Why Does China'S Foreign Reserve Shrink And Keep Bullish On RMB

Nomura analysts Craig Chan and WeeChoon Teo reported on Thursday (October 16) that the significant decrease in China's foreign exchange reserves in the third quarter was not a cause for concern, mainly because the sharp decline of the euro and yen against the dollar in the quarter led to fluctuations in foreign exchange prices.

The report points out that the data reveal that the Chinese authorities may avoid the risk of devaluation of the RMB.

Nomura believes that there will be appreciation pressure on the RMB in the next quarter for the following reasons:

　　a. Basic expectation of global economic growth; b. China's business cycle rebounds; c. Strong income and expenditure profitability, and continued structural demand for RMB, such as RQFII, Shanghai Hong Kong Stock Connect.

Nomura report pointed out that the above situation will drive Net capital inflow The RMB should rise unless the central bank intervenes.

According to the official data released by the People's Bank of China (PBOC) on Thursday, as of September 30, China's foreign exchange reserves stood at US $3.89 trillion, down by US $103 billion from the previous quarter. In the first half of this year, China's foreign exchange reserves increased by 172 billion US dollars.

Analysts pointed out that China Q3 The unexpected record fall in foreign exchange reserves indicates that speculative funds are withdrawing from China as the economic slowdown intensifies.

　　 DBS Group Nathan Chow, economist of DBS Group in Hong Kong, said that the data revealed signs of hot money outflows, because the economic data in August was not very good, causing some investors to be worried. This is not necessarily bad news for China because the authorities want to see two-way capital flows.

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"At present, China's economic and financial system is still undergoing reform, and the world's economic and financial pattern is also undergoing transformation, which determines that China's foreign exchange market will still be in an emerging stage of development in the future or a longer period of time." Wang Xiaoyi said.

Due to the international nature of the foreign exchange market, its reform has attracted the attention of all countries. After the 2008 financial crisis, people saw that the international financial market operating mechanism, regulatory model and other aspects were facing challenges, and reform became a common topic for developed and developing countries. Wang Xiaoyi said that China's inter-bank foreign exchange trading market has had the nature of an organized trading platform since its inception, and its existing trading and clearing organization mode is very consistent with the latest changes in international supervision after the crisis. Due to the diversity of financial market structures in various countries, there are differences and differences in understanding of regulatory reform. Therefore, it is very important to form a broader consensus on reform for the sustainable development of the global financial system.

In the future reform of China's foreign exchange market, the internationalization of RMB is undoubtedly an important role. Wang Xiaoyi said that with the gradual globalization of China's economy, the acceleration of reform and transformation, the improvement of the level of opening up, especially the further acceleration of the RMB exchange process, will promote the steady growth of China's balance of payments transactions. At the same time, with the deepening reform of the RMB exchange rate market, the market awareness and management level of banks, enterprises and other economic entities are constantly improving. How to more effectively distribute the assets and liabilities of local and foreign currencies and prevent exchange rate risks put forward higher requirements for the development of the foreign exchange market.

It is unavoidable that China's foreign exchange market has common problems and its own problems in emerging markets, such as inflexible trading mechanism, single type of market players, insufficient openness, and inadequate infrastructure.

Wang Xiaoyi said that the State Administration of Foreign Exchange will continue to adhere to the market-oriented reform of the foreign exchange market. In the future, the national foreign exchange market will see new changes in the following aspects: first, gradually relax transaction control, enrich the trading tools of the foreign exchange market, and improve the market functions of forward, swap and option foreign exchange derivatives, Better meet the diversified trading needs of various trading entities; Second, gradually increase the number of trading entities, expand the opening of the foreign exchange market, guide institutions with different foreign exchange needs to participate in foreign exchange market transactions in an orderly manner, allow eligible domestic and overseas institutions to participate in the offshore and onshore RMB foreign exchange markets in both directions, and promote the formation of a global RMB market; Third, improve the infrastructure, ensure the effective operation of the market, coordinate the inter-bank foreign exchange market bidding and inquiry trading mode, establish a multi-level and inclusive trading platform, continue to promote the clearing business of the central counterparty, and improve market transparency; The fourth is to change the way of supervision, enhance the ability of market innovation, streamline administration and delegate power, and standardize the professional ethics of the foreign exchange market.