars) and 2016 (319.8 billion US dollars) and rose by 129.4 billion US dollars in 2017. Second, China has achieved a basic balance of international payments. The current account surplus remains in a reasonable range and there was the change to a net capital inflow. According to the most recent statistics, China's current account surplus was equivalent to 1.3 percent of China's GDP in the first three quarters of 2017. The ratio was 2.7 and 1.8 percent respectively in 2015 and 2016. The fall in the ratio indicates that China's current account is more balanced and this should be seen as a contribution to the rebalancing of the global economy. As for non-reserve financial accounts, they registered a deficit of 434.5 billion and 417 billion U.S. dollars respectively in 2015 and 2016, and a surplus of 112.7 billion U.S. dollars in the first three quarters of 2017. This also reflects the change from net capital outflow to net inflow. Last, expectations for RMB's exchange rates and market entities' international transactions have become more stable. In a market where RMB can both appreciate and depreciate, both enterprises and individuals prefer to diversify their international forex transactions instead of making only one-way transactions. This has contributed to a balance in the supply and demand of forex. Currently, market entities are relying more on their actual needs to make decisions on cross-border earnings and payments as well as on forex purchases and sales. In 2017, the forex surplus from trade in goods and the forex capital settlement of foreign-invested enterprises both displayed an upward trend. Cross-border financings continue to grow at steadier rates. Outbound investment and individual forex purchases both fell in an orderly way.

Wang Chunying:

Second, the market environment both at home and abroad has become more stable, pushing the supply and demand of foreign exchange in our country to a basic balance. First of all, the domestic economy has been further consolidated with a steady course of improvement. In the first three quarters of 2017, China's GDP grew by 6.9 percent year-on-year, 0.2 percentage point higher than the growth rate in 2016. The economic structure was continuously optimized, and the economic efficiency and corporate profitability continued to improve. The official purchasing managers' index (PMI) in 2017 continued to be in an expansion range, with the monthly average reaching 51.6 percent. All of these are essential and fundamental factors for stabilizing cross-border capital flows in our country. And the reform and opening up has gradually deepened. A series of policies to further improve the RMB exchange rate formation mechanism and promote the growth of foreign investment were introduced. The bond market continued to expand and Bond Connect was launched. The A shares will be included in the MSCI index. Finally, the external environment is showing signs of stabilizing. World economic growth is showing indications of snapping a two-year downtrend. The International Monetary Fund estimates that the global economic growth in 2017 was 3.6 percent, which is 0.4 percentage point higher than the global growth in 2016. International political risk eased. "Black Swan" incidents decreased remarkably. Despite the interest rate rise and portfolio drawdown by the U.S. Federal Reserve, the overall U.S. dollar index fell by 9.9 percent in 2017, and the currencies of emerging economies generally appreciated against the U.S. dollar. Thanks to a more stable market environment both at home and abroad, we can strike a balance between the supply and demand of foreign exchange in our country.

Wang Chunying:

Third, China's cross-border capital flows will remain generally stable in 2018. From a domestic perspective, economic development has entered a new era when the internal foundations will become more stable.

On the one hand, a high-quality development model helps to strengthen long-term market confidence. This year is the first for implementing the spirit of the 19th CPC National Congress. China will adhere to supply-side structural reform as the main feature of its economic roadmap, and will comprehensively push forward various tasks such as ensuring steady growth, advancing reform, making structural adjustments, improving living standards, and guarding against risks, and promoting sustained and healthy economic and social development. All of these activities will reinforce the willingness of domestic and foreign investors to invest and operate in our country on a long-term basis. 

On the other hand, a fully-opened new pattern will help the equilibrium flows of cross-border capital. This year marks the 40th anniversary of the launch of China's reform and opening up. We will attract more long-term capital inflows by further expanding the scope and level of opening up, relaxing market access in an orderly manner, continuing to improve relevant laws and regulations, and strengthening intellectual property rights protection. At the same time, we will continue guiding and supporting outbound investments, in order to form a situation where capital inflows and outflows will be more convenient and balanced. 

From an external perspective, international economic and financial operations remain stable, and the external environment will generally continue to be favorable. The global economy will continue to recover. The International Monetary Fund's forecast for global economic growth is 3.7 percent, 0.1 percentage point higher than 2017. At the same time, the normalization of monetary policies in the major economies continues moving forward steadily, which will have a relatively modest impact on the international financial market. 

Therefore, under these conditions, China's cross-border capital flows in 2018 is expected to continue steady operation.

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