Yicai:

How do you view the future trend of China's foreign exchange settlement in the context of the substantial rate hike by the Fed? What impact will it have on China's cross-border capital flows? Thank you.

Wang Chunying:

Thank you for your questions. This is an issue of common concern. For the cross-border capital flows of economies other than the U.S., the unconventional monetary policy adjustment of the Fed is an essential external variable and has received much attention. The last time the Fed released signals about tightening its monetary policy was in 2013, almost a decade ago. During this time, China's economy has made historic achievements and realized a higher level of development and opening up. Currently, we are more confident and prepared to mitigate the impact of such monetary policy adjustment on China's cross-border capital flows. China's foreign exchange market is likely to maintain a stable operation. Let's look at our development in this regard over the past decade.

First, China has a greater comprehensive national strength, which can help it better respond to external shocks. In recent years, China's economic development has become more balanced, coordinated, and sustainable. China's GDP in 2021 was 2.1 times that of 2012, and its proportion in the global economy increased from 11% in 2012 to more than 18%. The country's economic power, science and technology prowess and comprehensive national strength have all reached new levels. Recently, China has effectively coordinated epidemic prevention and control while striving for economic and social development, major macroeconomic indicators have rebounded relatively quickly, and the economy has generally maintained a momentum of recovery and development. In June, the manufacturing purchasing managers' index (PMI) was above the 50-point mark that separates contraction from growth, consumption and investment have continued to rebound, and economic growth momentum has increased. With the implementation of various pro-growth policies, China's economy will gradually recover and maintain steady growth in the future.

Second, China's balance of payments is more stable, which can better ensure the stability and security of cross-border capital flows. In recent years, the ratio of China's current account surplus to GDP has been around 2%, and always within a balanced and reasonable range. China stands out among major economies in the world in the balance and stability of its international payments. In addition, China's external asset-liability structure has been gradually optimized and the scale of foreign exchange reserves ranks first in the world; the private sector holds nearly 6 trillion dollars in external assets, and the resources to resist external shocks are more diverse and abundant; foreign debt growth matches economic growth, and the stability has been improved. All the foreign debt indicators are within the internationally recognized safety limit, and the risks are generally controllable.

Third, China has promoted a higher level of opening up, which can better expand the depth and breadth of the foreign exchange market. China's business environment has gradually improved, the negative list for foreign investment has been implemented, and more foreign companies have come to invest and start business in China. Meanwhile, the two-way opening-up of China's financial market has increased the types of entities in the foreign exchange market and the types of sources of funds. The depth and breadth of the foreign exchange market have continued to expand, and it is more capable of absorbing or smoothing out the fluctuations in cross-border capital flows, which is conducive to promoting the overall equilibrium of cross-border capital flows.

Fourth, the foreign exchange market adjustment mechanism becomes more mature, which can better play the role of the RMB exchange rate as an automatic stabilizer for adjusting the balance of payments. In recent years, China has pushed ahead with its market-based RMB exchange rate formation mechanism. The RMB exchange rate has been floated both ways, and its flexibility has been enhanced, which can release external pressures in a timely and effective manner. Moreover, as mentioned just now, the transactions of market entities remain rational and orderly, and expectations are generally stable. Enterprises are also becoming more risk-neutral in exchange rates and can better adapt to two-way fluctuations in exchange rates. Therefore, at present, we are more capable of preventing and defusing the risk of cross-border capital flow through market-oriented means.

In addition, we will follow the impact of the Fed's monetary policy adjustment on the US dollar interest rate, exchange rate, and the international financial market. In fact, the Fed is faced with a dilemma between controlling inflation and stabilizing the economy. We will keep up with how the Fed adjusts the monetary policy in the future. We will further coordinate development and security, pay close attention to external changes, assess the impact in a timely manner, and at the same time promote reform and opening up in foreign exchange in an orderly manner to prepare for effective prevention and mitigation of external shocks. Thank you.

Shou Xiaoli:

Thank you, Ms. Wang and friends from the press. That's all for today's press conference.

Translated and edited by Yang Xi, Li Huiru, Qin Qi, Liu Sitong, Zhang Rui, Wang Wei, Zhu Bochen, Zhang Junmian, Wang Yiming, He Shan, Yan Xiaoqing, Ma Yujia, Zhou Jing, Wang Qian, Xu Xiaoxuan, David Ball, Tom Arnsten, and Jay Birbeck. In case of any discrepancy between the English and Chinese texts, the Chinese version is deemed to prevail.