Guan Tao: capital outflow does not mean that devaluation | Forex | Reform | risk

  Text / Chinese Economists 50 Forum Guan Tao taken from the author at the inaugural Asia Pacific Asset Management Summit conference speech in recent years due to changes in foreign exchange situation, some foreign exchange policy adjustments, we worried about, in this case, how about the ten nine related to building a new pattern of open economy implemented?And you may have many questions。 There combined with my personal study, give you a few report。
  See above picture can be found in the past for a long time, the Chinese government has been actively encouraging "hidden Meeting the people," including "going out"。 Foreign investment represents the blue and red represents the internal foreign。 We see the blue, these years are basically negative, are net outflow。
And in 2013 we have noticed before, in fact, the government has taken many means, through support domestic enterprises to "go out" to expand the export of capital, including the establishment of a sovereign wealth fund, the United States engage in lending, including policy bank recapitalization and with Zhejiang banks do currency swaps, etc.。
  But after the second quarter of 2014, due to changes in market conditions in the foreign exchange market spontaneous asset redeployment demand began to appear。 For a time, it and liabilities, net inflow of foreign investment down the stack, resulting in deterioration of capital flows during the period of。
But from the beginning of the second quarter of 2014, liabilities, and foreign investment has returned to net inflow of capital is currently down, still due to corporate and household assets reconfiguration needs resulting from。
  We all know that we are generally talking about the use of foreign investment China is a big country, but we may not notice China is also a capital exporting country。
We did a comparative analysis found a very interesting phenomenon。 China and the United States, Japan, Canada compared to China's external financial assets and financial assets, the proportion of China's own, and developed a large extent compared to almost 10% more。 Of course, we are much smaller than the UK, 30%, the UK is an international financial center, is an island economy。   But China indeed there is a very important issue, our foreign exchange reserves in the form of financial assets are mainly assets of the official application。
If you put the foreign currency reserve assets later removed, it becomes another external financial balance sheet, we are not positive of foreign bonds, but a net external debt。   So that's why the state has been taking measures, how to make folk to hold more assets。
We can see that in the past two or three years time, hidden Meeting the people have to show results。 The end of June 2017, reserve assets accounted% lower than the end of 2014, has dropped to half of the total proportion of foreign financial assets, most of the time we are 67%。
Among them, foreign direct investment rose%, foreign portfolio investment rose%, the proportion of foreign investment in other rose%。
From a positive perspective, capital outflows over the years, meaning possession of the Meeting the people achieve results。
  All things are both advantages and disadvantages, in the past a very long time is a lot of trade surplus, net capital inflows。
But from the beginning of February 2014, there has been a change in our trade surplus is still, but became a net outflow of capital。 However, in mid-2015 before the third quarter, the outflow of capital and trade surplus down is probably matched, so the impact is not great, but after mid-2015 third quarter, we all know that China first abnormal fluctuations in the stock market, then external market oscillation。 In this case, capital outflows rapid amplification, increased foreign exchange reserves decline, pressure on the exchange rate adjustment。   We have implemented market-oriented exchange rate, the exchange rate would want to play the price leverage。 What is the price leverage?I think the price leverage is when the exchange rate appreciation, more and more people to buy foreign exchange, foreign exchange selling fewer and fewer people; when the exchange rate depreciation, foreign exchange selling more and more people, who increasingly buy foreign currency the less。 But we see that when there is downward pressure due to panic in the market, there have been price leverage failures。
  Performance is very prominent in cross-border business investment would have been a long-term capital flows, capital flows are stable, but during the second half of every year to the end of 2016 and 2015, due to changes in the situation, fluctuations in market sentiment, we see the emergence of Short-term trend。 First, we see mid-2015 to the end of the third quarter 2016 quarterly average net outflow of scale much higher than the equilibrium level in the third quarter of 2014 to early 2014, is suddenly look abnormal rapid expansion。   what's the result?Over a long period of time, the balance of payments is the caliber of the net inflow of trade, beginning in mid-2015 significantly reduced net inflows in 2016 into a net outflow of direct。
What are the consequences?Consequences that the current account surplus plus direct investment in 2016 reduced by 60% compared to 2015。 Originally in the middle of the outflow of foreign exchange reserves and short-term capital, you should have a current account surplus of + direct investment "moat"。
Now that the direct investment directly into a deficit, leading to "moat" shallow, resulting in a substantial decline in foreign exchange reserves。
In fact in 2016 after excluding the impact valuation, foreign currency reserve assets decreased by $ 448.7 billion, compared with 2015, more than 35% reduction。   We all know that foreign exchange reserves related to market confidence, related to national financial security。 Will lead to the end of last year, the state has adopted a number of measures to regulate the Overseas important consideration。 This year, we clearly see the effects of these policies began to show foreign-invested enterprises senses。
We can see a net outflow of foreign direct investment, but among the first three quarters decreased 64% year on year, I use the balance of payments caliber, not the caliber of the Ministry of Commerce。
  In this case, the direct investment inflow of $ 80 billion from the same period last year net into a net inflow of $ 21.3 billion。 And its consequences, that is, the current account surplus of direct investment, an increase of 22%。
So, the net outflow of short-term capital re-ED current account surplus + direct investment, foreign exchange reserves turned up, means that the risk of short-term capital flows, the impact of this year has been resolved。
  RMB exchange rate this year after a period of time after the unilateral exchange reform after the fall of 81 steady climb together, this creates a significant economic consequences for China。
Yuan Qi steady climb direct consequence of this is to enhance the credibility of the exchange rate policy。
We all know that China is to implement a managed floating exchange rate system, there are two problems in the case of capital outflows: first, the lack of market transparency; second, the lack of policy credibility。 However, last year we disclosed by the yuan central parity pricing announcement, solve the problem of transparency。
This year, the RMB exchange rate steady climb together to solve the problem of so-called RMB exchange rate at a reasonable and balanced level basically stable policy credibility。   Policy credibility is reflected in what place?We can see a substantial drop out of convergence, in the case of inflow of RMB turned up, the inflow into positive growth。 We can see ten months, banks exchange foreign exchange on behalf of a deficit of only $ 71.1 billion this year, by 72% over the same period last year。
Last year in the case of the preparation, we can see a reduction in the outflow, the inflow is reduced, it is still a relatively large deficit last year, this is the credibility。
  With the economy gradually Qi steady, gradual release of the risk of large capital flows will return to economic fundamentals。
And we know that nineteen Congress proposed to continue to deepen the interest rate and exchange rate market-oriented reforms, the exchange rate market-oriented reforms is the trend。
  Exchange rate market-oriented reforms would mean the central bank to withdraw from the norm in the foreign exchange market intervention, in this case China's trade surplus must be net capital outflow, so China's international balance of payments will eventually go, "the trade surplus, capital outflows," the new normal。 However, capital outflow is not as we imagined the event of capital outflows, it means devaluation, is not the case。
  In fact, we can see that: first, if the exchange rate is not unilateral, is a two-way volatility, it is possible to form an orderly flow of cross-border capital。
We just said that in the future when the yuan go up again this year turned to two-way fluctuations, supply and demand of foreign exchange significantly improved。 This situation not only happened this year too, has happened before, in 2012 and 2014 by the unilateral RMB appreciation when turning two-way fluctuations in the future, when the surplus significantly reduce foreign exchange settlement, exchange rate expectations began to differentiate。
So, as long as not unilateral expectations, unilateral market-by-market is conducive to self-clear。   Also, we talked about a capital outflow, are thought China has so many assets, whether business or family, it must be re-allocation of assets, some assets overseas to be configured, it will cause some demand for foreign exchange。
But on the other hand, do not ignore China's rapid economic growth due to continuously open markets, there are many overseas assets want to configure to China to share the benefits of high economic growth brought about by China。 If these two things happen at the same time, in fact, we may form a situation of cross-border capital flows in and out of the orderly flow of two-way, it will not necessarily form a unilateral pressure。 What we fear most is?As was the case two years ago, when the market panic, afraid to come out of the money, the money inside want to go out, which resulted in unilateral market。 In normal circumstances, I think the inflow and outflow match, not necessarily lead to the inevitable devaluation of the renminbi。 Just as we do not simply use trade to explain the market value of the depreciation of the dollar, with capital inflows to explain the appreciation of the dollar, like the future there will be many factors that affect exchange rates, not necessarily entirely a question of capital flows。   Secondly, I would like to say that we can not simply external investment fry foreign exchange market are familiar with what we should do with the familiar products。
In particular, he mentioned the country should take the next step "along the way" initiative, focusing on capacity to promote international cooperation, "bringing in" and "going out" combined。
In this case, how do we market-oriented principle, financially sustainable construction, related investments。   Third, establish the correct financial risk awareness, do not use the market to determine alternative market operations。 First concern is the legal risk, to understand the relevant domestic laws and regulations, but also understand the laws and regulations overseas, this is we need to know。 For market risk, including the risk of exchange rate, interest rate risk, particularly the risk of exchange rate, because the exchange rate risk is the risk of currency mismatches natural after a cross-border。   There are a lot of people say we use the RMB foreign investment, it is not possible to avoid exchange rate risk?I think this is a very difficult thing, and why?Americans to invest in China, he invested in US dollars, the registered capital will become the last of the yuan, or renminbi and the dollar to bear the risk of mismatch。
We even use the yuan to invest and build factories overseas, may to a large extent, have become local currency in many cases to register, go operational。   So, the exchange rate risk may be an objective risk our future "going out" to be faced。
There are other default risk, counterparty risk, and so, I think this is whether institutional or family, if you want to do global asset allocation, have to do some "homework", "compulsory", so to be able to better share dividend assets of globalization while avoiding disadvantages caused by configuration。   I reported on here, thank you, welcome criticism!。