In the first half of the year, China's foreign exchange market demonstrated strong resilience and economic operation | foreign exchange market | China

【 Report from the press conference of the State Council Information Office 】

Guangming Daily reporter Wen Yuan

"In the first half of 2023, the domestic economy rebounded and the resilience of China's foreign exchange market was strong. The expected RMB exchange rate was stable, cross-border capital flows were stable and orderly, and the supply and demand in the foreign exchange market were basically balanced." At a press conference held by the State Council Information Office on the 21st, Wang Chunying, Deputy Director of the State Administration of Foreign Exchange and spokesperson, gave a detailed explanation of the foreign exchange balance in the first half of the year.

Cross border funds show a net inflow pattern

According to data, in the first half of this year, China's bank generated foreign revenue of 3025.9 billion US dollars, with external payments of 2979.2 billion US dollars and a foreign payment surplus of 46.7 billion US dollars; The bank's foreign exchange settlement was 1132.5 billion US dollars, the foreign exchange sales were 1130.7 billion US dollars, and the foreign exchange settlement and sales surplus was 1.8 billion US dollars.

Wang Chunying introduced that in the first half of the year, China's foreign exchange balance showed five main characteristics: firstly, cross-border capital flows remained active, showing a net inflow pattern. In the first half of 2023, the total foreign revenue and expenses of bank agents exceeded 6 trillion US dollars, which is the second highest level in history during the same period. Secondly, there is a slight surplus in bank foreign exchange settlement and sales, and the domestic foreign exchange market supply and demand are basically balanced. Thirdly, the foreign exchange sales rate has slightly increased, and the foreign currency financing of enterprises continues to maintain a stable trend. The fourth is that the foreign exchange settlement rate has remained stable with an increase, and the balance of domestic foreign exchange deposits has decreased. As of the end of June 2023, the domestic foreign exchange deposit balance of enterprises and other market entities was 606.1 billion US dollars, a decrease of 28 billion US dollars from the end of 2022, indicating that the overall willingness of market entities to hold foreign exchange is stable. The fifth is that the scale of foreign exchange reserves is basically stable. As of the end of June 2023, the scale of China's foreign exchange reserves was 3193 billion US dollars, an increase of 65.3 billion US dollars from the end of 2022.

"Currently, China's current account has shown strong resilience, with a current account surplus of 81.5 billion US dollars in the first quarter, which is a historically high level for the same period. The ratio of current account surplus to GDP during the same period is 2%, still maintaining a reasonable equilibrium range." Wang Chunying pointed out.

Basic balance of supply and demand in the foreign exchange market

Since the beginning of this year, facing a complex and severe external environment, the Chinese foreign exchange market has shown strong stability and resilience from the perspectives of fund flow, market trading behavior, and market expectations.

Wang Chunying stated that the overall trading behavior of China's foreign exchange market entities is rational. More and more market entities are able to adapt to the bi-directional fluctuations of the RMB exchange rate and choose appropriate time points for foreign exchange settlement and purchase based on international trade and investment activities. "For example, in January and March of this year, there was an increase in foreign exchange purchases during the appreciation of the RMB exchange rate; in June, there were more foreign exchange settlements during the depreciation of the RMB. This rational trading behavior of market entities further maintained the stability of the exchange rate."

Regarding the fluctuation of the RMB exchange rate in the first half of the year, Wang Chunying analyzed that since the beginning of this year, the one-year risk reversal index in the options market has shown an overall downward trend and remained relatively low, indicating that the market has not formed a consistent and sustained depreciation expectation for the RMB exchange rate. Financial institutions and market entities generally believe that the RMB has a long-term stable foundation, and the expected exchange rate of the RMB is basically stable.

Statistics show that in the first half of this year, China's capital deficit continued the trend of stabilizing since the second half of last year, and the total amount of various overseas investments has returned to net inflows. Cross border capital flows are relatively stable, and the supply and demand in the foreign exchange market are basically balanced.

Since this year, foreign investment in China's bond market has generally improved. In the first half of the year, foreign investment net bought nearly $79 billion in domestic bonds, reversing the trend of net sales last year. Foreign investment has been net increasing its holdings of domestic bonds for two consecutive months. "RMB assets have the advantages of decentralized investment value and diversified allocation of investors. China's bond market is the second largest in the world with good liquidity, and has become an important choice for overseas investors to invest in the layout. In the future, overseas investors will continue to increase their holdings and steadily allocate RMB assets." Wang Chunying pointed out.

The policy of benefiting enterprises helps enterprises to "go light"

In recent years, China has deeply promoted foreign exchange management reform, implemented favorable policies for enterprises, effectively served technological innovation of enterprises, improved the facilitation level of cross-border financing, and reduced financing costs for enterprises.

Starting from 2018, China has launched cross-border financing facilitation pilot projects in 9 provinces and cities to assist small and medium-sized technology enterprises in cross-border financing, facilitating high-tech enterprises to independently borrow foreign debt within a certain amount. In May last year, the pilot program expanded to 17 provinces and cities, covering 80% of high-tech enterprises and "specialized, refined, special, and new" enterprises nationwide. As of now, the average amount of external debt borrowed by each enterprise that enjoys this facilitation quota has reached 5.96 million US dollars, with an average interest rate of 2.64%, significantly reducing the financing costs of the enterprise.

Exchange rate hedging for small and medium-sized enterprises has always been a focus of attention for foreign exchange management departments. Since the beginning of this year, the State Administration of Foreign Exchange has continued to expand the tripartite cooperation channels between the government, banks, and enterprises, explore and optimize the cost sharing mechanism for exchange rate hedging of small and medium-sized enterprises, encourage banks to reduce fees and benefits, and reduce the cost of exchange rate hedging for small and medium-sized enterprises in various ways. "We hope that foreign-related enterprises can firmly establish the concept of exchange rate risk neutrality, rationally view exchange rate fluctuations, focus on their main business, and prevent exchange rate speculation." Wang Chunying suggested.

Wang Chunying pointed out that in the future, China will implement precise and scientific macroeconomic policies, focus on expanding domestic demand, and smooth economic circulation. The economy is expected to achieve effective improvement in quality and reasonable growth in quantity, and its support for the foreign exchange market will be stronger. At the same time, the regulatory capacity and adaptability of China's foreign exchange market have significantly increased, which can effectively mitigate external shock risks. The flexibility of the RMB exchange rate has increased, and the proportion of RMB in cross-border transactions has reached about 50%. These factors will further consolidate the inherent stability of China's foreign exchange market.

Guangming Daily

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