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

China.org.cn | July 31, 2023


Hong Kong Bauhinia Magazine:

Facing the fluctuations in the RMB exchange rate this year, what work has SAFE done to help companies manage their exchange rate risks? Do you have any suggestions? Thank you. 

Wang Chunying:

Thank you. SAFE sees serving companies in managing exchange rate risks as a long-term and fundamental task. We strive to carry out our work in the following aspects: 

First, SAFE has been working to promote the enterprises' exchange rate risk-neutral business philosophy through various channels and methods. Last year, we issued guidelines for enterprises to manage exchange rate risks, with the aim of helping enterprises establish effective exchange rate risk management mechanisms. Recently, SAFE has compiled a collection of past cases, which uses cases to popularize how to use derivative products to manage exchange rate risks in different scenarios. We have published last year's cases on our official website, and this year's cases will be published on the website once they are completed. In addition, we promoted the enterprises' exchange rate risk-neutral business philosophy through various channels such as the "china-forex" official WeChat account, and promoting the self-discipline mechanism. This has been one of our major works.

Second, SAFE has guided banks to establish a long-term mechanism for exchange rate risk management service. As banks provide services to customers directly, SAFE has guided banks to increase their promotion of RMB and foreign exchange derivatives, and encouraged banks to diversify their product types, to provide more convenient online channels for trading derivative products. Efforts have also been made to improve credit-granting activities and margin management related to derivative products, and enhance banks' ability to provide services at the grassroots level. In the first half of the year, SAFE conducted a special assessment of bank services for enterprises to manage exchange rate risks, aimed at encouraging and guiding banks to summarize and learn from past best practices and implement them in their business operations and service. In terms of serving customers to manage exchange rate risks, we hope that banks can adopt a more systematic approach and make institutional arrangements. This is the work we are doing with banks, which we will continue in the future. 

Third, the exchange rate hedging of micro, small, and medium-sized enterprises has always been one of our priorities. We have continuously improved the management of exchange rate risks and services for these companies. This work does require consistent effort. Since the beginning of this year, SAFE has continued to expand cooperation between government departments, banks, and enterprises and to improve the cost-sharing mechanism for hedging. We must first know if there are risks, then know how to use hedging tools, and finally have the ability to use them. In our survey, we found that micro, small, and medium-sized enterprises are more concerned about hedging costs, so we have done a lot to improve cost sharing. We have encouraged banks to reduce fees and concede interest, continued to guide the China Foreign Exchange Trade System to make these companies exempt from handling fees for hedging derivatives in the interbank foreign exchange market, and reduced their hedging costs through various means. At the same time, we have supported banks to use big data to facilitate the granting of credit for derivatives to these companies. 

You also asked about my suggestions just now. In general, no matter how the market changes, we all hope that enterprises can bear risk neutrality in mind, adopt a rational view towards exchange rate fluctuations, focus on their main business, and avoid engaging in speculation. These are basic principles that foreign-related companies should always follow. 

We have conducted a lot of research recently, and we are glad to see that the surveyed enterprises have developed a better understanding of risk neutrality and that they are capable of using derivative products and tools to manage exchange rate risks, strictly implementing hedging operations, and scientifically evaluating hedging effects. We hope to see more enterprises with such risk management capabilities and will adopt various measures together with banks and relevant government departments to help enterprises develop similar capabilities and conditions. Thank you.

Xie Yingjun:

Due to time constraints, there will be one last question.

Beijing Radio and Television Station:

Since the beginning of this year, the international financial market has continued to fluctuate, and the RMB exchange rate has generally weakened. How would you evaluate the situation of China's foreign exchange market in the first half of this year? Thank you.

Wang Chunying:

Since the beginning of this year, we have faced a complex and challenging external environment, yet China's foreign exchange market has demonstrated robust stability and resilience in terms of capital flow, market transactions, and market expectations. Here are some specific characteristics.

First, China's cross-border capital flow has remained relatively stable, and the supply and demand in the foreign exchange market have been basically balanced. In the first half of this year, foreign-related income and expenditure, as well as bank settlement and sales of foreign exchange, both registered a surplus. Notably, in the second quarter, the surplus figures were $12.5 billion and $17 billion, respectively. The main items of the balance of payments have significantly contributed to the surplus. Data shows that the surplus of trade in goods from January to May was basically unchanged from the same period last year, a high level in history. This continues to play a primary role in stabilizing cross-border capital inflow. At the same time, foreign capital flows have continued to exhibit favorable trends, turning from a net outflow in the second half of last year to a net inflow. In the first quarter, foreign capital net inflow logged $23.5 billion.

Second, transactions of foreign exchange market entities have been generally rational. In recent years, more and more market players have become adaptable to RMB exchange rate fluctuations, choosing appropriate times for foreign exchange settlements and purchases mainly according to international trade and investment practices. The numbers have borne it out. For example, in January and March this year, when the RMB appreciated, there was an increase in foreign exchange purchases, and the surplus of foreign exchange settlement and sales fell, even creating a deficit. However, the surplus in June was significantly higher than in previous months, as there were more foreign exchange settlements in June amid the depreciation of the yuan. The rational transactions of market entities have further stabilized the exchange rate.

Third, expectations for the RMB exchange rate have remained basically stable. To better understand expectations, we usually refer to the risk reversal index in the foreign exchange options market for the RMB. It reflects bearish and bullish outlooks for the RMB and transaction preferences in the market. A bearish outlook means expecting the depreciation of the RMB, so the increase of the index indicates higher expectations in the market that the RMB will depreciate, while a decline indicates higher sentiment expecting appreciation. Since the beginning of this year, the risk reversal index of the one-year options market has generally shown a downward trend and remained relatively low, indicating that the market has not developed a consistent and sustained expectation for the depreciation of the RMB. Recently, through surveys conducted among banks, companies, and other market players, we found they hold a rational and objective view that there is a basis for the RMB to remain stable over the long term.

On the whole, the foreign exchange market this year has remained stable and effectively adapted to the adjustments and changes in the external environment. It has demonstrated that China's foreign exchange market is maturing and more resilient. That's all I would like to say. Thank you.

Xie Yingjun:

Thanks for the introduction by Ms. Wang and the participation of our media friends. Today's briefing is now concluded. Goodbye!

Translated and edited by Wang Qian, Zhu Bochen, Liu Sitong, Liu Caiyi, Liu Qiang, Xu Kailin, Yan Bin, Huang Shan, Cui Can, Zhang Rui, Zhang Jiaqi, Li Huiru, David Ball, Jay Birbeck, and Tom Arnsten. In case of any discrepancy between the English and Chinese texts, the Chinese version is deemed to prevail.

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