Chen Wenjun:

Now the floor is open for questions. Please identify the media organization you work for before posing your questions.

CCTV:

Since the beginning of this year, there have been some changes in the domestic and international economic and financial environment. What will you say about the performance of the foreign exchange market in the first quarter of this year? What are the new changes and features? Thank you.

Wang Chunying:

Overall, China's foreign exchange market has achieved a good start in the first quarter of this year. It can be observed that the main features are more stable performance in the exchange rate of the yuan, reasonable market expectations, and an autonomous balance of the supply and demand in the domestic foreign exchange market.

First, the yuan exchange rate was generally stable from a global perspective, with a slight appreciation despite two-way fluctuations. As of yesterday, the onshore exchange rates of the yuan rose by 1% against the US dollar from the end of 2022. In terms of multilateral exchange rate, the yuan exchange rate index rose by 1.3% according to China Foreign Exchange Trade System, while the emerging market currency index (EMCI) increased by 1.1% during the same period. Turning to the market movement: the trend of the yuan exchange rate has become more stable lately. Due to the effects of foreign economic and financial shocks, as well as seasonal factors, the yuan exchange rate fluctuated in the market throughout the first two months of this year, particularly around the Spring Festival. Since the mid-March, the yuan exchange rate has been steadily rising, as major economic indicators in China were improving, and the monetary tightening policy in major developed economies was narrowing in scope and slowing down in pace. As a result, the first finding we came to is that, from a global perspective, the yuan exchange rate has seen two-way fluctuations within a reasonable range and a slight appreciation since the beginning of the year.

Second, the exchange rate expectation of the market participants was stable, and the way they made foreign exchange transactions became more reasonable. We noticed that the indicators such as foreign exchange forwards and options have shown no apparent signs of one-way appreciation or strong expectation of depreciation in the yuan exchange rate. The market participants maintained a rational transaction behavior of "settling foreign exchange when the rate is high and buying foreign exchange when the rate is low". In February, the yuan depreciated because customers such as businesses and individuals exchanged foreign currency for yuan, which was why the settlement ratio rose by nearly nine percentage points this month from January. According to our analysis, customers had reasonable needs to sell foreign exchange when the yuan depreciated. It is observed that with the appreciation of the yuan in mid-to-late March, the willingness to buy foreign exchange was strong among business participants, and the foreign exchange settlement and sales by banks posted a deficit in March. Thus, in the first quarter, the exchange rate expectation of the market participants was stable, and their foreign exchange trading became more rational, showing an obvious sign of the rational trading mode mentioned above.

Third, the autonomous balance of the supply and demand in the domestic foreign exchange market was further consolidated. From the perspective of foreign exchange settlement and sales by banks, the foreign exchange market achieved an autonomous clearance in the first quarter of this year. As the foreign exchange market was supplied with foreign exchanges by banks reducing their holdings, overseas entities buying and selling of foreign exchanges in the interbank market, etc., it balanced the small deficit of foreign exchange settlement and sales by customers. From the point of view of the balance of payments (BOP) in recent years, China's current account surplus, foreign investment, and other sources of funds have been mainly balanced by outward investments by domestic market participants, thereby enabling some sort of automatic matching of the sources with using of foreign funds. According to the preliminary data, in January and February, the current account surplus and the FDI in China were still the primary source of foreign exchange funds for China. Foreign funds were mainly used as the outward direct investments and investments in overseas securities. This also explains some of the discussions about where our surplus has gone. In recent years, the People's Bank of China (PBC) has almost withdrawn its "regular" intervention in the foreign exchange market, so the source and using of foreign funds are mainly among market participants.

To sum up, the steady recovery of China's economy from the beginning of this year has laid a consolidated foundation for a good start for the foreign exchange market. Meanwhile, the role of yuan exchange rate as an automatic stabilizer for adjusting BOP has been more obvious, and the market participants have become more mature and rational and can better adapt to changes in the external environment. All of these ensured the stable operation of the foreign exchange market.

This is my answer to your question, thank you.