Just revealed three key pieces of information!, Related to RMB cross-border | RMB | Key

From the official announcement of an increase in macro prudential adjustment parameters for cross-border financing, to the responsive rise of the RMB against the US dollar exchange rate in the foreign exchange market, after two waves of depreciation in the first half of the year, the RMB, which is still fluctuating in the 7-band range, has once again attracted external attention.

Wang Chunying, Deputy Director and spokesperson of the State Administration of Foreign Exchange of China, attended the press conference of the State Council Information Office in Beijing on the 21st, discussing the Chinese yuan and revealing three key information.

What is the attractiveness of RMB assets?

"The performance of the global cross-border bond market is still relatively low this year, but foreign investment in China's bond market is generally good," said Wang Chunying.

Data shows that, without considering the factor of maturity redemption, foreign investment net purchased nearly $79 billion of domestic bonds in the first half of this year, reversing the net selling trend of last year. Especially in the second quarter, foreign capital's net purchase of domestic bonds reached 58.5 billion US dollars, which is at a relatively high level in the quarter. If considering maturity redemption, foreign investors have been net increasing their holdings of domestic bonds for two consecutive months, with a net increase of over 11 billion US dollars in June.

At the same time, from the perspective of holder structure, overseas central banks are still the main foreign institutions investing in China's bond market, and overseas financial institutions are also active in China's bond market.

"These situations fully reflect the investment value and medium and long-term allocation value of Chinese bonds." Wang Chunying said that, looking forward to the future, foreign investors will continue to increase their holdings and steadily allocate RMB assets, because the investment value of RMB assets diversification and the advantages of satisfying investors' diversified allocation are still there. China's monetary policy is focused on China. The trend of RMB bonds is different from that of bonds of developed countries and emerging economies. The size of China's bond market is still the second largest in the world, with good liquidity, which facilitates decentralized resource allocation for investors. "From this perspective, China's bond market is attractive."

From a policy perspective, Wang Chunying stated that the next step will be to continuously optimize the opening of the bond market and promote product and service innovation.

How to use future exchange rate control tools?

In recent years, the People's Bank of China and the State Administration of Foreign Exchange have established and improved macro prudential management of cross-border financing. On July 20th, they announced the adjustment of macro prudential parameters for cross-border financing, correspondingly increasing the upper limit of risk weighted balances for domestic financial institutions and enterprises in cross-border financing, and directly expanding the financing space for enterprises to obtain from overseas outsourcing, including banks.

Wang Chunying explained that cross-border financing for enterprises is based on net assets, while banks are based on core capital. After this coefficient is increased, the expansion of overseas financing space will increase the sources of cross-border financing, expand capital inflows, and help increase domestic liquidity, especially foreign currency liquidity, balance the supply and demand of the foreign exchange market, and play a role in stabilizing the expected foreign exchange market. "This is also a popular policy in the market. I see that many companies are very concerned and happy to see the coefficient increase."

Regarding the RMB exchange rate, Wang Chunying believes that whether from the perspective of cross-border capital flows, foreign exchange settlement and sales data, international balance of payments, or the maturity and policies of the foreign exchange market, it is possible for the RMB exchange rate to maintain basic stability at a reasonable equilibrium level in the future.

Wang Chunying emphasized that in the past, we have dealt with multiple rounds of external shocks, accumulated experience, and improved regulatory tools and measures. A while ago, the central bank's press conference also mentioned that tools are for use. We will adhere to comprehensive policies, with stable expectations as the core, and take different measures based on actual situations to provide a stable environment and expectations for the market, facilitating foreign economic entities to carry out business and investment activities.

What is the expected exchange rate of the Chinese yuan?

The expected stability of the RMB exchange rate is the latest judgment given by Wang Chunying. "We usually look at the RMB foreign exchange options market risk reversal indicator when observing expectations, which reflects the market's willingness to trade short and long against the RMB."

The market is bearish when looking at the depreciation of the renminbi. An increase in indicators indicates an increase in market expectations for renminbi depreciation, while a decrease in indicators indicates an increase in expected renminbi appreciation. Wang Chunying pointed out 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 expectation of depreciation of the RMB exchange rate.

She also mentioned that in recent times, the government has conducted relevant research on banks, enterprises, and market entities. During the research, people's views on the exchange rate are still relatively rational and objective, and it is generally believed that the RMB has a long-term stable foundation.

In addition, Wang Chunying stated that in recent years, more and more market entities have been able to adapt to the two-way fluctuations of the RMB exchange rate, mainly selecting 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, a decrease in the surplus of foreign exchange settlement and sales, and even a deficit. During the depreciation of the RMB in June, there were more foreign exchange settlements, and the surplus of foreign exchange settlements and sales in that month was significantly higher than in previous months. The rational trading behavior of market entities objectively further maintains the stability of exchange rates.