The State Administration of Foreign Exchange (SAFE) has recently disseminated the data on banks' foreign exchange settlement and sales as well as their foreign-related receipts and payments for customers for February 2019. The SAFE spokesperson and Chief Economist Wang Chunying answered media questions on foreign exchange receipts and payments for February 2019.

Q: Could you brief us on the characteristics of China’s foreign exchange receipts and payments in February 2019?

A: Since the beginning of 2019, China’s foreign exchange market has maintained sound situations. However, the monthly data show that there were considerable fluctuations due to the influence of seasonal factors of the Spring Festival. Therefore, comprehensive analysis of the foreign exchange receipts and payments data of January and February would produce more objective and accurate results. Specifically:

China’s foreign exchange market has been running more smoothly since the beginning of 2019. Firstly, the deficit of foreign exchange settlement and sales of banks narrowed, and the supply and demand on the foreign exchange market has maintained basic equilibrium. From January to February, banks posted a monthly average deficit of USD 1.5 billion in foreign exchange settlement and sales, down by 87% from the monthly average of the second half of 2018. Secondly, non-banking sectors such as enterprises and individuals recorded a large surplus in foreign-related receipts and payments. From January to February, the monthly surplus of non-banking sectors in foreign-related receipts and payments reached USD 28.3 billion, while the monthly deficit in the second half of 2018 was over USD 10 billion. Thirdly, the balance of foreign exchange reserves has risen steadily. At the end of February, the balance of foreign exchange reserves increased by USD 17.5 billion from the end of 2018. The balance of supply and demand in the foreign exchange market serves as the basis for the stability of reserves, and the rising asset price of reserve investment and other factors helped increase the valuation and balance of foreign exchange reserves.

The cross-border capital flows of major channels have further improved. First, the net inflow of foreign exchange and the net settlement of foreign exchange under trade in goods increased. From January to February, the surplus of foreign-related receipts and payments and foreign exchange settlement and sales of banks on behalf of clients under trade in goods both showed a rising trend, with monthly surplus up by 1.9 times and 25% respectively as compared with that of the second half of 2018. Second, the net foreign exchange settlement under direct investment and securities investment increased to certain extent. From January to February, the monthly net foreign exchange settlement for direct investment and securities investment by banks on behalf of clients reached USD 4 billion and USD 1.5 billion respectively, an increase of 4.5 times and 4% year on year. Third, individual foreign exchange settlement and sales remained basically stable, with net foreign exchange purchase in January and February down by 19% year on year. Fourth, the value of contracts for forward settlement and sales of foreign exchange has maintained a surplus for six months consecutively, with a monthly surplus of USD 8.1 billion from January to February, against a deficit in the same period of 2018.

Looking ahead, the foundation for the smooth operation of the foreign exchange market will continue to exist. In terms of the main influencing factors, first of all, China’s economic development is resilient enough and boasts of huge potential, the macro policies will strengthen countercyclical adjustment, and the proactive fiscal policy and prudent monetary policy will continue to be implemented. As a result, the macro leverage ratio is basically stable, the fiscal and financial risks are controllable on the whole, and the foreign exchange reserves are adequate, which have laid a sound economic foundation for the stability of the foreign exchange market. Besides, China has been promoting the opening-up in an all-round manner, which has provided a solid policy foundation for overseas capital to make investment in domestic market. In addition, substantial progress has been made in China-US economic and trade negotiations, and the expected interest rate hike of the FED has weakened remarkably, which are also conducive to stabilizing market expectations. As a matter of fact, there are still uncertainties in external environment, and we will continue to strengthen monitoring, conduct thorough analysis of the situation changes, refine the exchange rate formulation scheme on an ongoing basis, maintain basic equilibrium of the RMB exchange rate at a rational and balanced level, and improve the two-pronged “macro prudential + micro regulatory” management framework of cross-border capital flows, so as to safeguard the national economic and financial security.