Guan Tao: Capital Outflow Has "Clues".

In 2014, cross border capital flows in China shifted from last year's partial flow to partial outflow pressure, the main reason: the international background of the general pressure on emerging markets, and economic development entering the new normal is an important catalyst for domestic active reasons and the increase of RMB exchange rate volatility.

Under the situation that the current account tends to be basically balanced and the RMB exchange rate tends to be at a balanced and reasonable level, the factors that affect cross-border capital flows and the trend of the RMB exchange rate are becoming more and more complex and diversified.

The current trade surplus deviates from the growth of foreign exchange reserves, the divergence between the foreign currency spreads and the arbitrage capital flows, and the appreciation pressure of the RMB exchange rate before it has no appreciation expectation. All these show that the operation mechanism of China's foreign exchange market is undergoing profound changes, and the foreign exchange market has entered a multiple equilibrium state that may become better or worse.

Non trading, non traffic, especially the impact of market expectations, has increased, and asset price attributes of the RMB exchange rate have been further highlighted.

China's international balance of payments operation is accelerating from the "old normal" of large surplus and unilateral appreciation to the "new normal" of "one direction, one reverse and two way fluctuations".

This is the inevitable outcome of economic development entering the new normal. It is in line with the general direction of national macro-control and reform and opening up. It is the general trend of China's economic and financial integration into globalization.

The following is the full text of Guan Tao in the Shanghai Securities Journal.

A few days ago, the State Administration of Foreign Exchange released the preliminary data on the balance of payments for the fourth quarter of 2014 and the whole year.

Data show that in the fourth quarter, China's current account surplus was US $61 billion 100 million, capital account deficit (including net errors and omissions) was US $91 billion 200 million, reserve assets were reduced by US $30 billion, of which foreign exchange reserve assets decreased by US $29 billion 300 million, the current account surplus was 213 billion 800 million US dollars, capital account deficit (including net errors and omissions) was 96 billion US dollars, and reserve assets increased by 117 billion 800 million US dollars, of which foreign exchange reserve assets increased by 118 billion 800 million US dollars.

After data release,

Exclamation: China has suffered the largest capital outflow in the past quarter and the year, which even aggravated the pessimism prevailing in the financial market.

However, the capital outflow in China has long been "clues", and now the market reaction is actually knowing what it is, and frightening itself.

The emergence of capital outflow is not unexpected, but is expected to be an orderly and moderate adjustment. The parties must be deeply aware of the ideas and measures and actively adapt to the new normal of cross-border capital flows and two-way fluctuations in the RMB exchange rate.

Many indicators have long shown that capital outflow and outflow pressure are increasing in China.

The supply and demand relationship in the domestic foreign exchange market has been gradually reversed.

In the first quarter of 2014, the difference between the foreign exchange supply and demand in the retail market, namely the forward balance of sale and sale (excluding the effect of the repeated calculation of the forward settlement and sale of foreign exchange), was a surplus of 164 billion 900 million US dollars, namely, the balance of spot settlement and foreign exchange and the maturity of the non maturity forward exchange. The difference in the second quarter dropped to only 2 billion 500 million US dollars, and the deficit in the third quarter turned to a deficit of 30 billion 500 million US dollars. The deficit in the fourth quarter increased to 51 billion 300 million US dollars, an increase of 68% over the previous quarter.

In the whole year, the forward balance of sales and foreign exchange amounted to US $85 billion 600 million, a decrease of 74% over the previous year.

The expansion of import and export surplus is not reflected in the increase in foreign exchange reserves.

In the second, third quarter of 2014, the trade surplus of Customs Statistics totaled US $214 billion 400 million, an increase of 69% over the same period last year. Compared with the same period, the foreign exchange reserve assets (excluding the valuation of exchange rate and asset price changes) increased by only US $22 billion 400 million, up 85% from the same period last year, and the foreign exchange reserve assets in the third quarter actually decreased by US $430 million.

Correspondingly, in the second, third quarter, with the current account surplus of US $73 billion 400 million and US $72 billion 200 million, the net outflows of capital account for two consecutive quarters were US $16 billion 200 million and US $9 billion respectively.

In the fourth quarter, the import and export surplus of customs statistics was US $126 billion 200 million, which was roughly the same as that of the third quarter, an increase of 39% over the same period last year, while the foreign exchange market continued to run short of supply, and the supply and demand gap expanded by 68%.

Therefore, it is not surprising that there will be more capital account deficits and more reserve assets in the quarter.

This is also consistent with the balance of payments rule of "larger trade surplus, more capital outflow", or "current account surplus and capital account deficit".

Changes in the central bank's foreign exchange reserves and foreign exchange reserve balances have also come to light.

At the end of 2014, the central bank's foreign exchange balance was 27 trillion and 100 billion yuan, an increase of 641 billion 100 million yuan from the end of last year, an increase of 77% from the previous year.

Among them, the first quarter increased by 787 billion 900 million yuan, and the second to fourth quarter continued negative growth, which decreased by 1 billion 800 million yuan, 11 billion 300 million yuan and 133 billion 400 million yuan respectively, which is roughly consistent with the trend of foreign exchange reserve assets in each quarter.

At the end of 2104, the balance of foreign exchange reserves released by the central bank was $38430 billion, which was 21 billion 700 million new dollars at the end of the year, a 96% decline from the previous year, which also reflected the basic fact that the annual foreign exchange reserve assets increased by 73% less than that of the previous year.

From the quarterly data, the balance of foreign exchange reserves increased by US $126 billion 800 million and US $45 billion 100 million in the first, second quarter, and 105 billion 500 million US dollars and 44 billion 700 million US dollars respectively in the third quarter and the fourth quarter.

In the fourth quarter, in the case of the decline in foreign exchange reserve assets from US $430 million to US $29 billion 300 million in the previous quarter, the decrease in foreign exchange reserve balances narrowed, mainly because the appreciation of the US dollar slowed down in the three quarter, while the increase in other asset prices increased, and the negative effect of the valuation effect on foreign exchange reserve balance decreased after the positive and negative effects were offset.

The analysis of China's cross border capital flows in 2014 from the last year's partial flow into partial outflow pressure is mainly caused by the following reasons:

First, the general pressure on emerging markets is the international context.

In 2014, the world economy showed an unbalanced and slow recovery. The Fed gradually withdrew from quantitative easing monetary policy, and the US dollar exchange rate strengthened. The US dollar index increased by 12% throughout the year.

In this case, international capital flows back to the United States in large numbers, and many emerging markets have different degrees of capital outflow and devaluation pressure.

Second, economic development is entering the new normal.

At present, China's economy is in the "three phase" superimposed period of adjustment. The market is increasingly concerned about the domestic economic operation, as well as the risks and problems that may be involved.

Under the background that the RMB exchange rate has tended to be at a balanced and reasonable level, the market exchange rate is expected to differentiate, which has stimulated the adjustment of the currency structure of the market's main assets and liabilities, reversing the financial operation of "asset localization and liabilities foreign currency" in the early stage.

Third, the increase in RMB exchange rate volatility is an important catalyst.

With the further expansion of the two-way floating zone of RMB against the US dollar after March 17, 2014, the two-way fluctuation of RMB exchange rate has gradually gained popularity. Even when the RMB exchange rate stabilized and rebounded in the three quarter, domestic enterprises did not resume the unilateral arbitrage paction at the beginning of the year.

Enterprises' willingness to settle foreign exchange is weakened, and the motivation to purchase foreign currencies has been strengthened. Financial operations have been taken to increase foreign exchange deposits and reduce foreign exchange loans.

In the year of 2014, the proportion of foreign exchange receipts earned by foreign exchange in foreign exchange receipts (i.e. the average exchange rate) was 71%, down 1 percentage points from the previous year, and the proportion of foreign exchange sales paid by banks to foreign exchange accounts for an average of 69%, which was 6 percentage points higher than that of the previous year. At the end of the year, the comparison between domestic foreign exchange loans and domestic foreign exchange deposits decreased by 26 percentage points at the beginning of the year.

As the RMB exchange rate has appreciated for a long time and its volatility is relatively low, a large number of US dollar bears have been accumulated in the market in the past few years.

Now, because of the changes in the internal and external market environment, enterprises begin to start the financial operation to supplement the US dollar short. This "pendulum effect" may offset the surplus of foreign trade in the short run.

In 2015, the exchange rate of RMB against the US dollar continued to be weak.

Domestic trading price CNY continued to depreciate in the middle price direction. Since the end of January, CNY has even touched or approached the limit of several trading days.

Overseas trading price CNH continued to be weaker than CNY, and the price difference expanded. The average daily price difference in January was 99 basis points, an increase of 74% over the previous month.

The reason is that the external and internal factors that cause the pressure of cross-border capital outflow in 2014 continue to play a role: from the international perspective, the external world is still not at peace, the Swiss franc is suddenly decoupled from the euro, the European version of quantitative easing is beyond expectations, the multinational central bank cut interest rates in a row, the currency war is coming and going, and the US dollar index continues to rebound.

From the domestic point of view, the main economic data in December and January of this year continued to be weak and loose monetary policy was expected to reduce the further differentiation of RMB exchange rate in the context of the attractiveness of interest rate trading, a reasonable balance and two-way fluctuations.

China's cross-border capital outflow is expected to be adjusted in an orderly and moderate way.

The main reason for the capital account deficit is the "accumulation of funds in the people" and "debt deleveraging" since the two quarter of last year.

In the second quarter of 2014, the difference between current account and direct investment amounted to US $112 billion 700 million, an increase of 86% over the previous quarter. However, the direct investment capital flow (i.e. the sum of investment in Securities and other investment balances) has changed from a net inflow of US $40 billion 100 million in the previous quarter to a net outflow of US $54 billion 900 million, a decrease of 95 billion US dollars, which can basically explain that the reserve assets in the same period increased by 103 billion 200 million US dollars over the previous quarter.

Specifically, the net investment of securities investment is 14 billion 600 million US dollars; other investments have been converted from net inflow to net outflow of US $69 billion 500 million in the previous quarter, of which the net outflow of assets by US $117 billion 600 million is still a net inflow of 48 billion 300 million US dollars.

The net outflow of the assets side reflects that the foreign exchange deposits in the second quarter increased by US $65 billion 200 million, while the foreign exchange loans decreased by US $2 billion 300 million. The bank will deposit and dispose of foreign currency loans by US $67 billion 500 million in the current foreign exchange loan. We can see that the main reason for the net outflow of other investments in the second quarter is that "storing money in the people".

In the third quarter, the difference between current account and direct investment amounted to US $116 billion 700 million, an increase of 4% over the previous quarter. However, the net outflow of non direct investment capital flows was 53 billion 700 million US dollars, and the outflow of US $1 billion 200 million was less than that of the same period, which was lower than that of Ji Shaozeng's 22 billion 400 million US dollars in the same period.

Specifically, securities investment is still a net inflow of US $23 billion 500 million; other investments have a net outflow of US $77 billion 200 million, an annulus increase of 11%, of which the net outflow of assets by US $65 billion 600 million and the net inflow of the debtor from the second quarter to a net outflow of US $11 billion 600 million.

The net outflow of the asset side shows that "remittance to the people" is still an important reason for the net outflow of non direct investment capital.

The reversal of the debt side mainly reflected the decrease in the third quarter import trade financing balance of US $36 billion 500 million, while the first, second quarter increased by US $24 billion 100 million and US $18 billion 700 million respectively. Therefore, debt to dollarization is another important reason for the net outflow of non direct investment capital in the third quarter.

Of course, from May, foreign exchange loans began to decline month by month, it can be said that domestic debt leverage has already started.

This adjustment is in line with the direction of regulation and reform.

With the promotion of market-oriented reform of RMB exchange rate formation mechanism, the central bank gradually fades from the normal foreign exchange market intervention, and the pattern of "trade surplus and capital outflow" is bound to become more normalized. This will help improve the central bank's monetary policy regulation space.

Foreign exchange deposits of banks increased, but domestic foreign exchange loans decreased, indicating that most of foreign exchange deposits were used by banks for overseas investment, making foreign exchange centralized holdings from past central banks to become decentralized market holdings.