Abstract The central bank announced the foreign exchange reserve data for November on December 7. As of November 30, 2016, China's foreign exchange reserves amounted to 3.05 trillion US dollars, a decrease of 69.1 billion US dollars from the end of October, a decrease of 2.2%. This is the fifth consecutive month of reduction in foreign exchange reserves...
The central bank announced the foreign exchange reserve data for November on December 7. As of November 30, 2016, China's foreign exchange reserves were 3.05 trillion US dollars, down by 69.1 billion US dollars from the end of October, a decrease of 2.2%. This is the fifth consecutive month of decline in foreign exchange reserves, and the largest decline since January this year. Regarding the reason for the decline in the size of foreign exchange reserves in November, the relevant person in charge of the State Administration of Foreign Exchange gave the explanation that “the central bank provides foreign exchange funds to the market to adjust the balance of foreign exchange supply and demand, and the non-US dollar currency depreciates against the US dollar after the US election. The price also has a combined effect of multiple factors such as a correction, which has led to a decline in the size of foreign exchange reserves."
The "First Financial Daily" interview learned that the reduction of foreign exchange reserves cannot be regarded as capital flight. Under the current cross-border capital flow management framework, there is no significant change in the overall downward trend of the deficit pressure on foreign exchange settlement and sales in the second half of 2016. . However, experts also said that it is still necessary to be alert to the risk of capital outflows and the depreciation of the RMB depreciation.
On November 6, the heads of the four departments including the National Development and Reform Commission and the Foreign Exchange Bureau said in response to media questions that the regulatory authorities are closely monitoring the recent irrational foreign investment trends in real estate, hotels, cinemas, entertainment, sports clubs and other fields. It will combine the improvement of medium and long-term institutional construction with short-term related regulation and control to prevent foreign investment risks while promoting foreign investment facilitation.
Strong dollar is the main reason for the reduction of foreign reserves
Under normal circumstances, there are four main factors affecting the changes in foreign exchange reserves: one is the operation of the central bank in the foreign exchange market; the other is the price fluctuation of the foreign exchange reserve investment assets; the third is because the US dollar is the measurement currency of foreign exchange reserves, and the other various currencies are relatively Changes in the exchange rate of the US dollar may lead to changes in the size of foreign exchange reserves. Fourth, according to the definition of foreign exchange reserves of the International Monetary Fund, foreign exchange reserves will be adjusted from the scale of foreign exchange reserves to scale when the use of funds for supporting “going out†is used. And vice versa.
Since November, influenced by many factors such as the continued improvement of the US economy and the optimism triggered by the election of Trump in the United States, the market’s expectation of the Fed’s interest rate hike in December has further heated up, and expectations for future Fed rate hikes and frequency are also expected. There have been some changes, the US dollar has strengthened sharply, the US dollar index rose to a 14-year high of 102.05 in the middle of the month, and the US dollar index rose by 3% in November.
The world's major non-US currencies fell almost across the board. In November, the yen, the euro and the Swiss franc depreciated 8.42%, 3.57% and 2.78% respectively against the US dollar; the RMB exchange rate against the US dollar also depreciated by 1.69%.
According to estimates by well-known foreign exchange expert Han Huishi, the non-US currency depreciation contributed approximately at least $30 billion out of the $69.1 billion in foreign reserves in November. In addition, due to the sharp rise in interest rates in the European, American and Japanese bond markets, the revaluation of the value of the reserve investment assets may contribute at least $20 billion. From this, it is calculated that the downward pressure on foreign exchange reserves imposed by the domestic settlement and sales deficit should be at least 15 billion to 20 billion US dollars.
Xie Yaxuan, chief macro analyst of China Merchants Securities, calculated that the impact of the exchange rate conversion factor in November was -31.7 billion US dollars. If this factor is deducted, the central bank's official foreign exchange reserves will fall by 37.4 billion US dollars, and in October it will fall by 16.8 billion US dollars, while the same period in 2015 A drop of 51.5 billion US dollars.
Zhao Qingming, chief economist of China Financial Futures Research Institute, told this reporter that the reduction of foreign exchange reserves cannot be simply regarded as capital flight. At present, foreign exchange supply and demand are unbalanced, and foreign exchange purchases increase, including some direct investment projects, which are used for inflowing foreign direct investment (FDI) and outflow of foreign direct investment (ODI). Since 2014, ODI has grown at a high speed. If the combination of financial and non-financial enterprises is calculated, ODI is already larger than FDI. This year's situation is even more significant. The impact on the foreign exchange market is a net purchase of foreign exchange. This is reasonable.
Supervision and force to strictly control capital outflow
Although from the data point of view, the deficit pressure on the foreign exchange settlement and sales market has declined, in the opinion of experts, it is still necessary to be alert to the risk of capital outflow and the depreciation of the RMB depreciation.
Lian Ping, chief economist of the Bank of Communications, believes that capital flows will affect foreign exchange supply and demand, which in turn will affect exchange rate changes. Currency appreciation will attract capital inflows, and capital inflows will further strengthen expectations for appreciation, thus forming a cycle. From 2005 to 2013, the central parity of the RMB against the US dollar rose from 8.27 to 6.1. During this period, foreign exchange holdings increased from 4.7 trillion yuan to 26.4 trillion yuan, and foreign exchange reserves increased from 623.6 billion US dollars to 3.8 trillion US dollars. Contrary to this, the “capital outflow – RMB depreciation – depreciation expectation is enhanced – capital outflow pressure is increased – depreciation expectations are re-enhanced†caused by the continued depreciation of the RMB since 2015.
Han Huishi said: "The future trend of the renminbi depends on the US dollar. If the US dollar continues to rise, the renminbi does not need to be strong against the US dollar. The US dollar index is expected to challenge 105 in 2017. The renminbi will break 7 is a high probability, but will be at 7 Fluctuating up and down."
Recently, relevant regulatory authorities have also introduced a number of policies to strengthen the management of the external net payment of the renminbi.
Earlier, on the evening of November 29, the foreign exchange bureau issued a message saying that the foreign exchange bureau will cooperate with the relevant overseas investment management departments to conduct a true compliance audit to combat false foreign investment.
In Xie Yaxuan's view, on the one hand, the foreign exchange policy is targeted and perfect. On the other hand, after the Fed's interest rate hike boots are expected to fall in December, the US dollar may peak in stages and the capital outflow pressure will be expected to ease.
"Under the strength of the existing cross-border capital management, although the market expects the renminbi to depreciate, according to my budget, the actual situation is that the external reserve impairment caused by the central bank's intervention in the market every month averages 10 billion to 20 billion. The dollar, which shows that the existing management is effective." Han Huishi told this reporter.
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