Reply by an Official of the Relevant Department of the SAFE to Questions Raised by Journalists regarding China’s Balance of Payments Status in the First Three Quarters of 2012
Question: The SAFE recently published preliminary data on
China
’s balance of payments (BOP) in the first three quarters of 2012. Could you please introduce the current status of
China
’s BOP?
Answer: According to the preliminary data,
China
’s BOP status continued to improve this year. First, receipts and payments under the current account maintained a basic equilibrium. In the third quarter, the current account surplus was USD70.6 billion. For the first three quarters, the cumulative surplus was USD147.8 billion, accounting for 2.6 percent of GDP during the same period, a drop of 0.3 percent compared with the same period of the last year, which continued to be within the internationally accepted reasonable level. Second, the capital account and financial account (including errors and omissions) was characterized by a net outflow. In the third quarter, the capital account and financial account witnessed a deficit of USD71 billion, after a deficit in the second quarter. For the first three quarters, the cumulative deficit was USD85.4 billion; however, the same period of the last year witnessed a surplus of USD234.1 billion. Third, growth of foreign exchange reserves slowed down significantly. In the third quarter, foreign exchange reserve assets calculated on the basis of the BOP coverage (setting aside the influence of changes in non-trade value, such as the exchange rate, and prices) increased only by USD0.3 billion. For the first three quarters, the total increase of such assets was USD64 billion, with the increment decreasing by 83 percent compared with the same period of the last year.
Question: Both the second and third quarters of this year witnessed deficits in
China
’s capital and financial account, and the first three quarters as a whole also witnessed a deficit. What is your opinion about this?
Answer: From the beginning of this year,
China
’s capital account and financial account witnessed deficits, which were mainly influenced by factors such as the international financial crisis and the slowdown in domestic economic growth. From the fourth quarter of 2011 to the end of the third quarter of this year,
China
’s supply and demand in foreign exchange market witnessed a basic equilibrium, and foreign exchange reserves maintained basic stability. In such a situation, the current account surplus inevitably was accompanied by the deficits in the capital account and the financial account. At present, the deficits in the capital account and financial account of
China
have three major characteristics: First, the deficits reflect the process of “foreign exchange to be held by the people,” that is to say, the holder foreign exchange assets is shifted from the central bank to domestic institutions and individuals. For the first three quarters, the balance of foreign exchange deposits of market players such as enterprises increased by USD138.8 billion. The banks themselves increased the foreign exchange position by more than USD12 billion, part of which was used for domestic foreign exchange loans and the remainder of which was used by the banks for overseas loans and investments. Second, the deficits indicate an accelerating pace of the “Going Out” strategy by domestic enterprises. For the first three quarters, the amount of overseas direct investments by
China
’s non-financial sector was USD52.5 billion, an increase of 29 percent compared with the same period of the last year. Third, the deficits reflect an orderly debt deleveraging process by the enterprises. For the past few years, domestic enterprises paid in foreign exchange for their imports as late as possible, by such means as the Import Bill Advance by Overseas Banks, and accumulated a lot of USD short positions under the trade account. The original strategy of incurring liabilities in foreign currency began to be adjusted after the bi-directional fluctuation of the exchange rate, and, in particular, under the regulation of relevant policies; with respect to the imports of enterprises, the debt balance under the Import Bill Advance By Overseas Banks dropped by more than USD40 billion.
Question: Some media have recently said that USD200 to USD300 billion of capital has fled from
China
. Is this true?
Answer:
We think this is not true. The scale of capital flight referred to by some media is the estimated result of the reduction of such accounts as trade and direct investments due to changes in the foreign exchange reserves, and the concept and method for such calculations are not scientific. The capital account and financial account of the BOP statements are usually used internationally to measure the condition of cross-border capital flows. On the basis of such coverage, for the first three quarters of this year, the USD85.4 billion in deficits in the capital account and financial account of China (including errors and omissions) mainly due to the fact that under the recent basic stability of foreign exchange reserves, the assets in foreign exchange acquired by China from current account transactions such as trade were no longer held by the central bank. Rather, they were mainly held by domestic institutions and separate individuals, and such assets held by domestic institutions and individuals inevitably were used outside of
China
by such means as overseas investments, loans, and deposits, which presented an outflow of the capital account and the financial account but was not equal to capital flight.
