General

According to relevant calculations, from 2020 to 2022, China's trade and investment surplus totaled nearly $2 trillion, but foreign exchange reserves, foreign exchange deposits, and other data did not grow synchronously.

In response, industry insiders believe that clarifying the direction of the trade and investment surplus requires observation from the perspective of the overall source and use of foreign funds in China, and should not simply correspond to changes in data such as foreign exchange reserves and foreign exchange deposits. Trade in goods and cross-border direct investment are flow data, while foreign exchange reserves and bank foreign exchange deposits are stock data that are not comparable.

"Foreign trade import and export are not the whole of a country's foreign economic and trade exchanges. The balance of payments data reflects the overall picture of the foreign economic sector, and the common trade import and export data and direct investment data are only a part of them." Guan Tao, the global chief economist of Bank of China Securities, said that the customs based foreign trade import and export data and the Ministry of Commerce based cross-border direct investment data are significantly different from the relevant data of the balance of payments, Special attention should be paid when using different caliber data for consolidation calculations.

Guan Tao further explained that the customs import and export balance itself does not directly correspond to the import and export of cross-border funds, and the customs import and export data is a concept of logistics rather than capital flow. The inflow and outflow of cross-border funds for trade and investment do not directly correspond to changes in the scale of foreign exchange reserves. Part of the foreign-related receipts and payments for related projects will be reflected in the balance between the settlement and sale of foreign exchange. When the People's Bank of China basically withdraws from foreign exchange intervention, the bank's surplus in foreign exchange settlement and sales will be converted into the foreign exchange positions held by the banks, reflecting capital outflows. In addition, negative net errors and omissions do not equal illegal capital flight.

So, where have the foreign exchange assets formed by huge surpluses gone? According to the analysis, since 2018, the foreign exchange generated by various surpluses in China has mainly been converted into various external investments by domestic business entities, which is commonly referred to as "storing and remitting foreign exchange to the people.".

"More than 80% of the cross-border trade and investment surplus has been converted into foreign investment by China's private sector, and the overseas assets held by domestic enterprises and banks have increased." According to the Huacheng Import and Export Data Observation Report, from the perspective of the recent three years, China's total external capital utilization is close to $2 trillion, basically corresponding to the scale of external capital sources.

Overall, in recent years, China's external funding sources can be found corresponding to relevant projects, and the two can basically match. The current account surplus and the absorption of various types of investment funds from China are mainly converted into external investment by China's private sector, increasing external assets. This is a manifestation of the rational utilization of both domestic and foreign resources and markets by business entities, and also a manifestation of a more stable pattern of China's independent balance of payments.

On the one hand, the high trade and investment surplus no longer corresponds to the high growth of official reserves, and the improvement in the matching degree of external assets and liabilities of the private sector helps to improve the overall risk resistance ability.

On the other hand, China's diversification of foreign asset holders has steadily advanced, the proportion of official reserve assets has decreased, and the proportion of foreign investment by the private sector has increased. This has optimized China's foreign asset structure, which can gradually improve China's foreign investment income situation. In the future, as China deeply participates in the international circulation, cross-border capital exchanges will become more active. Observing issues such as the flow of trade and investment surpluses, based on the balance of payments, and from the perspective of funding sources and utilization, can lead to more accurate, objective, and scientific conclusions.

"At present, the disclosure of domestic macroeconomic data, including balance of payments data, has reached the highest standard of the International Monetary Fund - the Special Data Disclosure Standard (SDDS)." Guan Tao said that in recent years, doubts about the whereabouts of China's trade and investment surplus have occasionally emerged, the root of which is that for a long time, it is widely believed that a "double surplus" in the balance of payments is a good thing, and a deficit in a certain item of the balance of payments is a bad thing. However, as the RMB exchange rate becomes more and more market-oriented and the People's Bank of China basically withdraws from normal intervention in the foreign exchange market, the current account and capital account of the balance of payments, as well as the basic balance of payments and short-term capital flow balance, will inevitably exhibit a positive and negative pattern of autonomous balance.

The suspicion about the whereabouts of trade and investment surpluses also reflects the concern of all circles about illegal capital flight. In response, Guan Tao suggested that, on the one hand, it is necessary to continuously improve the statistical methods of the balance of payments, reduce the scale and proportion of net errors and omissions, improve the quality of statistics, and objectively and accurately reflect external economic activities; On the other hand, it is necessary to adhere to the principle of simultaneous efforts to alleviate congestion. While relevant departments strengthen policy coordination and information sharing, and form a joint regulatory force, the fundamental strategy is to create a market-oriented, rule-based, and internationalized business environment, strengthen property rights protection, enhance the sense of security and gain of market participants, and orderly promote the two-way opening of the financial market, improving the ability to serve the real economy and prevent and resolve risks, Huacheng Import and Export Data Observation Report.