China will witness a largely stable foreign exchange market and a more balanced international payment system this year, the nation’s currency regulator said on Jan 18.
The resilient Chinese economy, the ongoing opening-up, and a vastly improving foreign exchange market will help to stabilize the yuan, said Wang Chunying, a State Administration of Foreign Exchange spokeswoman.
“The recent currency fluctuations have been beneficial for the diverse and rational market expectations,” Wang said.
A probable slowdown in the pace of interest rate hikes by the US Federal Reserve and a weaker appreciation momentum for the greenback will also help to stabilize China’s foreign exchange market, Wang said. “We will use market-based counter-cyclical measures to regulate fluctuations in the nation’s foreign exchange market.”
Last year, the country achieved a basic equilibrium in its balance of international payments and the rational surplus in the current account, which helped to offset a deficit in the non-reserve financial account. Though there was a current account deficit in the first quarter, it was followed by a surplus in the second quarter, a trend that extended into the remaining two quarters, SAFE said.
The regulator expressed confidence that China’s international payments will continue in a balanced manner, given the sound performance of the current account and “the rather large room” for the nation to attract mid to long-term capital.
The country’s current account balance will remain at rational levels as the manufacturing sector upgrade helped improve global competitiveness and residents’ cross-border consumption patterns will become more rational.
Capital flows into China are set to grow, especially direct and securities investment inflows, the regulator said.
“The proportion of foreign investment in the domestic capital markets is low. New policies will help to further open the capital markets and facilitate foreign investment. China will become an important destination for international capital,” said Wang.
Such policies include further broadening market access, strengthening intellectual property protection, facilitating trade and investment, and further opening up of capital markets, she said.
“SAFE will optimize foreign exchange management services to further promote trade and investment liberalization and facilitation.”
The administration will also deepen two-way opening-up of the foreign exchange market this year, further enriching trading tools and enlarging the scope of trading entities. Besides deepening the reform and opening-up of foreign exchange management, SAFE will also focus on improving its ability to prevent and resolve risks in cross-border capital flows.
