China News Service:

What do you think about the fluctuations in the balance of foreign exchange settlement and sales by banks in recent months? Will the trend continue?

Wang Chunying:

Thank you for your question. Recent months have indeed witnessed fluctuations in the balance of foreign exchange settlement and sales by banks, but the overall scale is not large. These fluctuations indicate the minor differences between the performance of the real economy and the financial sector in different months. But they do not change the balance of China's forex supply and demand.

On the one hand, from a statistical point of view, given China's enormous scale of foreign trade, it's normal that small fluctuations in the real economy will lead to surplus or deficit in foreign exchange when there tends to be a balance between forex supply and demand. Even in the past several years, when China faced pressure on forex inflows, there were also fluctuations.

On the other hand, banks will adjust their positions independently according to the balance of foreign exchange settlement and sales. Therefore, despite minor surpluses or deficits, there has been a balance between forex supply and demand in recent months.

When we talked to the media friends a while ago, a lot of friends were concerned about the question you mentioned. I would like to take this opportunity to communicate with you on the use of the data on cross-border capital flows in China. We are monitoring three types of data: forex settlement and sales, foreign-related receipts and payments by banks on behalf of clients, and international balance of payments. The first two are released monthly, and the latter is announced quarterly. Each set of data has its own specific meaning, and we should be careful when using and assessing them. 

When Chinese enterprises and individuals and other market players receive foreign exchange funds, they can choose their own accounts according to their needs, or sell them to banks. If they sell them to banks, it will count as a foreign currency exchange, and they will be included in the statistics of foreign exchange settlement and sale. Therefore, bank purchasing and selling is the main body of foreign exchange supply and demand in China, but not all. The factors that affect the supply and demand of foreign exchange include the increase and decrease of foreign exchange positions in banks, and the sale of some overseas institutions in the foreign exchange market between domestic banks.

Wang Chunying:

The banks' foreign-related receipts and payments on behalf of clients refer to the cross-border money collection and payment that enterprises and individuals make through banks. The data cover only the clients' cross-border payments and receipts rather than the banks' foreign assets and liabilities. The Balance of Payments is a record that summarizes all transactions made between our country's residents and non-residents according to the international standard, and also a comprehensive indicator to measure our country's foreign-related transactions and cross-border capital flows. Currently, the statement is drawn up and published as per the international standard, but in a quarterly frequency instead of monthly or higher. We are making efforts to further shorten the interval. These three sets of data have different focuses and complement each other, and so should be differentiated when being put to use. 

The data of foreign exchange reserves in the statement presents changes of foreign exchange reserves after ruling out changes of the exchange rate and the price of assets, which is the optimal indicator in general for the overall supply and demand in the foreign exchange market. The foreign exchange reserves of our country have been increasing since the second quarter of 2017 after a continuous decrease of nearly three years in the past, which indicates that China's foreign exchange market has basically realized the supply-demand balance. The banks' purchase and sale of foreign exchange as well as their foreign-related receipts and payments on behalf of clients also reflect the supply and demand of foreign exchange in different terms and perspectives. The slight surplus and deficit marked by fluctuations around the balance line do not affect the perceptions on the overall supply-demand balance of foreign exchange. 

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