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SCIO briefing on foreign-exchange receipts and payments data in H1 2023

China.org.cn | July 31, 2023



Since the beginning of this year, the global economic recovery has seemed rather challenging. May I ask if China's current account has been impacted in any way? How do you view the future trend of China's current account? Thank you.

Wang Chunying:

Thank you for your questions. Since the beginning of this year, there have indeed been some changes in the global economy. These changes are now reflected in certain items of China's current account, primarily through a gradual return to normal levels. Overall, China's current account is still showing resilience, consistent with our prior evaluations. In the first quarter, the current account surplus amounted to $81.5 billion, a figure relatively high compared to the same period in history. The ratio of the current account surplus to GDP during the same period was 2%, which remains balanced and reasonable.

Preliminary statistics suggest that the current account surplus exceeded $50 billion in both April and May of this year. Given these figures, we anticipate that the current account surplus for the first half of the year will remain high. As for future trends, our assessment is that the reasonable surplus in China's current account will remain unchanged in the medium to long term.

Normally, the analysis of the current account focuses on two key items: goods and services. From the perspective of goods, new growth points for China's goods exports continue to surface, contributing to the stabilization of export volume and optimization of the export structure. In the first half of this year, external demand decreased, yet within this context, China's traditional export products, such as electromechanical and labor-intensive products, have remained stable. Also, exports of the frequently mentioned "three new products" (electric vehicles, lithium batteries and solar cells) have seen a fast year-on-year growth rate, reaching 51%. We also see that recently, the import of some intermediate goods for consumer electronics has demonstrated positive trends, and future exports of related finished products are expected to perform well. Therefore, from the perspective of major products, we have new growth points, the traditional base remains stable, and some imported intermediate goods show potential for future exports. Globally, China's export is generally better than that of most countries. From January to April, China's share of global exports still increased year on year. These are the main trends in goods trade.

In terms of service trade, due to COVID-related restrictions being lifted and various guarantees being restored, China's cross-border travel has shown signs of recovery, and related travel expenditures have also increased year on year but remain lower than pre-pandemic levels. The impact on the current account is controllable. 

I believe that this issue can also be evaluated from the perspective of the medium- to long-term determinants of the current account. The trend of the current account is determined by a country's manufacturing level and economic structure. From this viewpoint, we posit that China has a solid foundation to sustain a reasonable balance in its current account.

First, promoting high-quality development in manufacturing will continuously enhance the international competitiveness of Chinese products, providing a new thrust for China's foreign trade. Concurrently, the development of manufacturing and services will become integrated. In this process, the advancement and improvement of manufacturing will stimulate an increase in related productive service trade income.

Second, the economic structure serves as the long-term determinant of the current account. The current account mirrors the relationship between savings and investment. The fact that China sustains a surplus in the current account reflects that savings exceed investment. In recent years, China's economic structure has been continually adjusted, leading to a rise in the role of consumption within the national economy. However, China's savings rate remains relatively high on a global scale. Thus, from this perspective, our economic structure still contributes to maintaining a reasonable surplus in the current account.

So, in response to your questions, I would like to address it from the two aspects mentioned above. We analyze the prospects of the current account from the perspective of its composition. Also, we examine it based on the medium- to long-term determinants, such as manufacturing level and economic structure. China has a solid foundation for maintaining a reasonable surplus in its current account, and this pattern is expected to persist in the medium to long term.

That's my response to your questions. Thank you.


I would like to ask whether the current significant spread between Chinese and U.S. interest rates is intensifying capital outflow pressure. Additionally, what kind of scenario might we expect in the Chinese bond market for capital investment in the second half of the year? Thank you!

Wang Chunying:

Regarding your questions, I provided a brief overview earlier. Now, I will explain it in more detail.

In the first quarter of this year, China's international balance of payments demonstrated a surplus in the current account and a deficit in the capital account, resulting in a self-balanced situation. The deficit in the capital account has continued its trend of stabilization since the second half of last year, and the total amount of various overseas investments has already recovered to net inflows. Looking at the first half of this year, cross-border capital flows have been relatively stable, and supply and demand in the foreign exchange market are essentially balanced. This answers your first question.

Your second question mentioned the future trend of capital investment in China's bond market. With regard to investment in bonds, despite the downturn in the global cross-border bond market since the beginning of this year, foreign investment in China's bond market has generally improved. Let's look at some data. If we don't take into account maturing bonds, foreign net purchases of domestic bonds amounted to nearly $79 billion in the first half of this year, reversing the trend of net sales last year. Especially in the second quarter, foreign net purchases of domestic bonds reached $58.5 billion, which was a relatively high quarterly level. If we take into account maturing bonds, foreign holdings of domestic bonds have increased for two consecutive months, while the net increase in foreign holdings of domestic bonds surpassed $11 billion in June. At the same time, in terms of holders, overseas central banks are still the major foreign-funded institutions investing in China's bond market. Overseas financial institutions have also played an active role in China's bond market. These factors fully show the value of Chinese bonds in investment and medium- and long-term asset allocation, which is demonstrated by current data.

Looking ahead, overseas investors will continue to steadily increase their holdings and allocation of RMB-denominated assets. This is because RMB-denominated assets still maintain advantages in investment diversification. The reason for that is China's monetary policy mainly serves the domestic economy and the trends in the RMB bond market differ from the bond markets in developed and emerging countries. Meanwhile, China is still the world's second largest bond market and has good liquidity, facilitating the diversified asset allocation of investors. This makes China's bond market attractive.

From the data, we can see that China's bond market has become an important option for global investment by overseas investors. As of the end of June, over 1,100 institutions from more than 60 countries had entered the interbank bond market. The level of transaction activity by overseas institutions has been rising and turnover has totaled over $2 trillion, a more than eight-fold increase since China significantly opened up its bond market in 2016. In addition, the scope of investment targets for foreign-funded institutions has been expanded. In addition to treasury bonds, policy financial bonds and interbank certificates of deposit, foreign-funded institutions have now gradually started investing in Chinese credit bonds such as short-term financing bonds and medium-term notes as well as asset backed securities and other investment targets.

In terms of policies, China has taken steady steps to advance the opening-up of the bond market, facilitating investment by overseas investors. It has launched the Bond Connect program and promoted the integration of Bond Connect with multiple channels, including QFII, RQFII and direct investment. The launch of the Swap Connect program this May is conducive to managing interest rate risks for overseas investors. Next, China will further optimize the opening-up of the bond market and continue to advance product and service innovation.

Overall, China will further open up the bond market in a gradual and controlled manner, striking a balance between efficiency and safety. This will leave room for stable and sustainable growth of foreign investment in China's bond market. That is all from me in response to your questions. Thank you.

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