Improve Balance of Payments Statistics，Enhance the Modernization...

Title:Improve Balance of Payments Statistics，Enhance the Modernization and Internationalization of the Foreign Exchange Market，and Contribute to the Construction of a New Development Pattern

JIA Ning

Director-General of SAFE’s Balance of Payments Department

China Forex: The external environment in 2022 was complex and grim，and the operation of China’s foreign exchange market has attracted much attention. How do you view and evaluate China’s foreign exchange situation in 2022? What are your expectations for the future?

JIA Ning: Under the support of China’s internal economic fundamentals，the operation of China’s foreign exchange market has generally withstood the test. The RMB exchange rate remained reasonably stable in the global environment，and cross-border capital flows were mainly balanced. In 2022，the major economies experienced “high inflation” and “tight monetary policy”. Consequently，the international financial market experienced high volatility. The exchange rate of the US dollar rose sharply，so did the interest rates in US. The exchange rate of the Euro，Yen，and Pound even fell to new lows in 20 or 30 years at a time and many emerging economies suffered from plunging currencies and capital outflows. In the international foreign exchange market where the US dollar appreciated and non-US currencies generally depreciated，the RMB has depreciated against the US dollar and appreciated against other major international currencies，such as the British Pound and the Japanese Yen，in 2022. The multilateral exchange rate index of the RMB was relatively stable，and from a global perspective，the RMB was more robust than many developed and emerging market currencies. The RMB exchange rate steadily recovered from November to December 2022 as the internal and external environment improved，and has continued to appreciate since the beginning of 2023.

From the perspective of foreign exchange receipts and payments，in 2022，the surpluses recorded by foreign exchange settlement and sales by banks and foreign-related receipts and payments by non-banking sectors were US$107.3 billion and US$76.3 billion，respectively. Considering other supply and demand factors comprehensively，the overall supply and demand of China’s foreign exchange market maintained a basic balance in 2022. More specifically，the net inflow of cross-border capital under trade in goods reached a record high in 2022，an increase of 45% compared to 2021. Additionally，according to statistics from the Ministry of Commerce，China’s actual use of foreign capital increased by 8%，and trade in goods and foreign direct investment played a leading role in stabilizing cross-border capital flows. Since 2023，there has been a small net inflow of cross-border funds，and foreign exchange settlement and sales by banks，as well as foreign exchange supply and demand within China，have remained basically balanced.

China’s cross-border capital flows are expected to become more stable in 2023，and the RMB exchange rate is expected to remain basically stable within a reasonable and balanced range. China’s domestic economic fundamentals are the decisive factors in stabilizing cross-border capital flows. As the effects of various policies，such as optimizing epidemic prevention and control and stabilizing economic growth，continue to emerge，China’s economic operation has rebounded significantly. In January 2023，manufacturing PMI returned above the boom-bust line. The International Monetary Fund (IMF) forecasts that China’s economic growth rate will increase by 2.2 percentage points to 5.2% in 2023，becoming the main driver of global economic growth. In addition，affected by various factors，the pace of policy tightening by the Fed has generally slowed down，and its spillover effect will be weakened.

China Forex: What are SAFE’s considerations in promoting the development of the foreign exchange market in 2023? What measures will be taken to further support enterprises in managing exchange rate risk?

JIA Ning: The report of the 20th National Congress of the Communist Party of China pointed out that it is necessary to “promote high-standard opening-up”. The 2022 Central Economic Work Conference further emphasized that “China will continue to expand high-standard opening-up，steadily advance institutional opening-up that covers rules，management and standards”. These statements pointed out the direction for the development of China’s foreign exchange market and provided the fundamental guidelines.

First，it is necessary to accelerate the construction of an open，diversified，and compe