The State Council Information Office (SCIO) held a press conference on Friday, July 22, 2022 at 10 a.m. Ms. Wang Chunying, deputy administrator and press spokesperson of the State Administration of Foreign Exchange (SAFE), was invited to unveil the data on foreign exchange receipts and payments for the first half of 2022 and answer media questions.

Shou Xiaoli (Photographed by Liu Jian)

Shou Xiaoli, Deputy Head of the Press Bureau of the State Council Information Office (SCIO) and Spokesperson for the SCIO：

Ladies and gentlemen, good morning. Welcome to this press conference of the SCIO, and we will continue with the regular economic data release. We are pleased to welcome Ms. Wang Chunying, Deputy Administrator and Press Spokesperson of the SAFE. She will unveil the data on China’s Foreign Exchange Receipts and Payments for the first half of 2022, and answer your questions.

Now I will give the floor to Ms. Wang.

2022-07-22 10:00:36

Wang Chunying (Photographed by Xu Xiang)

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

Good morning, everyone. Welcome to today’s press conference. First, I would like to brief you on China’s foreign exchange receipts and payments situations for the first half of 2022, and then I will take your questions.

Since the beginning of 2022, the international situation has become more complex and severe with the continued recurrence of COVID-19, and as a result the prospects for global economic growth have weakened. However, under the strong leadership of the CPC Central Committee with Comrade Xi Jinping at its core, China has efficiently coordinated epidemic prevention and control as well as economic and social development. Recently, major macroeconomic indicators in China have stabilized and rebounded, and the overall economy has shown a trend of recovery. Against this background, China’s foreign exchange market has become more resilient, the RMB exchange rate remained relatively stable, and the cross-border capital flows were generally stable. According to the data on foreign exchange settlement and sales by banks in the first half of 2022, in US dollar terms, banks settled USD 1.3289 trillion and sold USD 1.2436 trillion of foreign exchange, representing a surplus of USD 85.2 billion. In RMB terms, banks settled RMB 8.6 trillion and sold RMB 8.1 trillion of foreign exchange, representing a surplus of RMB 545.2 billion. For cross-border receipts and payments by non-banking sectors, in US dollar terms, banks registered USD 3.1600 trillion in foreign-related receipts and USD 3.0766 trillion in foreign-related payments for customers, representing a surplus of USD 83.4 billion; or in RMB terms, banks handled foreign-related receipts of RMB 20.5 trillion and payments of RMB 20 trillion for customers, recording a surplus of RMB 533 billion. China’s foreign exchange receipts and payments for the first half of 2022 present the following characteristics:

First, banks remained in an overall surplus in the foreign exchange settlement and sales by banks, as well as in the cross-border receipts and payments. As I just mentioned, in the first half of 2022, the foreign exchange settlement and sales by banks and the cross-border receipts and payments by non-banking sectors both registered a surplus of more than USD 80 billion, mainly due to relatively large basic surpluses in trade in goods and direct investment. To be more specific, in the first quarter, the foreign exchange settlement and sales by banks recorded a surplus of USD 58.7 billion, while the cross-border receipts and payments by non-banking sectors recorded a surplus of USD 62.2 billion, both at a high level. In the second quarter, despite a more complicated internal and external environment, the surplus for foreign exchange settlement and sales by banks was USD 26.5 billion and that for cross-border receipts and payments by non-banking sectors was USD 21.1 billion.

Second, the foreign exchange sales rate rose slightly, and the cross-border financing by enterprises remained stable. In the first half of 2022, the foreign exchange sales rate which measures 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 66%, an increase of 2 percentage points over the same period last year. In terms of foreign exchange financing, by the end of June, the outstanding balance of domestic foreign exchange loans of Chinese enterprises and other market participants reached USD 351 billion, which was basically the same as that at the end of 2021. Besides, the outstanding balance of foreign currency financing for cross-border trade such as import refinancing and forward letter of credit was USD 116.4 billion, which dropped slightly from the end of 2021. The second feature was that the foreign exchange sales rate rose slightly, and the cross-border financing by enterprises remained stable.

2022-07-22 10:10:02

Wang Chunying:

Third, the foreign exchange settlement rate increased steadily and the balance of enterprises’ foreign exchange deposits remained basically stable. In the first half of 2022, 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 0.4 percentage points over the same period in 2021. By the end of June, the balance of domestic foreign exchange deposits held by enterprises and other market participants registered USD 695.1 billion, basically the same as at the end of 2021.

Fourth, transactions of foreign exchange derivatives continued to grow up, and market participants’ awareness of exchange rate risk steadily enhanced. In the first half of 2022, the foreign exchange derivatives, such as forwards and options, used by enterprises to manage exchange rate risks totaled to over USD 750 billion, a year-on-year increase of 29%, which was significantly higher than that of the foreign exchange sales rate and the foreign exchange settlement rate during the same period. It helped the hedging ratio of enterprises rise to 26%, which was 4.1 percentage points higher than that of the whole of last year. This indicates that market participants have become more aware of avoiding risks in exchange rates and their abilities to adapt to RMB exchange rate fluctuations have enhanced.

Fifth, the scale of foreign exchange reserves remained basically stable. By the end of June, the volume of China’s foreign exchange reserves registered USD 3.0713 trillion. Since the beginning of this year, the US dollar index rose significantly, while the prices of financial assets in major countries fell sharply. Denominated in US dollars, foreign exchange reserves decreased due to currency translation and changes in asset prices, which was an important reason for the change in the book value of foreign exchange reserves.

In the next step, the SAFE will conscientiously implement the decisions and arrangements of the CPC Central Committee and the State Council, adhere to the general principle of seeking progress while maintaining stability. It will further deepen the reform and opening-up in the field of foreign exchange, facilitate cross-border trade, investment and financing, and serve the development of the real economy. Meanwhile, the SAFE will strengthen the research and judgment of foreign exchange receipts and payments, constantly improve the management framework of “macro-prudential management plus micro regulation”, and maintain the stable operation of the foreign exchange market and the national economic and financial security, so as to take practical actions to welcome the successful convening of the 20th National Congress of the Communist Party of China.

The above are the main statistics on foreign exchange receipts and payments for the first half of 2022 that I want to share with you. Next, I will answer your questions on China’s foreign exchange receipts and payments.

2022-07-22 10:15:30

Shou Xiaoli:

The floor is now open for questions. Please tell us your news agency before raising your questions.

2022-07-22 10:17:08
 

A reporter from CCTV raises a question. (Photographed by Liu Jian)

CCTV:

Since the beginning of this year, China’s external environment has become more severe and complicated. What is your comment on the performance of China’s foreign exchange market in the first half of this year?

2022-07-22 10:21:03

Wang Chunying:

Since the beginning of this year, in the face of more complex and severe external shocks and challenges, we can clearly see that the resilience of China’s foreign exchange market has strengthened, whether from the price indicators related to the RMB exchange rate, or from the quantitative indicators such as international balance of payments, and foreign-related receipts and payments. To be more specific:
First of all, the RMB exchange rate has become more flexible, with a steady performance globally. Since the beginning of this year, influenced by multiple factors such as the Federal Reserve’s interest rate hike and geopolitical conflicts, the main line of changes in the international foreign exchange market was the strengthening of the US dollar and the weakening of major non-US currencies. In this context, the exchange rate of RMB against US dollar has depreciated, but the value of the RMB was still relatively stable in comparison with other major international currencies. Judging from the rise of the US dollar index and the decline of other major currencies, as of yesterday, the US dollar index has risen by more than 11% this year, the EUR, the GBP, and the JPY have respectively depreciated by 10% to 17% against the US dollar, and the RMB depreciated by 5.8% against the US dollar. In terms of multilateral exchange rates, the RMB exchange rate index rose by 0.1%, indicating that the RMB remained basically stable against a basket of currencies. From the perspective of exchange rate expectations, indicators related to foreign exchange forwards and options show that there is no obvious expectation of appreciation and depreciation of RMB exchange rate, and market participants generally maintain a rational and orderly trading pattern. Judging from the recent performance, although the US dollar has further strengthened, with the stabilization and recovery of China’s economy, the stability of the RMB exchange rate has become more prominent among major global currencies. Since July, the multilateral exchange rate has been on stable rising.

Second, China’s cross-border capital flows are generally stable, showing a relatively balanced development trend. As we mentioned at the very beginning, in the first half of this year, the foreign exchange settlement and sales by banks and the cross-border receipts and payments by non-banking sectors both registered a certain amount of surplus. Although there have been short-term fluctuations and seasonal changes in several individual channels recently, the overall pattern of basically balanced cross-border capital flows has not changed, which reflects the stability of China’s balance of payments structure.

Third, the surplus under current account and long-term capital inflows remains the fundamentals for stabilizing China’s cross-border capital flows. On the one hand, the current account maintained a reasonable surplus. In the first quarter of 2022, the current account surplus stood at USD 88.9 billion, which hit a record high for the same period in history and rose by 25% over the same period last year. And its ratio to Gross Domestic Product (GDP) reached 2.1%, which maintained within a reasonable range. In the second quarter, the trade surplus in goods was relatively high, and the trade deficit in services such as cross-border travel also remained at a low level. According to our preliminary judgement, the current account will continue to maintain a reasonable surplus. On the other hand, direct investment and medium- and long-term asset allocation funds under the capital account still played a dominant role. China’s long-term economic development prospects are good, and the continuous improvement of the market environment constantly attract capital inflows for direct investment and medium- and long-term asset allocation purposes. From January to May this year, the actual use of foreign capital reached USD 87.8 billion, up by 23% year on year. The performance of foreign central banks and allocation funds tracking international indexes in China’s bond market was relatively stable, which can balance short-term fluctuations of cross-border capital.

In general, China coordinated epidemic prevention and control as well as economic and social development in a more efficient and effective way. Meanwhile, China has sustained its strong resilience, great potential, and broad room for maneuver in economy with its fundamentals of sound long-term growth unchanged, which lays a good foundation for the smooth operation of China’s foreign exchange market and enables the market to better cope with changes in the external environment.

Thanks.

2022-07-22 10:25:27
 

A reporter from China Economic Information Service raises a question. (Photographed by Liu Jian)

China Economic Information Service:

At present, the tightening of monetary policies in major developed economies is accelerating, which has a great impact on cross-border investment and financing around the world. In this context, how do you view the changes and trends of foreign holdings of Chinese bonds?

Thanks.

2022-07-22 10:39:11

Wang Chunying:

We have mentioned some of your question above, and now I would like to respond to your questions one more time. Recently, we have seen major changes in the international financial market, with the US dollar exchange rate and US interest rates rising rapidly and international capital flowing out of emerging economies. On a global scope and from a global perspective, we have made observations and analysis on a longer time span, and here are a few points I want to share with you.

First, China’s bond market has gradually become an important destination for global cross-border bond investment. In recent years, with the steady opening-up of China’s bond market and more convenience in the cross-border trading, China’s bonds have been included in the three major international mainstream indexes, and the influence and attractiveness of China’s bond market has been greatly enhanced. Against this background, China absorbed nearly USD 820 billion of cross-border bond investment by the end of 2021, accounting for about one third of the total external bond investment in emerging economies. This includes foreign investors buying our bonds within China and domestic entities issuing bonds overseas, and both have been significantly enhanced or remained active. This is from the perspective of inventory. From the perspective of flow, we increased the opening-up of the securities market in 2017. From 2017 to 2021, China was the world’s fourth largest recipient of cross-border bond investment, next only to the United States, the United Kingdom and Japan. After years of development, China has become one of the major destinations for cross-border bond investment in the world, and this pattern has not changed under the recent short-term market volatility.

Second, from a global perspective, China’s absorption of bond investment is relatively stable. Bond market volatility is a natural phenomenon and a natural manifestation. Volatility in bond investment is normal in all countries, whether they are advanced or emerging economies. Even for the US treasury bond market, the largest of its kind in the world, we can often see various reports, like some countries reducing their holdings of US treasury bonds. So fluctuations are normal. We also calculated the volatility of bond investment absorbed by major countries. Through comparison, we found that volatility in China’s bond market is much lower than that of many developed and emerging economies. In terms of the composition and scale of bonds held by foreign investors, China’s bonds held by central bank institutions have always been more than half of the total foreign holdings, and a large part of the rest is held by allocated funds that track international indexes, and as a result the stability is relatively high.

Third, the further opening-up of the bond market will help improve the resilience of the foreign exchange market. In recent years, there has been a steady inflow of cross-border capital, such as trade in goods and direct investment, which has played the role of basic surplus. The opening-up of the bond market has also enriched the participants and capital sources of the foreign exchange market, which is conducive to expanding the depth and breadth of China’s foreign exchange market and improving the capacity of China’s foreign exchange market in absorbing and digesting various impacts.

In response to your question, we share some of our analysis and observations. In general, Chinese bonds not only have the value for diversified investment, but also are needed in actual capital allocation, and more importantly they are supported by China’s economic fundamentals. Foreign investment accounts for about 3% of China’s bond market, which totals to USD 21 trillion. Therefore, there is room for improvement in the absorption of foreign capital in China’s bond market. In the long run, we are confident that foreign investors will steadily increase their holdings of RMB bonds.

Thank you.

2022-07-22 10:39:27
 

A reporter from Jiemian News raises a question. (Photographed by Liu Jian)

Jiemian News:
How do you assess the profit outflow of foreign-funded companies this year? Will there be more pressure this year compared with previous years? Thank you.

2022-07-22 10:44:17

Wang Chunying:

The second and third quarters of each year are the peak seasons for the profit repatriation of foreign-funded enterprises. Judging from the recent situation, the profit repatriation of foreign-funded enterprises has maintained a reasonable, orderly, and generally stable development trend this year. The impact of profit repatriation on China’s cross-border capital flow and foreign exchange supply and demand is controllable. Regarding profit repatriation, I have a few points to share with you.

First, the current profit repatriation of foreign-funded enterprises matches the stock of foreign direct investment absorbed by China. In recent years, China’s business environment has been constantly optimized and foreign investors are optimistic about the Chinese market in the long run. More and more multinational companies have invested in China and shared the dividends brought by China’s economic growth and reform and opening-up. Their operating profits have been steadily increasing, so the corresponding profit repatriation has increased. From 2020 to 2021, the stock of foreign direct investment in China absorbed by Chinese enterprises grew at an average annual rate of 14%, and profit repatriation increased at an average annual rate of about 13%.

Second, the impact of profit repatriation on China’s balance of payments and foreign exchange market supply and demand is within a reasonable range. Investment income is a component of the current account. In recent years, trade in goods, trade in services and investment income have contributed to a reasonable and balanced current account surplus. Meanwhile, the reasonable and orderly profit repatriation did not affect the overall balance of supply and demand in the domestic foreign exchange market. In addition, thanks to the more internationalized RMB and the stability of the value of RMB, a considerable proportion of the profits of foreign-funded enterprises are currently remitted in RMB, which has relatively small direct impact on the supply and demand of the domestic foreign exchange market.

Third, the profit repatriation does not mean withdrawal of investment, but forms a virtuous cycle with the inflow of foreign direct investment funds. As China’s sound economic development prospects can bring sustained and stable returns to international investors, foreign investors continue to have a strong desire to make long-term investment in China. In addition to the inflow of new investment capital and shareholder loans, many foreign-funded enterprises have reinvested a significant portion of their profits in China. Compared with other major economies, the foreign-funded enterprises reinvested a higher proportion of corporate profits in China.

In response to your question, I would like to emphasize again that the administration policy of the SAFE on profit repatriation is consistent and continuous, and the real and compliant profit repatriation of foreign-funded enterprises is guaranteed by the policy.

Thank you.

2022-07-22 10:47:51
 

A reporter from China News Service raises a question. (Photographed by Liu Jian)

China News Service：

At present, with global liquidity being tightened and external financing costs on the rise, the balance of China’s external debt declined in the first quarter. How do you view the deleveraging risk of China’s external debt? Thank you.

2022-07-22 10:56:02

Wang Chunying:

According to the latest data, at the end of the first quarter, the balance of the full-scale external debt was USD 2.7102 trillion, down by USD 36.4 billion or 1% from the end of the previous year. We believe this change is relatively moderate. Under the influence of various complicated external factors, such as the accelerated tightening of the Fed’s monetary policy, China’s external debt will maintain a reasonable and orderly development trend at present and in the future. As for the deleveraging risk you are concerned about, we believe that it is generally controllable. The following aspects support our judgment:

First, the increase in external debt was relatively stable. In recent years, the ratio of China’s full-scale external debt to GDP has always been between 14% and 16%, and the increase in external debt has kept pace with the development of the real economy, without excessive accumulation. During the current round of the Fed’s easing monetary policy, there was no sustained and concentrated cross-border financing. That is to say, China’s external debt has not been over-leveraged, so the deleveraging risks should be controllable. Recently, with the adjustment of the external environment, the RMB exchange rate becomes more flexible and continues to show a two-way fluctuation pattern and the exchange rate expectation is relatively stable, so the risk of excessive deleveraging of external debt is not high.

Second, the structure of China’s external debt has been constantly optimized. In recent years, the growth of external debt mainly came from the investment in China’s RMB bonds by overseas institutions, most of which have long-term investment needs. The growth rate of traditional financing external debt is relatively small, while the debt type structure, currency structure and maturity structure of China’s external debt have been optimized. At the same time, the comparative structure of China’s external assets and liabilities is also constantly improving. On the whole, China is still a net external creditor country, and all kinds of external assets exceed various types of external liabilities by USD 2 trillion. In other words, the first-quarter international investment position table shows net external credit at USD 2 trillion. At the end of the first quarter, the outstanding external debt of banks, enterprises and the private sector reached USD 2.1 trillion, accounting for 79% of the total outstanding external debt. The private sector’s external credit assets are USD 3 trillion, which is higher than the scale of external debt borne by the private sector. Credit assets are mainly bonds, deposits and loans and other assets with relatively high liquidity. We believe that under the effective adjustment of the foreign exchange market, private sectors such as banks and enterprises have the conditions and ability to meet their debt repayment obligations and realize independent matching of external assets and liabilities.

Third, China’s external debt security indicators remained stable. China is a net saving country, and its current account continues to maintain a certain size of surplus. Judging from several specific indicators for measuring solvency, in 2021, the debt-to-GDP ratio, debt service ratio and external debt to exports ratio of China’s external debt are all within the international safety line and far lower than the overall level of developed countries and emerging markets. From the perspective of short-term liquidity, China’s foreign exchange reserves currently rank the first in the world, and the ratio of short-term external debt to foreign exchange reserves was 45%, which is also far below the internationally recognized threshold of 100%.

This is my response to your question. In the next step, we will strengthen the monitoring and analysis of the external debt situation to effectively prevent possible risks. Thanks.

2022-07-22 10:56:30

A reporter from Bloomberg raises a question. (Photographed by Liu Jian)

Bloomberg:

The Fed has tightened monetary policy and the JPY and EUR depreciated. Under such circumstance, how do you view the outlook for the RMB exchange rate in the second half of the year? Thanks.

2022-07-22 10:58:03

Wang Chunying:

As I mentioned just now, the RMB exchange rate was generally stable in the first half of the year with relatively sound performance. For the second half of the year you are concerned about, the RMB exchange rate will remain basically stable at an appropriate and equilibrium level. This is my conclusion, and there are several supporting factors for this conclusion:

First, with the stabilizing and recovering of Chinese economy, major economic indicators are improving and industrial and supply chains remain stable, which will continue to play a fundamental role in supporting the RMB exchange rate.

Second, China’s foreign trade and foreign investment are highly resilient. Capital from the real economy, such as trade and investment, will still be the basic source of inflows, which will help maintain a basic balance between supply and demand in the foreign exchange market.
Third, market participants’ expectations on the exchange rate are basically stable, and they maintain a rational transaction behavior of “settling foreign exchange when RMB exchange rate is high, and buying foreign exchange when the rate is low”.

In addition, the structure of China’s external assets and liabilities has been continuously optimized, and the scale of China’s foreign exchange reserves has remained generally stable, ranking the first in the world, which still played an important role as a “stabilizer” and “ballast stone” for China’s economic and financial security. Of course, the trend of the RMB will be affected by multiple factors such as foreign exchange supply and demand and the international financial market, and as a result there may be some short-term fluctuations, including ups and downs. In spite of this, the RMB exchange rate will remain flexible and two-way volatility, and generally remain basically stable at an appropriate and balanced level. Thank you.

2022-07-22 10:58:41

A reporter from China Media Group raises a question. (Photographed by Liu Jian)

China Media Group:

In the first half of this year, what work has the SAFE done to support enterprises in better managing exchange rate risks? What was the effect? What’s the plan in next step? Thank you.

2022-07-22 11:13:22

Wang Chunying:

The SAFE actively supports enterprises in managing exchange rate risks and serves the development of the real economy. Focusing on the micro, small and medium-sized enterprises (MSMEs), we have taken a series of measures to reduce exchange rate hedging costs and improve enterprises’ ability to cope with exchange rate risks. This is also one of the important measures we have taken to ensure “stability on six key fronts” and “security in six key areas”, especially to stabilize foreign trade and market entities. Let me brief you on a few highlights:

First, this April, the People’s Bank of China (PBC) and the SAFE jointly issued a document encouraging qualified regions to strengthen cooperation among governments, banks and enterprises to explore ways to improve the cost-sharing mechanism for hedging exchange rates, to expand the government financing guarantee system, and to provide enterprises with guarantees for trade financing and hedging exchange rates. It instructs China Foreign Exchange Trading System (CFETS) to waive transaction fees in the interbank foreign exchange market related to foreign exchange derivative transactions of MSMEs.

Second, the SAFE issued in this May the Notice on Measures to Further Promote the Foreign Exchange Market to Serve the Real Economy. Primarily, it innovated foreign exchange option products, introduced two kinds of options products, and expanded the business scope of cooperation to deal with RMB foreign exchange derivatives, support qualified small and medium-sized financial institutions to better provide exchange rate hedging services for MSMEs. The Ministry of Commerce, the PBC, and the SAFE jointly issued a document urging local governments to make good use of special funds for foreign trade development and provide enterprises with public services such as business training and information services in exchange rate hedging.

Third, the SAFE continued to intensify publicity and training efforts. In order to promote the publicity and popularization of the professional topic of foreign exchange hedging, we organized and compiled the Guidelines for Enterprise Exchange Rate Risk Management of more than 50,000 words, which was published on the official website on July 1 and is available through the official website link. The Guidelines provide a detailed introduction to the neutral connotation of exchange rate risk, the institutional framework of enterprise exchange rate risk management, the adaptation scenarios of foreign exchange derivatives, and the use of hedging accounting. At the same time, targeted guidance is put forward for state-owned enterprises, small and micro enterprises to deal with difficulties existing in the course of hedging. The Guidelines are mainly based on the practice of enterprise exchange rate risk management in recent years, and a large number of excellent enterprise cases are used. In the process of compiling the Guidelines, special attention was paid to using the easy-to-understand words, so it is highly readable, in the hope of providing useful reference for foreign-related enterprises in the management of exchange rate risks.

Thanks to the efforts of all parties, in the first half of this year, the scale of foreign exchange risk management by enterprises using forward options and other foreign exchange derivatives reached USD 755.8 billion, a year-on-year increase of 29%, and the foreign exchange hedging ratio increased by 4.1 percentage points year on year to 26%. Nearly 17,000 enterprises tried exchange rate hedging for the first time, most of which are MSMEs, especially the small and micro enterprises. These enterprises mean a lot. Only when the enterprises get access to exchange rate hedging for the first time, they will come to understand its benefits and then will further use it later. Therefore, we support the efforts of engaging more “first try” enterprises.

In the next step, we will continue to do some targeted work. First, we will release the dividends of exchange rate risk administration policies, break through the blocking points in policy implementation, strengthen policy transmission to financial institutions, and urge financial institutions to improve the initiative and professionalism of serving enterprises for exchange rate hedging. Second, we will continue to support the replication and promotion of successful practices in exchange rate risk management among MSMEs where conditions permit, make good use of relevant special funds, and thoroughly implement cost deductions and interest concessions. Third, we will take the release of the Guidelines as an opportunity, continue to strengthen cooperation, publicity and training with SASAC, MOC and other departments, promote knowledge into enterprises, constantly improve their awareness of exchange rate risk neutrality, and provide help for enterprises to establish effective mechanisms for exchange rate risk management.

This is what we have achieved in the first half of the year and what we should focus on in the second half of the year. Thank you.

2022-07-22 11:13:35
 

A reporter from Tianmu News raises a question. (Photographed by Liu Jian)

Tianmu News:

We have noticed that China’s deficit in services trade has continued to narrow in recent years. What is your view? Will the deficit in services trade expand again in the future?

2022-07-22 11:14:48

Wang Chunying:

Trade in services involves many items, including transportation, travel, use of intellectual property rights, processing services, financial services, computer information services, and other commercial services. Different types of trade in services are also influenced by different factors, leading to different trends. Since the outbreak of COVID-19 pandemic around the world, China’s cross-border travel has been greatly affected, but other forms of service trade have recovered quickly. There are several main features:

First, the overall scale of China’s trade in services has exceeded the pre-pandemic level. The balance of payments data shows that in 2021, the scale of trade in services has returned to the level in 2019 before the epidemic, and the scale of income and expenditure in the first quarter of this year continued to increase by 26% compared with the same period in 2021. Recently, under the support of overseas study and other needs, the scale of travel revenue and expenditure has rebounded. Other forms of trade in services grew steadily in general, and as early as in 2020, the revenue and expenditure scale exceeded the level in 2019. It increased by 41% in 2021 comparing to 2020, and continued to grow in the first quarter of this year.

Second, the deficit in services trade dramatically narrowed. In the first quarter of this year, the travel deficit was USD 29.4 billion, an increase of 53% from the trough level in the same period in 2021, but still lower than the USD 57.6 billion in the same period in 2019 before the pandemic. Other forms of trade in services totaled a surplus of USD 12.8 billion, registering the second consecutive quarter of surplus, which is the main reason for the narrowing of China’s overall deficit in services trade this year.

Third, the increase in service trade revenue in recent years reflects the improvement of international competitiveness in related fields. It was mainly attributable to the increase in export revenue of transportation, other business services, and computer information services. Specifically, transportation revenue has grown rapidly since the second half of 2020. On the one hand, it owed to the high prices in the international transportation. On the other hand, it also reflected the achievements of China’s transportation service industry, which has seized opportunities and gained tremendous progress. At the same time, with the deep integration of China’s manufacturing and service industries and the digital transformation of the service industry, other emerging productive service industries such as business services and computer information services are injecting new growth momentum into service trade.

In general, since the beginning of this year, China’s service trade revenue and expenditure have shown a growth trend. The rapid growth in revenue has further narrowed the deficit in service trade. In the future, the development pattern of China’s service trade will continue to upgrade and evolve. With the continuous improvement of the competitiveness of service exports, the service trade revenue will continue to grow, and will gradually have a deeper impact on China’s deficit pattern in service trade.

This is my response to your question, thanks.

2022-07-22 11:15:30
 

A reporter from Yicai raises a question. (Photographed by Liu Jian)

Yicai：

In the context of interest rate hike by the Federal Reserve, how do you view the trend of China’s foreign exchange receipts and payments in the future? What impact will it have on China’s cross-border capital flow? Thank you.

2022-07-22 11:23:06

Wang Chunying:
Thanks for your question, it’s a traditional question. The Federal Reserve’s unconventional monetary policy adjustment is a very important external variable for the cross-border capital flow of other economies outside the United States, so it is highly valued. The last time the Fed signaled tightening was in 2013, almost 10 years ago. During this period, China has made historic achievements in economic development, achieving a higher level of development and opening-up. At present, we are more confident and better equipped to effectively resolve the impact of the Fed’s monetary policy adjustment on China’s cross-border capital flows. Therefore, China’s foreign exchange market is expected to continue its stable operation. Let’s look at the development during the last decade:

First, China’s comprehensive strength has been greatly enhanced and can better leverage its ability to absorb external shocks. In recent years, China’s economic development has obviously become more balanced, coordinated, and sustainable. Last year’s GDP was 2.1 times that of 2012, accounting for more than 18% of the global economy, up from 11% in 2012. China’s economic strength, scientific and technological strength, and overall national strength have all reached new heights. Recently, China has effectively coordinated epidemic prevention and control with economic and social development. Major macroeconomic indicators have stabilized and rebounded quickly, and the overall economy has maintained a momentum of recovery and development. In June, the manufacturing purchasing managers’ index returned to above the boom-or-bust line, consumption and investment continued to pick up, and economic growth momentum has strengthened. With the implementation of various pro-growth policies, the Chinese economy will gradually recover and maintain steady growth in the future.

Second, the structure of China’s balance of payments is more stable, which can better ensure the stability and security of cross-border capital flows. In recent years, the ratio of China’s current account surplus to GDP has been around 2%, which has always fallen within a balanced and reasonable range. The balance and stability of China’s international payments stand out among major economies in the world. At the same time, China’s external asset-liability structure has been gradually optimized, and the scale of foreign exchange reserves has maintained its top position in the world. The private sector holds nearly USD 6 trillion in external assets, enabling us to have more diversified and sufficient resources to withstand external shocks. The growth of external debt is in line with the growth of the economy, and the stability of external debt is also improving. Furthermore, all the safety indicators of external debt are within the internationally recognized safety line, and the risks are generally controllable.

2022-07-22 11:30:39

Wang Chunying:
Third, China’s promotion of a higher level of opening-up can better expand the depth and breadth of the foreign exchange market. China’s business environment has gradually improved, the negative list for foreign investment has been implemented, which attracted more foreign companies to invest in China. At the same time, the two-way opening of China’s financial market has increased the types of participants in the foreign exchange market and the types of sources of funds. The foreign exchange market has continued to expand in depth and breadth, and it is more capable of absorbing or smoothing the fluctuations in cross-border capital flows, which is conducive to promoting the overall equilibrium of cross-border capital flows.

Fourth, the foreign exchange market adjustment mechanism is more mature, which can better play the role of the RMB exchange rate as an automatic stabilizer for adjusting the balance of payments. In recent years, China adhered to promote the reform of the market-based RMB exchange rate regime. The RMB exchange rate has been floated in both directions, and its flexibility has been enhanced, which can release external pressures in a timely and effective manner. Moreover, as I mentioned just now, the transactions of market entities remain rational and orderly, and the expectations are generally stable. The exchange rate risk neutrality of enterprises is also increasing, and they can better adapt to two-way exchange rate fluctuations. Therefore, at present, there are better conditions to prevent and resolve the risk of cross-border capital flow through market-oriented means.

In addition, the impacts of the Fed’s monetary policy adjustment on the US dollar interest rate, exchange rate and the international financial market needs further attention. In fact, the Fed is also faced with a dilemma between controlling inflation and stabilizing the economy. Moreover, the intensity and pace of monetary policy adjustment by the Federal Reserve need to be closely observed in the future. We will further coordinate development and security, pay close attention to external changes, and assess the impact in a timely manner. In the meantime, we will promote reform and opening-up in the foreign exchange sector in an orderly manner so as to get well prepared to effectively guard against and defuse external shocks.

Thank you. 

2022-07-22 11:38:29

Shou Xiaoli:

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

2022-07-22 11:40:12

The rostrum of press conference. (Photographed by Liu Jian)

(The original text is available on www.china.com.cn)