Combining Market Monitoring and Analysis Amid Swings in Capital Flows

China Forex: The U.S. Federal Reserve has raised interest rates,and emerging economies in general are facing pressure from capital outflows. China may also see increased pressure from swings in capital flows in the year ahead. What will SAFE do to strengthen its monitoring and analysis capabilities?

Wang Chunying: China's cross-border capital flows have witnessed a significant shift in recent years as a result of a very different internal and external environment. The balance of payments position has undergone a considerable change,and this reflects a number of factors. First,developed economies are growing,although their recovery from the financial crisis has been weak. At the same time emerging economies have been witnessing declining growth. Meanwhile,among the developed countries themselves there are very different situations and that has led to very different monetary policies. The U.S. Federal Reserve has officially ended its quantitative easing policy and raised interest rates,while central banks in the Eurozone and Japan continue to employ loose monetary policies. This has led to a stronger US dollar and that has exerted pressure on other currencies. Some emerging economies have been hit by severe currency depreciation and bouts of capital outflows. Although China's domestic economy has been growing steadily,there is still downward pressure on the growth rate. As a result of all of these factors,the previous pattern of surpluses in the current and capital accounts (excluding the reserve assets account) came to an end in the second quarter of 2014. Since then we have seen the capital and financial account in deficit and cross border capital movements that swing between net inflows and outflows.

There are two reasons for this phenomenon. On one hand,market players are more willing to hold foreign exchange assets and more such assets are now held by banks,enterprises and individuals rather than by the central bank. On the other hand,Chinese companies are working actively and steadily to lower their foreign debt leverage by repaying foreign currency loans so that they can avoid high leverage ratios and risks from currency mismatches.     

This pattern is likely to continue this year. We must improve our work in data monitoring and analysis to cope with the ensuing challenges. We will make full use of monitoring and analysis to get a clear picture of the macro environment. We need to discover risks as early as possible. We must strengthen our monitoring and early warning capabilities in the area of international income and expenditure. Changes in the main channels of cross-border capital flows and emergence of new channels must be monitored closely to improve the accuracy of risk forecasting. We also need to keep a close watch on currency policy adjustments by major developed economies,monitor risks in the international financial market,keep pace with geopolitical developments and evaluate domestic economic growth. We need to make timely assessments of the possible impact of these factors on cross-border capital flows. We also need to adapt to the new normal of a slower global economic recovery and an ongoing restructuring of the nation's economy.

China Forex: Last year,we published international balance of payments and international investment position statements in accordance with the sixth edition of the IMF Revenue and Expenditure Manual. We also improved our data collection methods as well as the data declaration and inspection system,and this has increased accuracy and transparency of our statistics. What else will be done in this area?

Wang Chunying: This year,we are going to fulfill the following tasks concerning the improvement of statistical products,systems and methods of international revenue and expenditure:

First,we will increase the transparency of our statistics. We will compile and publish international balance of payments and international investment position statements in accordance with the sixth edition of the IMF Revenue and Expenditure Manual. We will complete the IMF Coordinated Portfolio Investment Survey and the Bank for International Settlements' International Banking Statistics,and publish them as new statistical products. We will provide a clear picture of the actual situation in China's international income and expenditure and cross-border capital flows through the Report on China's International Revenue and Expenditure and the Monitoring Report on China's Cross-border Capital Flows. We will also try to compile monthly international balance of payments data by country and currency categories,and provide online international balance of payments and international investment position statements.

We also need to revise the Statistical System for Foreign Financial Assets,Liabilities and Trading,and roll out relevant inspection