The State Administration of Foreign Exchange (SAFE) has recently disseminated the data on banks' foreign exchange settlements and sales, and on their foreign-related receipts and payments for customers for May 2017. Its spokesperson answered press questions on recent cross-border capital flows.

Q: Could you brief us on China's cross-border capital flows in May?

A: China witnessed an equilibrium between foreign exchange supply and demand in May. To be specific, first, the deficit in banks' foreign exchange settlements and sales remained stable. In May, banks registered a deficit of USD 17.1 billion in foreign exchange sales and settlements, up by 15% month on month. In particular, the non-banking sector including enterprises and individuals  recorded a deficit of USD 12.4 billion in foreign exchange sales and settlements (i.e., bank's foreign exchange sales and settlements for customers), down by 3% month on month. Second, forward foreign exchange sales and settlements remained in surplus. In May, the amount of the contracts signed for forward foreign exchange sales and settlements registered a surplus of USD 3.4 billion, working with banks' spot foreign exchange sales and settlements and options to impact the supply and demand of foreign exchange in China and striking a relative balance between supply and demand of foreign exchange in the month. Third, the non-banking sector saw low net outflows of cross-border capital and month-on-month declines in net outflows of foreign currencies. In May, this sector registered a deficit of USD 21.8 billion in foreign-related receipts and payments, up by 42% month on month, but down by 7% year on year. Specifically, the deficit in foreign-related receipts and payments in RMB terms went up by 72% month on month, and the deficit in foreign-related receipts and payments in foreign currencies went down by 12% month on month. Moreover, impacted by many factors such as the equilibrium between the supply and demand of foreign exchange, China's balances of foreign exchange reserves had risen for 4 consecutive months, with the figure as at the end of May rising by USD 24 billion from April and at a bigger margin month on month.

The market sentiment remains stable and the relation between supply and demand of foreign exchange under trade and investment is more balanced. First, according to the rates of the sales and settlements of foreign exchange under foreign-related receipts and payments, the settlement rate of foreign exchange by market participants rose while the purchase rate went down. In May, the ratio of foreign exchange settlements by bank customers to their receipts of foreign-related foreign exchange was 62.7%, up by 0.6 percentage point from the settlement rate for the first four months; the ratio of the purchases of foreign exchange by bank customers to their payments of foreign-related foreign exchange hit 67.4%, down by 0.5 percentage point from the purchase rate for the first four months. Second, the supply and demand of foreign exchange under major items continued to improve. In May, the surplus in foreign exchange settlements and sales under trade in goods by the non-banking sector such as individuals and enterprises increased by 14% month on month, the foreign exchange settlements and sales under direct investment turned from a deficit into a basic equilibrium, and the foreign exchange settlements and sales under portfolio investment turned from a deficit for the previous month into a small surplus. Furthermore, enterprises' cross-border financing continued to rise. At the end of May, the balance of cross-border financing denominated in foreign currencies for imports such as refinancing and forward L/C jumped by USD 2.1 billion month on month, clocking up 15 consecutive months of growth. The improved relation between supply and demand under the above items hedged against the seasonal purchasing and payments of foreign exchange added in some channels in May, such as strengthened demand for travel abroad on May Day and Dragon Boat Festival and normal outward remittances of profits by foreign-funded enterprises.

Overall, there are internal and external room for the recovery of China's cross-border capital flows with a good momentum for growth, and the basic equilibrium between the supply and demand of foreign exchange. In particular, as the foundation for China's economic performance within a reasonable range is consolidated and the central parity rate formation mechanism for the RMB exchange rate is refined, the domestic market participants will be more reasonable in their behaviors with regard to foreign-related receipts and payments.