Compilation Principles and Indexes for the IIP

I. Compilation Principles for the IIP

In accordance with the standards of the Balance of Payments Manual (Fifth Edition) published by the International Monetary Fund (IMF), the IIP is a statistical statement which reflects at a specific point the stocks of financial assets and liabilities of one country or region to other countries or regions of the world. Changes in the IIP can be caused by changes in transactions, prices, or exchange rates, as well as by other adjustments during a specific period. The IIP is consistent with the BOP statement with regard to the principles of valuation, measurement, and conversion, and together with the BOP Statement constitutes a complete international accounts system of the country or region.

Chinas IIP is a statistical statement which reflects at a specific point the stocks of  financial assets and liabilities of China (excluding that of Hong Kong SAR, Macao SAR, and Taiwan Province) to other countries or regions of the world.

II. Explanation of the Major IIP Indexes

According to IMF standards items on the IIP are categorized according to assets and liabilities. Assets are divided into China's direct investments abroad, portfolio investments, other investments, and reserves assets, and liabilities are divided into foreign direct investments, portfolio investments, and other investments. The net position refers to external assets minus external liabilities. The items are specifically defined as follows:

1. Direct Investment refers to external investment whereby an investor of one country operates an enterprise located in another country with the aim of acquiring effective control over the enterprise. It consists of direct investment abroad and foreign direct investment. Direct investment abroad includes the stocks of the direct investment abroad conducted by China's non-financial sectors, the stocks of the capital fund and working capital allocated by domestic banks to set up branches overseas, as well as the stocks of loans between the parent companies and the subsidiaries both in China and abroad, and the stocks of other receivables and payables. Foreign direct investment includes the stocks of foreign direct investment absorbed by Chinas non-financial sectors, the stocks of direct investment overseas absorbed by the financial sectors (including foreign investment attracted by branches of foreign financial sectors and Chinese-funded financial sectors, and investments by foreign parties in joint financial sectors), as well as the stocks of loans between the parent companies and the subsidiaries both in China and abroad, and the stocks of other receivables and payables.

2. Portfolio Investment includes some types of investment such as shares, long- and medium-term bonds, and money-market instruments. Portfolio investment assets refer to holdings of negotiable securities, such as shares, bonds, money-market instruments, and derivative financial instruments, which are held by Chinese residents but issued by non-resident enterprises. Portfolio investment liabilities refer to shares and bonds held by non-resident enterprises but issued by resident enterprises.

2.1 Equity Securities consist of securities in the form of stocks.

2.2 Debt Securities include long- and medium-term bonds, short-term (one year or less) bonds, and money-market instruments or transferable debt instruments, such as short-term treasury notes, commercial papers, and large-sum short-term negotiable certificates of deposits.

3. Other Investment refers to all financial assets and liabilities, including trade credits, loans, currency, and deposits, as well as other assets and liabilities, but excluding direct investments, portfolio investments, and reserves assets. Long term refers to a contract period for the relevant financial assets/liabilities that is longer than one year, whereas short term refers to a contract period that is one year or less.

3.1 Trade Credits refer to direct business credit arising from the import and export of goods between China and other countries.  Assets refer to the receivables of China's exporters and the advance payments by Chinas importers, and liabilities refer to the payables of Chinas importers and the advance receipts of China's exporters.

3.2 Loans refer to the external assets held by domestic institutions by providing loans and lending to overseas institutions; and liabilities refer to loans borrowed by domestic institutions, such as loans from foreign governments, loans from international institutions, loans from foreign banks, and sellerscredit.

3.3 Currency and Deposits. Assets refer to the funds deposited abroad and the foreign cash in stock held by China's financial institutions; and liabilities refer to overseas private deposits and short-term funds from foreign banks absorbed by China's financial institutions, as well as other short-term funds, for instance loans from foreign exporters and individuals.

3.4 Other Assets or Liabilities refer to investments other than trade credits, loans, currency, and deposits, for example, capital paid by non-currency international institutions and other receivables and payables.

4. Reserves Assets refer to external assets that can be used at any time and are effectively controlled by the PBOC, consisting of monetary gold, special drawing rights (SDRs), the reserves position in the fund, and foreign exchange.

4.1 Monetary Gold: refers to the gold held by the PBOC as reserve.

4.2 Special Drawing Rights is a type of ledger assets, which is allocated by the IMF according to the capital share of its members; it can be used to repay debt to the IMF and can make up for a deficit in the balance of payments between the governments of member countries.

4.3 Reserves Position in the Fund refers to assets in the ordinary accounts of the IMF that can be used freely.

4.4 Foreign Exchange refers to current assets and liabilities that are retained by the PBOC and that can be used as a means of international compensation.