Promoting A High-Quality Balance of Payments Statistical System...

CHINA FOREX: Amid the intricate and challenging external environment in 2024, how has China's foreign exchange market performed? What are your insights on the projected trends of the foreign exchange market in 2025?

JIA Ning: The Third Plenary Session of the 20th National Congress of the Communist Party of China (CPC) and the Central Economic Work Conference emphasized the need to coordinate development and security, effectively prevent and resolve risks in key areas, and firmly safeguard against systemic financial risks. The State Administration of Foreign Exchange (SAFE) has consistently strengthened its regulatory capabilities and risk prevention and control levels while enhancing openness. By implementing a two-pronged administration of the foreign exchange market featuring both macro-prudential management and micro-regulation in the foreign exchange market, it has reinforced counter-cyclical regulation and expectation management to resolutely prevent significant fluctuations in the foreign exchange market and maintain a sound trading order. The SAFE has steadily promoted the reform and opening up in the foreign exchange sector and enhanced the facilitation of cross-border trade and investment, to effectively serve the development of the real economy. Supported by robust internal fundamentals, China's foreign exchange market showed strong resilience in 2024, with the RMB exchange rate remaining basically stable at a reasonable and balanced level, and the balance of payments maintaining overall equilibrium.

Firstly, the RMB exchange rate fluctuated in both directions, performing steadily among major global currencies. In 2024, international financial markets witnessed increased volatility, with the US Dollar Index rising by 6.5% and the yield on US 10-year Treasury increasing by 0.72 percentage points to 4.58%. The strong USD exchange rate and high interest rates continued to impact the international foreign exchange market, leading the JPY, Euro, and currencies of major emerging economies to depreciate. China's economy operated smoothly with progress, and supported by strong fundamentals, the onshore RMB depreciated slightly by 2.8% against the USD over the year, while appreciating by 3.4%, 7.4%, and 4.2% against the Euro, JPY, and the CFETS respectively. From a global perspective, the RMB remained robust. In terms of fluctuations, the RMB exchange rate witnessed increased fluctuations in both directions, which released the pressure from external shocks. In the first half of the year, the USD exchange rate and interest rates rose rapidly, resulting in a slight depreciation of the RMB against the USD by 2.4%. In the third quarter, as the internal and external environments improved, the RMB appreciated by 3.6% against the USD. In the fourth quarter, the US Dollar Index rebounded strongly by 7.1%, widening the decline in the global foreign exchange market. China intensified counter-cyclical adjustment of its monetary policy, leading to a recovery in domestic economic growth to 5.4%, effectively boosting market confidence. The RMB rose by 3.2% against a basket of currencies, showing a more robust performance.

Secondly, China basically maintained an equal in balance of payments, with the scale of foreign exchange reserves remaining stable. Preliminary statistics indicate that in 2024, the current account surplus was US$422 billion, with a ratio to Gross Domestic Product (GDP) of 2.2%, remaining within a reasonable and balanced range, and the internal and external economic balance was more solid. Among them, the trade surplus in goods grew steadily, mainly driven by the recovery in external demand and the increase of China's foreign trade competitiveness, leading to steady export growth. The financial account excluding reserve assets showed a deficit, mainly due to increased outbound investment by domestic entities, with preliminary estimates for 2024 exceeding US$400 billion, much higher than that in 2023. Foreign direct investment (FDI) capital and foreign portfolio investment (FPI) in China maintained a net inflow trend, amounting to nearly US$40 billion. By the end of 2024, the balance of foreign exchange reserves stabilized at over US$3.2 trillion.

Thirdly, China's external asset-liability structure continued to be optimized, and the external capital sources and uses matched better. The entities holding external assets became more diverse, with banks, enterprises, and other subjects continuously increasing their external asset holdings, rising steadily from 30% in 2010 to 65%. These assets were spread across more than 200 countries and regions, leading to a broader distribution of outbound investment. China's foreign exchange reserves have remained at the top of the world since 2006, fully playing the role of stabilizing the macro-economy and the balance of payments. Among China's external liabilities, FDI accounted for more than half, solidifying the foundation for China's use of foreign capital; inward portfolio investment accounted for nearly 30%, doubling in proportion over the past decade. This demonstrated the effectiveness of the openness of China's financial market. In recent years, China's balance of payments has maintained an autonomous equilibrium, with trade surpluses and funds from absorbing external investment transformed into various types of outbound investment by enterprises and banks. This has enhanced the resource allocation efficiency and asset-liability matching of domestic entities, optimized the external asset-liability structure, and increased the ability to withstand external shocks.

Looking ahead, China's economic fundamentals and the resilience of the foreign exchange market are strong, and the foreign exchange market is able to maintain a basic equilibrium. Firstly, China will implement more proactive and effective macro policies. The economy's steady and positive development in the future will provide important support for the stability of the RMB exchange rate and the smooth operation of the foreign exchange market. Secondly, the current account is expected to maintain a reasonable surplus pattern. China's manufacturing development level leads the world, with the manufacturing value-added rising to 30% of the global total, making it irreplaceable in global production and supply. China's trade modes and partners are becoming more diversified, with rapid development of new growth points in foreign trade such as cross-border e-commerce, market procurement, and new energy products, enhancing the resilience of foreign trade to better cope with external shocks and challenges. In the context of a complex global trade environment, Chinese enterprises have enhanced their ability to respond to external shocks in recent years, boosting confidence. Thirdly, cross-border capital flows under the capital account are expected to be more stable. China is accelerating its innovation-driven strategy, attracting more foreign investors to invest in China's technology industry and increase their holdings in Chinese assets. Fourthly, China's foreign exchange market has increased resilience and enhanced ability to withstand external shocks. The RMB exchange rate maintains appropriate elasticity, allowing for an orderly release of pressure and keeping market balance. The tools for exchange rate risk hedging and RMB settlements are widely used, with the proportion of cross-border RMB receipts and settlement in goods trade accounting for nearly 30% of the total, and the foreign exchange hedging ratio of enterprises rising to 27%, both at historical highs, which help stabilize market expectations and transactions.

CHINA FOREX: The Third Plenary Session of the 20th CPC Central Committee proposed to promote high-quality development via high-level opening-up. As an important basis for macroeconomic decision-making, what achievements have been made in balance of payments statistics in recent years? What are the specific ideas and measures for promoting the construction of a high-quality balance of payments statistical system in the future?

JIA Ning: The balance of payments account is one of the four major macroeconomic statistical accounts. It adopts internationally accepted standards and can comprehensively reflect a country's foreign-related economic operations, providing important reference value for situation analysis and macroeconomic decision-making. In recent years, the SAFE has continuously strengthened the foundation of balance of payments statistics systems, improved the transparency of statistical data, strictly controlled data quality, promoted reforms in statistical methods, and participated in international statistical governance to contribute to Chinese-style modernization.

Firstly, the SAFE has provided high-quality statistical data to serve macroeconomic decision-making. First, the SAFE has compiled and published the balance of payments statistical data and continuously improved data transparency. In 2024, the data of the equity other than reinvestment of earnings under direct investment was included in the balance of payments, further facilitating data users in their analysis and assessment of foreign economic conditions. Second, the SAFE regularly revises the published balance of payments and international investment position statements, which more comprehensively and accurately reflect the overall situation of China's foreign economy. Third, the SAFE has persistently focused on improving the quality of statistical data. In 2024, the SAFE verified more than 20,000 directly reported entities and trade credit entities, over 80 million foreign-related receipt and payment declaration records, and more than 36 million direct reporting records. Fourth, the SAFE has continued to expand the scope of direct reporting entities. By the end of 2024, more than 8,000 large enterprises had adopted direct reporting. Fifth, the SAFE has strengthened cross-departmental statistical cooperation and maintained close collaboration with departments such as the National Bureau o