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Speaker:

Ms. Wang Chunying, deputy administrator and spokesperson of the State Administration of Foreign Exchange (SAFE)

Chairperson:

Mr. Xie Yingjun, deputy director general of the Press Bureau of the State Council Information Office (SCIO) and spokesperson of the SCIO

Date:

July 21, 2023

Xie Yingjun:

Ladies and gentlemen, good morning. Welcome to this press conference held by the State Council Information Office (SCIO). Today, we are joined by Ms. Wang Chunying, deputy administrator and spokesperson of the State Administration of Foreign Exchange (SAFE). Ms. Wang will brief you on China's foreign exchange receipts and payment data in the first half of 2023 and take your questions.

Now, I will give the floor to Ms. Wang.

Wang Chunying:

Good morning. Welcome to today's press conference. I will start by introducing China's foreign exchange receipts and payment data in the first half of 2023 and then take your questions.

In the first half of 2023, the global economic recovery faced significant challenges amid a complex and difficult global financial market and geopolitical landscape. Under the strong leadership of the Central Committee of the Communist Party of China (CPC), China has focused on the primary task of pursing high-quality development, and has seen an upturn in the domestic economy. The country's foreign exchange market demonstrated resilience in several aspects. Notably, expectations of the RMB exchange rate remained stable; cross-border capital flows sustained in a stable and orderly manner; the supply and demand of foreign exchange market remained balanced; and both cross-border receipts and payments by non-banking sectors as well as the foreign exchange settlement and sales by banks registered a surplus.

For cross-border receipts and payments by non-banking sectors, in U.S. dollar terms, banks registered $3.0259 trillion in foreign-related receipts and $2.9792 trillion in foreign-related payments for customers, which represented a surplus of $46.7 billion. Or in yuan terms, banks handled foreign-related receipts of 20.9746 trillion yuan and payments of 20.6526 trillion yuan for customers, recording a surplus of 322.1 billion yuan. According to data on foreign exchange settlement and sales by banks, in the first half of 2023, in U.S. dollar terms, banks settled $1.1325 trillion and sold $1.1307 trillion, representing a surplus of $1.8 billion. Or in yuan terms, banks settled 7.8482 trillion yuan and sold 7.8338 trillion yuan, recording a surplus of 14.3 trillion yuan.

In the first half of 2023, China's foreign exchange receipts and payments have demonstrated the following characteristics:

First, cross-border capital flows remained stable with net inflow momentum. In the first half of 2023, the total amount of cross-border receipts and payments by non-banking sectors exceeded $6 trillion, which was the second highest level in history during the same period. In terms of the balance, foreign-related receipts and payments have seen a surplus. Specifically, the surplus of foreign-related receipts and payments reached a seasonal high in January 2023. This can be attributed to factors such as enterprises rushing to collect foreign exchange before Spring Festival. During the February-May period, the amount of foreign-related receipts and payments remained basically the same. The size of surplus rebounded to $12 billion in June. Based on quarterly data, we have also seen a surplus for two consecutive quarters.

Second, foreign exchange settlement and sales by banks recorded a small surplus, and the supply and demand of the overseas foreign exchange market remained basically balanced. In the first half of the year, the overall foreign exchange settlement and sales by banks recorded a surplus, and the supply and demand of foreign exchange sustained a basic balance upon consideration of other factors in this regard. According to quarterly data, foreign exchange settlement and sales by banks recorded a small deficit in the first quarter and this turned into a surplus in the second quarter. Particularly in June, despite the increasingly complex external environment, foreign exchange settlement and sales by banks recorded a surplus of $8.2 billion, which was significantly higher than the monthly average in the previous months.

Third, the foreign exchange sales rate increased, and the foreign exchange financing by enterprises remained stable. In the first half of 2023, the sales rate, a measure of customers' willingness to buy foreign exchange, which is the ratio of foreign exchange purchased by customers from banks to foreign-related foreign exchange payments made by customers, stood at 69.2%, up 3 percentage points over the same period in 2022. In terms of foreign exchange financing, as of the end of June 2023, the outstanding domestic foreign exchange loans of market participants, such as Chinese enterprises, amounted to $274.9 billion, an increase of $3.7 billion from the end of 2022. The balance of foreign currency financing under international trade, such as import refinancing and forward letter of credit, stood at $67.4 billion, declining $9.4 billion from the end of 2022.

Fourth, the foreign exchange settlement ratio steadily increased, and the balance of enterprises' foreign exchange deposits declined. In the first half of 2023, the foreign exchange settlement ratio, a measure of customers' willingness to settle foreign exchange, which is the ratio of foreign exchange sold by customers to banks to customers' foreign-related foreign exchange receipts, reached 67.5%, up by 0.5 percentage point over the same period in 2022. As of the end of June 2023, domestic foreign exchange deposits held by Chinese enterprises and other market participants totaled $606.1 billion, declining $28 billion from the end of 2022. This suggests that the general willingness among market entities to hold foreign exchange remains stable.

Fifth, the volume of China's foreign exchange reserves remained basically stable. By the end of June 2023, China's foreign exchange reserves totaled $3.1930 trillion yuan, $65.3 billion more than the end of 2022, mainly due to the combined effects of currency translation, asset price changes and other factors.

Moving forward, SAFE will follow the guidance of Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era. It will pursue progress while ensuring stability, uphold fundamental principles and break new ground. SAFE will pursue further reform and opening-up in the foreign exchange sector and prevent risks associated with external influences. It will ensure the security and circulation of foreign exchange reserves, while maintaining and increasing their value. It will also keep enhancing the capacity of foreign exchange management and leverage its enabling role in facilitating a new development paradigm and fostering high-quality development.

That concludes my introduction about the main statistics concerning China's foreign exchange receipts and payment data in the first half of 2023. Now, I'm happy to take questions from the media.

Xie Yingjun:

Everyone is welcome to pose questions. Before doing so, please let us know which news organization you represent.

CCTV:

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.

MNI:

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.

Yicai:

According to the report to the 20th CPC National Congress, science and technology must be regarded as the primary productive force. What has SAFE done to support the financing of sci-tech innovation enterprises? What achievements have been made? What measures will be taken next? Thank you.

Wang Chunying:

Thank you. SAFE has fully implemented the decisions and plans of the CPC Central Committee and the State Council concerning the financial sector serving the real economy, further advanced the reform of foreign exchange management and adopted preferential policies for enterprises, effectively serving the scientific and technological innovation of enterprises, facilitating cross-border financing and lowering financing costs for enterprises. Most sci-tech enterprises, especially micro, small and medium enterprises (MSMEs), are still at the initial stage of their business ventures with relatively small or even negative net assets. The macro-prudential management of cross-border financing is based on the net assets of enterprises and allows enterprises to borrow money at their own discretion according to a certain coefficient. MSMEs, especially sci-tech ones, usually have small or even negative net assets and face difficulties in cross-border financing. In response, we have introduced a series of policies since 2018 and launched cross-border financing facilitation pilot programs in nine provinces and cities, facilitating high-tech enterprises to borrow foreign debt at their discretion up to a certain amount. The basic limit is $5 million, within which high-tech companies in pilot areas can receive foreign debt financing at their discretion.

In May 2022, we expanded the scope of pilot programs to include specialized and sophisticated enterprises that produce new and unique products and increased the number of pilot areas from nine provinces and cities to 17 provinces and cities, covering 80% of high-tech enterprises and specialized and sophisticated enterprises that produce new and unique products nationwide. At the same time, we raised the limit in the original nine provinces and cities to $10 million and set the limit to $5 million in the eight newly added pilot areas. So far, the average amount of foreign debt borrowed by eligible enterprises has reached $5.96 million, with an average interest rate of 2.64%, significantly lowering the financing costs of enterprises.

Next, SAFE will further expand the pilot programs on facilitating cross-border financing, bring more benefits to more enterprises, promote cross-border financing facilitation policies across the country, and raise the limits in all areas where early pilot programs have been launched to $10 million. That's our first consideration. Second, we will ramp up support for sci-tech SMEs and make cross-border financing facilitation policies available to support their innovative development. 

That is all from me in response to your questions. Thank you.

The Paper:

At present, the market believes that the U.S. Federal Reserve is likely to continue raising interest rates, but that it will soon come to an end. In this context, what are your expectations for the trend in China's foreign exchange market in the second half of this year?

Wang Chunying:

Your judgment is the same as ours. That is, the Federal Reserve is likely to continue raising interest rates but that this is coming to an end. Concerning the future trend in the foreign exchange market, to get a comprehensive overview, we should make observations and analysis based on both internal and external circumstances. That is also the characteristic of our foreign-related economy.

In terms of the economic fundamentals, China's economy will sustain its recovery momentum, providing stronger support for the foreign exchange market. Economic fundamentals have been playing a decisive role in influencing the trend of China's foreign exchange market. Since the beginning of this year, the Chinese economy has gradually emerged from the shadow of the pandemic and returned to normal. In the first half of this year, GDP increased by 5.5%. In the future, China will implement macro policies in a targeted and scientific manner, work hard to expand domestic demand, and promote unimpeded flow in the economy, so as to effectively upgrade the quality and appropriately expand the output of our economy. With the slowdown in global growth, the Chinese economy will play a greater role in supporting the foreign exchange market.

From the perspective of the foreign exchange market, the adjustment capacity and adaptability of China's foreign exchange market have significantly improved, effectively mitigating the risk of external shocks. The foreign exchange market has made substantial progress in recent years, making vast improvements and developments in transaction subjects, product transaction types, transaction models, and transaction scale. This progression aptly meets the diversified needs of the market. The flexibility of the RMB exchange rate has increased, and the market understanding of the two-way fluctuations of the RMB exchange rate, along with the concept of exchange rate risk neutrality, is improving. An increasing number of companies are able to better manage exchange rate risks. At the same time, in cross-border transactions, RMB payments now account for about 50%, reducing the risk of currency mismatch. All of these developments have further solidified the internal stability of China's foreign exchange market.

From an external standpoint, the Fed's tightening monetary policy is coming to an end, thereby weakening its spillover effect on the global economy. In recent years, the monetary policies of developed economies, led by the Fed, have been loosened and then tightened, which has induced substantial volatility in the international financial market and intensified adjustments within the international financial market. At present, inflation in the United States has declined from its previous peak, and the high interest rates may add to the rising risks of an economic recession. The market consensus is that the Fed's interest rate hikes are coming to an end, the momentum for the continued strengthening of the U.S. dollar has waned, and the external environment will marginally improve.

Over the years, the foreign exchange management department has successfully and steadily handled multiple rounds of external shocks. During this process, we have accumulated experience and continuously enriched and improved market regulation measures and methods. Therefore, we have the foundation, strength and confidence to maintain the stable operation of China's foreign exchange market. We will firmly guard against the risk of sharp fluctuations in the exchange rate and maintain the basic stability of the RMB exchange rate at a reasonable and balanced level.

That's all. Thank you.

South China Morning Post:

As you pointed out, RMB assets are attractive to foreign capital, but the RMB exchange rate has significantly fluctuated recently. We note that macro-prudential adjustment parameters for cross-border financing were raised yesterday. Will China continue to take measures to stabilize confidence and prevent a sustained and excessive fall in the exchange rate? Thank you.

Wang Chunying:

In recent years, the People's Bank of China and SAFE have established and improved the macro-prudential management of cross-border financing. Yesterday, we raised the macro-prudential adjustment parameters. The market has offered various analyses and interpretations, many of which I believe are accurate. This time, our primary adjustment was raising the parameter from 1.25 to 1.5. This change has increased the upper limit of the risk-weighted balance of cross-border financing for domestic financial institutions and enterprises, directly expanding access for enterprises to obtain financing from overseas, including banks. As previously mentioned, corporate cross-border financing is based on net assets, while banks are based on core capital. After the coefficient's increase, the expansion of overseas financing capacity will increase the source of cross-border financing, expand capital inflows, and help boost domestic liquidity, especially foreign currency liquidity. This change will balance supply and demand in the foreign exchange market and play a role in stabilizing foreign exchange market expectations. This policy has been well-received by the market. I notice that many companies are very interested in it, and they are also happy to see the coefficient increase.

We've discussed many issues related to the exchange rate. Whether viewed from the perspective of cross-border capital flows, foreign exchange settlement and sales data, the balance of payments, or even the maturity of the foreign exchange market and our policies, the RMB exchange rate has the potential to remain basically stable at a reasonable and balanced level moving forward. In the past, we have managed multiple rounds of external shocks, accumulated experience and improved our regulatory tools and measures. Not long ago, the PBC stated at a press conference that tools are meant to be utilized. We will adhere to comprehensive policies, focus on stabilizing expectations, and adopt different measures according to actual conditions to provide the market with a stable environment and expectations. This approach will facilitate foreign-related economic entities conducting business and investment activities. Thank you.

Yicai:

The current U.S. dollar interest rate remains at a high level, and there is a certain interest rate gap between the interest rates of China and the U.S. Against this background, could you tell me about any changes in China's foreign debt in the first half of the year? Thank you.

Wang Chunying:

Impacted by the Fed's interest rate hike, last year's external debt data experienced a slight deleveraging. However, the overall trend has stabilized since the beginning of this year. At the end of the first quarter, the total external debt balance stood at $2.5 trillion, representing an increase of $38.2 billion or 1.6% over the figure at the end of the previous year. China's external debt is anticipated to remain relatively stable in the first half of the year.

Looking at the composition of foreign debt, there are active and passive types of foreign debt. Different types of foreign debt demonstrate various characteristics of change, but these changes are relatively stable and moderate.

Let me talk about active foreign debt first. In recent years, cross-border financing of domestic entities has remained rational, with increases and decreases in active foreign debt being more moderate. Broadly speaking, cross-border loans obtained by enterprises, trade financing such as usance letters of credit, direct investment financing between affiliated enterprises, and interbank lending are all active foreign debts in which domestic entities actively use overseas resources. When the Fed's monetary policy was lax in the initial stages, these active foreign debts did not significantly increase leverage, so the adjustment pressure was relatively minor when the policy was tightened later. The balance of active external debt decreased by 6% last year and remained essentially stable in the first half of this year. During the previous round of external debt deleveraging in 2015, the balance of active external debt fell by 29%. Specifically, among the active foreign debts this year, only cross-border loans obtained by enterprises have declined, while the balance of other active foreign debts has moderately rebounded or remained basically stable.

Examining passive external debt, since the beginning of this year, overseas entities have been more proactive in allocating RMB-denominated assets, and passive external debt has remained basically stable. Passive external debt refers to foreign investors investing in domestic bonds and non-residents depositing in domestic banks. Recently, foreign investors have increased their holdings of bonds for two consecutive months, and the situation is improving month by month. Furthermore, the balance of deposits of non-residents from overseas rebounded in the first half of the year, reversing the decline of last year. This overall stability of the passive external debt balance reflects the long-term investment value of RMB-denominated assets. 

Additionally, the structure of China's external debt has further improved, and the risk is generally manageable. In terms of the types of debt, in recent years, the growth of external debt has been driven by overseas investors investing in domestic bonds, most of which have had medium to long-term maturities. The share of external debt used for the purpose of financing, such as cross-border deposits and lending, fell to 53%. In terms of maturity, the proportion of medium and long-term external debt is rising, while short-term external debt is mainly being driven by cross-border financing and credit. These are the essential financial tools widely used by import and export companies to conduct international trade. The use of trade credit, whether it is received in advance or deferred, is a good indicator of the competitive edge of Chinese export companies' products, as well as import companies' choices for overseas suppliers. In terms of currency, the proportion of RMB-denominated external debt reached a historical high. At the end of 2022, the debt payment rate, debt rate, liability rate and the ratio of short-term external debt to foreign exchange reserves were all within the international safety zone. This means that China's foreign debt is safe. Also, China is a net creditor nation, and the synergy between external assets and liabilities is strong. 

Overall, the ratio of China's external debt to GDP has remained at 14% to 16% in recent years. Cross-border financing is generally in line with the development of the real economy, and China's external debt is expected to remain stable in the future. 

That is all from me in answer to your questions. Thank you.

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.