Market News International:
Given the current uncertainties surrounding imports and exports, what are your expectations regarding balance of payments (BOP)?
Xuan Changneng:
In recent years, China's balance of payments has maintained an equilibrium, reflecting that the deep-level economic structure is optimized and the reform and opening-up policy has been effective. The BOP will not easily change because of events with short-term influence such as COVID-2019. For one thing, affected by domestic economic development and structural optimization and adjustments, the operation of China's current account has entered a stage featuring more balanced development. In recent years, the ratio of the current account surplus to GDP has been within a reasonable range. Yesterday, the SAFE released preliminary data for last year's BOPs. According to the statistics, the current account surplus last year was US$177.5 billion, equal to 1.2% of GDP. For another, by deepening reform and opening-up, China's overall economic operation is stable, medium- and long-term foreign capital flow is steady, and cross-border capital flows remain basically balanced.
The impact of the epidemic is temporary and limited. Since we have a solid foundation, China's BOPs will maintain in equilibrium in the future.
For one thing, the current account is expected to maintain a slight surplus. The reasons are as follows: First, the industry chain of China's manufacturing sector is complete and undergoing transformation and upgrading. The related products are still also competitive worldwide. China and the United States reached an agreement on a phase one trade deal, which will benefit the two countries' economic and trade exchanges and bolster the confidence of global trade. It will also help stabilize foreign trade. Second, the trade deficit in China's service sector has been generally stable over recent years, reflecting the shift of residents' consumption concepts and an improvement in the country's soft power. This trend will continue in the future. Third, the structure of China's foreign investment continues to be optimized. The return on overseas investment has gone up, and investment income is expected to gradually increase. Fourth, China still leads the world in terms of current savings rate, which is above 40%. This is conducive to maintaining the current account revenue and expenditure within a reasonable range.
In addition, China's cross-border capital flows continue to operate stably, which is mainly reflected in the following aspects. First, the short-term impact brought about by COVID-2019 will not change the fundamentals of China's long-term trend of economic development. In addition, the business environment nationwide will be further improved, which is conductive to stabilizing medium and long-term capital inflows such as direct investment. It is expected that the overall investment surplus will continue. Second, the financial sector is gradually becoming more open to the outside, and is still a good destination for overseas investors. This is conducive to maintaining a net inflow of securities investment funds. The bond market is open to attract central banks and other institutions of foreign countries to keep RMB reserves in the medium- and long-term. Third, the foreign loans structure has been optimized. In recent years, the increase in foreign loans has mainly been because foreign investors have kept an increasing number of domestic bonds. The risk of a mismatch between currency and maturity was reduced. Therefore, it is more stable compared with previous years. Fourth, in recent years, the two-way flow of the RMB exchange rate has played a role in casting rational expectations of the market. The foreign exchange transactions of Chinese enterprises, individuals and other market entities have become more rational. The epidemic does not impact the bigger picture of RMB exchange rate's two-way fluctuations. The supply and demand in the foreign exchange market are still balanced, which means that the market is more mature. This will help ensure that cross-border capital flows in a smooth and orderly manner.
Generally speaking, under a complex and changing external environment, we can maintain a balanced and resilient BOP. This shows that we have a solid foundation to ensure a stable economy. In the future, we believe we have the ability and confidence to handle the impact of various internal and external disturbances and maintain the basic equilibrium and stability of BOP. Thank you.
