The State Administration of Foreign Exchange (SAFE) has recently released the data on banks' foreign exchange settlement and sales and their foreign-related receipts and payments for clients for January 2018, and its press spokesperson answered media questions on recent cross-border capital flows.

Q: China's cross-border capital flows found an equilibrium in 2017. What have been the trends of cross-border capital flows since the beginning of 2018?

A: China has seen a basic equilibrium between foreign exchange supply and demand since the very beginning of this year. First, the balance of foreign exchange reserves has been rising. According to the data on foreign exchange reserves released on February 7, the balance of foreign exchange reserves as at the end of January stood at USD 3.1615 trillion, up by USD 21.5 billion month on month, as a result of the equilibrium in the domestic supply and demand of foreign exchange, the foreign exchange rate appreciation of non-USD currencies and changes in asset prices. Second, banks' foreign exchange sales and settlements and domestic supply and demand of foreign exchange have remained in balance. Banks' foreign exchange settlements went up by 28% year on year and banks' foreign exchange sales grew by 11% year on year in January, leading to a deficit of USD 900 million, which was down by 95% year on year, indicating slight surplus and deficit have continued to alternate. If the impact of forward trading and options trading of enterprises were taken into consideration, the domestic supply and demand of foreign exchange would have reached a basic equilibrium in January. Third, the non-banking sectors' foreign-related receipts and payments have been in surplus. In January, the non-banking sectors such as enterprises and individuals registered a surplus of USD 24.6 billion in foreign-related receipts and payments, including a surplus of USD 25.7 billion in foreign exchange capital receipts and payments.

The supply and demand of foreign exchange from major channels have stayed stable. On the one hand, foreign exchange sales and settlements under trade in goods and the capital and financial accounts have continued to register surpluses. In January, the sales and settlements of foreign exchange under trade in goods for clients recorded a surplus of USD 18.7 billion, the sales and settlements of foreign exchange under the capital and financial accounts for clients registered a surplus of USD 4.2 billion. In particular, direct investment and portfolio investment recorded a surplus of USD 900 million and USD 1.9 billion respectively. On the other hand, enterprises' returns on investment and individuals' purchases of foreign exchange have remained low. In January, foreign exchange purchases under the return on investment went down by 31% month on month and 23% year on year; and individuals' purchases of foreign exchange climbed by 11% month on month, indicating more foreign exchange was used by individuals under travel before the Chinese New Year, but it declined by 12% year on year.

The development trend that two-way cross-border capital flows will remain generally balanced has taken shape in China. Recently, the steady economic growth in China has gained momentum. The market views of major currencies have been rationally diverged, with stable growth expected; the RMB exchange rate has presented a trend of ups and downs and two-way fluctuations, promoting cross-border capital flows to be more stable in China, and the foreign exchange market to achieve a balance on its own. Going forward, as the supply-side structural reform goes deeper, China's economic structure will be further optimized and its momentum for endogenous growth will be strengthened, suggesting China will witness stable and rapid economic growth. Globally the economy will continue to recover, but the global financial performance and the normalization of the monetary policies of major developed economies will continue to suffer from instability and uncertainties. Under such circumstances, the two-way fluctuations of the RMB exchange rate will become a norm and the RMB exchange rate will stay basically stable at a reasonable and balanced level, which is favorable for China's cross-border capital to flow in two ways and remain generally balanced in the medium and long term.