The State Administration of Foreign Exchange (SAFE) has recently disseminated the data on banks' sales and settlements of foreign exchange and on foreign-related receipts and payments via banks for their customers for August 2016. The SAFE press spokesperson answered media questions on recent cross-border capital flows.

Q: What new changes were there to the cross-border capital flows for August?

A: The pressure on China from cross-border capital outflows was relieved in August. First, a narrower deficit was recorded under banks' sales and settlements of foreign exchange. The deficit was USD 9.5 billion for the month, down by 70% month-on-month and the lowest monthly level since July 2015. Second, a lower deficit was registered under the non-banking sector's foreign-related receipts and payments. The deficit was USD 8 billion for the month, down by 75% month-on-month. In particular, the balance of foreign exchange receipts and payments turned from a deficit of USD 1.3 billion in July to a surplus of USD 19.7 billion in the month. A deficit of USD 27.7 billion was posted under the RMB receipts and payments, down by 10% month-on-month.

The factors that boost supply and demand towards an equilibrium continued to play an active role. First, the willingness of market players to settle foreign exchange was being stabilized, with the share of foreign exchange sales dropping further. In the month, the ratio of bank customers' sales of foreign exchange to the foreign-related foreign exchange receipts was 59.2%, up by 0.9 percentage point from July; the ratio of bank customers' purchases of foreign exchange to the foreign-related foreign exchange payments was 67.4%, down by 1.3 percentage points from July. Second, cross-border foreign exchange financing through some channels continued to pick up. As at the end of August, the balance of cross-border financing for imports such as refinancing and forward L/C jumped by USD 7.9 billion from the end of July, marking the 6th consecutive month of growth. Also in the month, a net inflow of USD 6.1 billion was registered under enterprises' cross-border foreign exchange loans, remarkably higher than the net monthly average inflow of USD 700 million from May to July. Third, seasonal demand for purchasing foreign exchange like ROI waned. In history, June and July were the peak months for outward remittances of profits by foreign-funded enterprises and for distribution of bonuses and dividends by overseas listed companies, followed by downturns. In August, foreign exchange purchases under ROI fell by 31% month-on-month. In addition, August remained the month witnessing strong purchases of foreign exchange under overseas travel and study, but the foreign exchange purchases under travel dropped by 3% month-on-month or 16% year-on-year in the month, which suggests that a large part of individuals' demand for foreign exchange purchases was unleashed in the early phase, and that individuals are sensible in purchasing foreign exchange at present.

Overall, China's economy operates smoothly, the RMB exchange rate against the USD is fluctuating bi-directionally, and market sentiment is stable now, which is favorable for a stronger equilibrium between supply and demand of foreign exchange.