China Daily:

The Central Economic Work Conference has underscored the importance of coordinating high-quality development with high-level security. It has also called for efforts to advance reform in key sectors and stabilize the overall performance of foreign trade and foreign investment. How does the PBC evaluate China's cross-border capital flow? How does it plan to reform measures related to foreign exchange facilitation? Thank you.

Pan Gongsheng:

Throughout last year, the change in both the domestic and overseas environment did have a certain impact on China's foreign exchange market, but it remained stable in general. I'll give the floor to Mr. Zhu for these questions.

Zhu Hexin:

Thank you for your questions. Governor Pan Gongsheng has already summarized and commented on them, and I'm happy to follow up as his successor at the SAFE. We have navigated through many challenges last year. According to the statistics of the SAFE, China's recent cross-border capital flows have become more stable, as reflected in the continued high-scale net inflow of the current account. The full-year current account surplus for 2023 is expected to reach around $280 billion, with the merchandise trade surplus exceeding $600 billion, marking the second-highest figure in history. Moreover, recent foreign investment in China has shown a positive trend. It is worth noting that since September of last year, foreign capital has increased its net holdings of Chinese domestic bonds for four consecutive months, with a cumulative increase of over $64 billion. We predict that the stability of cross-border capital flows in China will further improve this year, the current account will maintain a reasonable surplus, and foreign capital inflows under the capital account will be more active.

On the one hand, our industrial chain is complete, and we are constantly promoting industrial upgrading. Our production and manufacturing capabilities are robust, contributing to the competitiveness of our trade in goods. Foreign trade products and markets are becoming increasingly diversified. Policies aimed at stabilizing foreign trade and regional cooperation are gradually showing effects, with new export growth points continuously emerging. The number of business entities is increasing, and their products are gaining more competitiveness. Our cooperation will extend to more countries and regions, enhancing the stability of foreign trade.

On the other hand, foreign capital inflows under the capital account will become more active. Governor Pan Gongsheng, in his response to the first question, mentioned anticipated changes in the Fed's monetary policies for 2024. He also mentioned the gradual decrease in their spillover effects, which will ease our external financial conditions. This is expected to encourage a resurgence of international investment and a stabilization or even a rebound in foreign investment. At the same time, with our complete industrial chains and vast market, the diversification of RMB assets and investment in recent years will gradually paying off. We are confident in this aspect.

Regarding the second question about facilitation, our overall direction is to continue coordinating high-quality development with high-level security, deepening reform, and promoting facilitation. We aim to serve the real economy and ensure a stable and positive long-term economic trend. We will focus on the following five aspects:

First, we will continue to promote facilitation in cross-border trade, investment and financing. Our focus is primarily on technology innovation and SMEs, with continually expanding coverage. We aim to empower cross-border financial service platforms through technology, solving real problems for SMEs. We will also support the development of new trade formats, such as cross-border e-commerce and overseas warehouses. Through facilitation, we aim to make cross-border financing more convenient for innovative and technological enterprises. We will support SMEs and sci-tech innovation enterprises in their startup stage with more benefiting foreign exchange policies. Meanwhile, exchange rate fluctuations can be a concern for businesses. If not managed properly, they may lead to losses even for profitable businesses. Therefore, we should proactively improve services in exchange rate risk management for enterprises. In December 2023, we introduced nine measures in the fields of cross-border trade, investment, and financing to support foreign trade and investment. The key issue is not just having policies but ensuring their implementation and continuous evaluation and improvement, so as to truly offer convenience to enterprises and benefit both enterprises and individuals. This will be an important aspect. 

Second, we will continue to steadily promote high-standard institutional opening up. We will expand trials on high-level opening in cross-border trade and investment and improve the pilot program for integrating domestic and foreign currency for multinational corporations. Many of our corporations have demands in this respect, and we need to consider how to promote the measures based on the trial effects. We will unify management rules for foreign investment in Chinese domestic securities and futures, support regional opening-up and innovation, promote interconnectivity between domestic and foreign financial markets, and attract more foreign financial institutions and long-term capital to open and expand businesses in China.

Third, we will continue to promote the internationalization of the RMB in a prudent and solid manner. RMB internationalization is a clear direction and trend. Last year, the proportion of RMB cross-border payments in the trade of goods increased rapidly, reaching 25%, the highest level in recent years. In the next phase, our focus will be on facilitating trade and investment. We will strengthen the coordination between domestic and foreign currencies and further improve policies and infrastructure related to cross-border RMB transactions. Our aim is to better meet the needs of overseas investors for RMB asset allocation, holding, and risk hedging. We will actively support the steady development of the offshore RMB market, with a particular emphasis on enhancing the hub function of the offshore RMB market in Hong Kong.

Fourth, we are intensifying efforts to improve the management system, characterized by being prudent at the macro level and regulating the micro level. On the one hand, we are enhancing the monitoring and early warning response mechanism for cross-border capital flows, improving market communication and expectation guidance, and maintaining the basic stability of the RMB exchange rate. On the other hand, we are strengthening comprehensive regulation in the foreign exchange field, enhancing oversight of cross-border RMB transactions, promptly identifying and addressing abnormal situations, and taking tough action against illegal activities. Meanwhile, many of you may have noticed the recently introduced management approach for bank foreign exchange businesses, which has been well-received by banks. We are currently in the pilot phase of implementing this initiative. A core issue here concerns ensuring that those who have fulfilled their duties are not held accountable, which is of great concern to all banks. We have addressed this issue in the approach mentioned earlier. If the pilot phase progresses smoothly, we aim to include more banks in our system. The ultimate goal is to further enhance facilitation and better serve business entities.

The last aspect drawing widespread attention involves the continuous effort to improve the management of foreign exchange reserves with Chinese characteristics. We will spare no effort to ensure the secure and value-preserving flow of foreign exchange reserve assets.

Thank you.