China's Foreign Exchange Rate to Remain Stable
China Forex: China's foreign exchange market reflected a complex international situation in 2018. What is your assessment of the yuan's exchange rate over the year and what are your expectations for this year?
Wang Chunying: China's foreign exchange market maintained basic stability in 2018 despite significant changes in the international environment and increasing volatility in emerging markets. While the US dollar index rose 4.4%，the yuan exchange rate was relatively stable. The mid-price of the renminbi against the US dollar fell by 4.8%，while emerging market currency indices lost more than 10%. Meanwhile，cross-border capital flows were basically steady last year. The deficit from exchange settlements and sales by banks，as well as of exchange collection and payment，narrowed in 2018 from the 2017 level. There was a basic balance between foreign exchange supply and demand in China. In addition，market expectations were reasonable. There was stability in the utilization of foreign capital，outbound investment，cross-border financing and overseas loans with a domestic guarantee by Chinese enterprises. Purchases of foreign exchange by individuals in 2018 were down 7% from 2017.
The stability in China's foreign exchange market is likely to continue throughout 2019，considering the development of China's economy，policies and markets overall. Longer term trends also look positive. China's economy will grow at a relatively high rate as it retains significant potential. Growth will be achieved on a much higher base and this will permit China to effectively deal with changes in the external environment. In the policy arena，China will continue to expand its opening to the outside world. There will be greater market access，better protection of intellectual property，more convenience for foreign investors and a more open capital market. The steady policy of opening up the economy will reassure foreign investors. Additionally，the foreign exchange rate mechanism will also undergo improvement. The increased two-way fluctuations of the renminbi will lead to more reasonable market expectations. The combination of macro prudence and micro regulation for cross-border capital flows will contribute to a healthier market. They will support a self-adjusting equilibrium in the balance of payments.
China Forex: The past year was a turning point for China's balance of payments，with a falling current account surplus and a rising surplus of non-reserve financial accounts. What is your assessment of this change? What do you see in the future as far as China's balance of payments is concerned?
Wang Chunying: China's balance of payments was in equilibrium in 2018. According to preliminary statistics，the overall surplus on the current account was reasonable. Although there was a deficit in the first quarter，there was a surplus in each of the following quarters and the surplus expanded over that period. There was also a balance between the current account and the non-reserve financial account. Against this background，China's reserve assets remained basically stable，and the renminbi held fairly steady throughout the year.
Looking ahead，the trend for the current account and the balance of payments will continue. The combination of solid infrastructure，an integrated production chain，large numbers of technically skilled workers，and the upgrading of industry will help Chinese products maintain their international competitiveness. Cross-border consumption by domestic residents will be more reasonable with the improvement in China's product quality，environmental concerns，educational quality，and so on.
China's cross-border capital flows will also remain generally stable in 2019. Capital inflows for medium and long-term investments have greater room for improvement. As shown by the data for the first three quarters of 2018，net inflows of foreign direct investment in China accounted for 36% of overall foreign capital inflows，up 9 percentage points from a year earlier. There is potential for foreign investment to grow as the country will open up more of its economy and the Chinese market is becoming more important as far as foreign investors are concerned. At the same time，the proportion of foreign investors in China's capital market is expected to expand. The net inflow of foreign securities investments makes up 37% of China's overall foreign capital inflows，up 11 percentage points over the previous year. A large part of the increase is investment in debt securities from institutions such as foreign central banks. This is part of their medium- and long-term asset allocations. In the future，with further opening up，China will become an important destination for diversified asset allocations of international capital.
China Forex: What specific work was done by SAFE in 2018 to consolidate the statistical basis for the international balance of payments?