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E-mail China.org.cn, February 28, 2025
National Business Daily:
The Central Economic Work Conference emphasized maintaining a basic equilibrium in the balance of payments. How would you assess China's balance of payments situation in 2024? With external risks and challenges potentially increasing in 2025, what impact might this have on China's balance of payments? Thank you.
Li Bin:
On this balance of payments question, I'd like to invite Mr. Jia to respond.
Jia Ning:
Thank you for your interest in the balance of payments situation. The balance of payments provides a comprehensive record of all transactions between a country and other economies, including goods trade, service trade and investment income under the current account, as well as direct investment, securities investment, deposits and loans, and official reserves in the capital and financial accounts. This comprehensively reflects a country's external economic development and its internal-external balance. Two key criteria are generally used to assess a basic equilibrium in the balance of payments. First, the current account balance to GDP ratio should stay within ±4%, without prolonged periods of excessive surpluses or deficits. Second, the current account and non-reserve financial account should achieve autonomous balance, meaning current account surpluses are channeled into foreign investments, or current account deficits are supported by stable external financing.
Mr. Li just introduced the current state of our country's balance of payments. In 2024, China's current account surplus to GDP ratio was expected to be around 2%, remaining within a reasonable and balanced range since 2011. At the same time, the non-reserve financial account showed a deficit, mainly due to increased outbound investments by domestic entities, which reached $346.9 billion in the first three quarters of 2024, a year-on-year increase of 1.4 times. The total net inflow of direct investment capital and securities investment into China totaled $153.4 billion. In recent years, China's forex market has shown increased self-regulating ability. Goods trade surpluses and investment inflows have been converted into outbound investments by Chinese enterprises and banks. This is reflected in the balance of payments as a balance between the current account surplus and the non-reserve financial account deficit. The yuan exchange rate has remained basically stable at a reasonable and balanced level.
Looking at 2025, external uncertainties and instability remain, but China is implementing more proactive and effective macroeconomic policies. Solid economic fundamentals will help boost market expectations and confidence. China's foreign trade and investment show resilience, the forex market remains stable, and the balance of payments has the foundation and conditions to maintain a basic equilibrium. Let's look at the specifics.
First, China's manufacturing industry continues to transform and upgrade steadily. The increased resilience in foreign trade will help maintain a reasonable surplus in the current account. China's manufacturing industry generates 30% of global added value, playing an irreplaceable role in global production and supply. At the same time, the transformation and upgrading of the manufacturing industry and diversification of trading partners continue, enhancing export competitiveness and reducing dependence on a single market. Despite adverse factors such as the rise of global trade protectionism, China's exports have generally remained stable. In the first three quarters of 2024, China's exports accounted for 14.5% of the global total, maintaining a relatively high level in recent years.
Second, China continues to expand high-level opening up, further consolidating and enhancing the resilience of the forex market. Two-way cross-border investment is expected to remain stable and orderly. China is deepening reforms in its foreign investment promotion system, steadily enhancing the convenience of cross-border investment and financing, which benefits foreign investors doing business in China. The opening of the financial market also encourages foreign investment in yuan assets. China's forex market continues to mature, with the market-based yuan exchange rate mechanism steadily improving. Companies have strengthened their awareness and capability in managing exchange rate risks, while cross-border yuan use has increased. These factors have contributed to more rational and orderly market transactions. In 2024, corporate forex hedging ratios reached 27%, while the share of yuan transactions in goods trade approached 30%, both hitting historic highs.
In addition, we have consistently placed great importance on external risks and challenges. The SAFE will continue to deepen reform and opening up in the forex sector to better serve the development of foreign trade and investment. It will improve the long-term mechanism for corporate exchange rate risk management, better supporting companies' exchange rate risk hedging. At the same time, it will strengthen forex market management, taking macro-prudential counter-cyclical adjustment measures when appropriate and resolutely correcting pro-cyclical behavior in the forex market. This will help maintain the basic stability of the yuan exchange rate at a reasonable and balanced level, ensuring a basic equilibrium in the balance of payments. Thank you.
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