Decade-long Steadier BOP Position Highlights China’s Achievements of Economic...

Title：Decade-long Steadier BOP Position Highlights China’s Achievements of Economic Development，Reform and Opening-up in a New Era

Under the strong leadership of the CPC Central Committee with Comrade Xi Jinping at its core，the Chinese economy has been on a track of higher-quality development and higher-level opening-up since the 18th CPC National Congress. Against this backdrop，China has a more solid foundation for a steady balance of payments (BOP) position，which maintains an overall balance in a complex and changing external environment. The evolvement of BOP over the past decade fully demonstrates China’s major achievements of economic development，reform and opening-up in a new era.

Over the past decade，China’s BOP maintained a balanced and steady development trend which reflects the fundamental support from high-quality economic development. Since 2012，we’ve been in an intricate external environment in terms of international politics，economy and finance. A range of intertwined uncertainty and instability factors pose a huge challenge for China to ensure a steady BOP position. However，China’s BOP has stood the test of external shocks in general—a largely balanced current account; more active foreign trade and cross-border transactions under capital accounts; foreign exchange reserves staying above US$3 trillion. When making efforts to maintain a steady BOP position，China’s positive economic fundamentals and long-term trajectory played a role of fundamental support. Since the 18th CPC National Congress，the Chinese economy has been transitioning from a phase of rapid growth to a stage of high-quality development. With a change in development concepts，optimization of economic structure and a shift in growth drivers，China’s economic development is growingly more balanced，coordinated and sustainable. Its GDP reached 114 trillion yuan in 2021，2.1 times that of 2012. And the GDP per capita reached US$12,500，doubling from 2012. Accordingly，China has leaped to a new level in terms of economic and technological strength and composite national strength.

Over the past decade，China’s current account has been kept within an appropriate equilibrium range，indicating the characteristic of moving faster to create a new development paradigm. After the 2008 global financial crisis，the Chinese economy began to shift to a new dynamic with the domestic economy as the mainstay. The ratio of current account surplus to GDP went down from 9.9% in 2007 to 1.8% in 2011，and has stayed within the appropriate range of around 2% since 2012. This manifests further consolidation of balanced economic development both internally and externally. Domestic demand contributed over 90% to economic growth in seven years out of the past decade. This indicates a more prominent dominance of domestic market in national economic dynamic，along with important contribution to rebalancing the global economy. Meanwhile，China’s current account maintained an appropriate surplus. In particular，after the COVID-19 pandemic broke out in 2020，China’s production and supply capacity effectively made up for the international gap between production and demand. China’s trade in goods became the first sector to resume growth. And its current account surplus bucked the downward trend with increase. China is the only country in the world to obtain all the industrial categories listed in the United Nations industrial classification. In recent years，China continued to promote the transformation and upgrading of the manufacturing industry，and achieved progress on diversifying trading partners. During the spiraling period of COVID-19，its production and supply strengths were brought into full play for supporting countries worldwide in COVID-19 response and economic recovery.

Over the past decade，China optimized its cross-border investment and financing structure，which presented fruitful results of high-level opening-up. Firstly，FDI maintained a steady growth along with orderly development of outward foreign direct investment (ODI). By the end of 2021，FDI stock reached US$3.6 trillion，a 70% growth than that in late 2012. And during the same period，China’s ODI increased from over US$500 billion to US$2.6 trillion，maintaining a steady and orderly growth momentum. Since the 18th CPC National Congress，China has kept pushing for steady high-quality development of the Belt and Road Initiative by promoting high-standard opening-up. Domestic business environment saw continuous improvement，with a huge potential in consumer markets. High-end manufacturing and emerging services sectors became more attractive to foreign investment. Meanwhile，thanks to a stronger real economy and higher corporate strength，Chinese enterprises had a growing demand for “going global” under policy support and guidance，and their international competitiveness improved. Secondly，cross-border securities investment played a growingly important role in BOP. In late 2021，securities investment accounted for 29% of China’s total outward investment，and outward securities investment accounted for 11% of its total ODI，an increase of 14 and 6 percentage points respectively over late 2012. In recent years，financial markets saw steady progress in two-way opening up. Policies such as the Shanghai-Hong Kong Stock Connect，the Shenzhen-Hong Kong Stock Connect，the Bond Connect program，and the CIBM program took effect. The qualified investor system was improved. And more domestic stocks and bonds were included into international mainstream indexes. Such progress has widened the channel of China’s cross-border capital flows，and better met the asset allocation demand of domestic and overseas investors. Thirdly，foreign debt structure was improved and foreign debt risks were generally under control. In recent years，the foreign debt growth mostly came from the increasing allocations by foreign central banks and other medium- and long-term funding sources to China’s bonds.

Over the past decade，exchange rate has been playing an increasingly bigger role of automatic stabilizer in regulating BOP，reflects the achievements of the reform of the exchange rate formation mechanism and the development of the foreign exchange market. Since 2012，the years-long “dual surplus” situation of China’s BOP changed into a new pattern featuring spontaneous balance from surplus offsetting deficit under current accounts and overall stability of reserve assets. During this period，we improved the market-oriented adjustment mechanism of the RMB exchange rate while pushing for the in-depth development of the foreign exchange market. These efforts have facilitated the autonomous balancing of BOP. China adopts a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies. Since the 18th CPC National Congress，China has been pushing for the market-based RMB exchange rate formation mechanism reform，which allows market supply and demand to play a bigger decisive role in exchange rate formation. With more flexibility，the two-way fluctuations of RMB exchange rate enabled it to play a bigger role of automatic stabilizer in adjusting BOP. Meanwhile，China worked hard to develop foreign exchange market. There are now over 40 tradable currencies，with trading categories covering international mainstream foreign exchange trading products. Foreign exchange transactions have increased from US$9.2 trillion in 2012 to US$36.9 trillion. We continued to improve foreign exchange market management，maintain the order of market transactions，and enhance the exchange risk-neutral awareness of market players. In the first five months of 2022，the corporate hedging ratio doubled year-on-year. These changes provide a better market environment for the RMB exchange rate formation mechanism reform.

Going forward，China will move faster to create a new development paradigm，actively promote the coordinated development between domestic and foreign demands，between import and export，and between inward and outward investments. Such efforts will help China maintain an overall balance of BOP in the medium and long term. Next，the State Administration of Foreign Exchange will continue to follow the guidance of Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era，ensure both development and security，and speed up the improvement of institutions and mechanisms for foreign exchange management that adapt to the modernization of governance system and governance capacity. We will continue to deepen the reform and opening-up in foreign exchange，enhance the facilitation of cross-border trade，investment and financing. These efforts will help create a sound foreign exchange environment for high-quality economic development and high-level opening up，while also consolidating domestic fundamentals for China’s balance of BOP and ensuring a steady BOP position.