Hong Kong Bauhinia Magazine:

According to the data just released, China's foreign exchange market has started well this year. In your opinion, will this good start last? What would you say about the future trend of China's foreign exchange market? Thank you.

Wang Chunying:

My answer to your question is yes, and China's foreign exchange market's strong start will continue. According to the economic trend at home and abroad and the characteristics of China's foreign exchange market, it has a better foundation to maintain stable operations under the dual support of sound macroeconomic fundamentals and its inherent resilience.

On the one hand, major economic indicators are improving, further consolidating the internal foundation for the smooth operation of the foreign exchange market. With the stabilizing and recovery of China's economy, the GDP in the first quarter increased by 4.5% year on year, which shows the resilience, potential and vitality of the Chinese economy. The market expectation has also improved significantly. The IMF estimates that China's GDP will grow 5.2% this year, 2.2 percentage points higher than that of last year. Besides, many world-renowned investment banks have also raised their expectations for China's economic growth, and most of them estimate that China's GDP growth will exceed 6%. While on the contrary, the major developed economies are facing increasing downward pressure. The global economy is forecast to grow 2.8% in 2023, down 0.6 percentage points from that of last year. A series of data shows an obvious gap between domestic and foreign economic growth, and the foundation for the stable operation of the foreign exchange market is very good. At the same time, China will unswervingly deepen reform and expand high-standard opening up to the outside world. The SAFE will continue implementing policies to stabilize foreign trade and investment. These will further enhance the smooth operation and healthy development of the foreign exchange market. Since the beginning of this year, with the slowing down of the Fed's tightening monetary policy, the market generally expects that the Fed's interest rate hike may end. Because the dollar may lose momentum for sustained appreciation and given the interest rate gap between China and the US has been closing, there will likely be less of an external influence on China's foreign exchange market.

On the other hand, the resilience of China's foreign exchange market has been enhanced, enabling it to better adapt to changes in the external environment. More elasticity has been seen in the yuan. The market participants have developed a better understanding of the two-way fluctuation of the exchange rate, so their expectation of the exchange rate has become more stable. Besides, the role of the yuan exchange rate as an "automatic stabilizer" of macroeconomic adjustments and international payments has increased. The yuan has been more widely used in cross-border transactions, and its share in cross-border payments was close to 50% in 2022 and increased further in the first quarter of this year, which helps reduce the risk of currency mismatch in cross-border transactions. With the promotion of foreign exchange risk neutrality, more enterprises came to understand how to manage risks in foreign exchange through various publicity and learning and became more adapted to exchange rate fluctuations.

The fact that China's foreign exchange market has been more mature and the market participants have become more rational is an internal positive factor for the stability of the foreign exchange market. Therefore, China's foreign exchange market is better positioned for stability. At the same time, there are still unstable and uncertain factors in the external environment, so we will continue to strengthen statistical monitoring and deepen analyzing various influencing factors. Besides, the SAFE will continue to sum up the experience of preventing and dealing with external risks and improve macro-prudential management and micro regulation to safeguard the stability of China's foreign exchange market and national economic and financial security. Thanks.