A worker counts Chinese currency Renminbi (RMB) at a bank in Linyi, east China's Shandong Province, Aug. 11, 2015. (Xinhua/Zhang Chunlei)
BEIJING, May 27 (Xinhua) -- China's balance of deposits in foreign currency hit record high of 1.0045 trillion U.S. dollars by the end of April this year, with an increase of 33.2 percent year on year, data from a financial statistic report released by the China's central bank showed recently.
Some market insiders hold that, driven by the strong forces of China's foreign exchange earnings from exports, the rising balance of deposits in foreign currencies reflects market entities' changing attitudes towards holding foreign currencies, and embodying the in-depth advancement of the recent years' "foreign exchange holding in public hands" launched by financial regulatory authorities.
-- Booming export drives strong growth of foreign currency earnings
In the past three years, China's deposits in foreign currencies had maintained the growing momentum.
Starting from June 2018, China's deposits in foreign currencies had fluctuated between 700 billion U.S. dollars and 800 billion U.S. dollars for 26 months. In August 2020, the balance of deposits in foreign currencies reached 819.879 billion U.S. dollars.
In January 2021, the deposits exceeded 900 billion U.S. dollars for the first time, and the number surpassed 1 trillion U.S. dollars three months later.
Specifically, during the January to April period this year, China's domestic deposits grew from 629.255 billion U.S. dollars to 656.101 billion U.S. dollars, up by 4.27 percent year on year, while the overseas deposits rose from 309.961 billion U.S. dollars to 348.419 billion U.S. dollars, a sharp increase of 12.4 percent.
A person from the Singapore Branch of Chinese large commercial bank reveals that the bank's deposits are mainly in Singapore dollars, and driven by the outstanding performance of China's deposits in foreign currencies earlier this year, the deposits of the branch in the first quarter achieved a year-on-year increase.
Experts believed that, the continuous accumulation of foreign deposits is mainly attributed to export surge.
"The increase of foreign deposits is driven by large export scale and the fast growth of Foreign Direct Investment (FDI)," said Li Qilin, head and chief economist of Hongta Securities' research institute.
China has been maintaining the steady and robust growth of export and surplus. According to the statistics released by State Administration of Foreign Exchange (SAFE) on May 21, from January to April 2021, the foreign-related receipts and payments of foreign exchange by banks on behalf of clients produced a surplus of 137.4 billion U.S. dollars, which was more than that of the total of last year.
Li Qilin said that the central bank may slow down the foreign exchange settlements and sales. The reserve of more deposits in foreign currencies in enterprises will promote outbound merger and acquisition, reorganization and investment, and enhance their competitiveness.
By the end of this March, the balance of deposits in foreign currencies stood at 956.8 billion U.S. dollars, an increase of 67.5 billion U.S. dollars than that of the beginning of the year.
-- Less intention of selling foreign exchange and stronger willingness of holding foreign exchange
"Enterprises do not sell the foreign currencies such as U.S. dollars they received, thus accumulating foreign deposits in banks," said Li Wei, senior economist of Standard Chartered China, adding that the foreign currencies sold by other market entities will become bank-held assets in foreign exchanges, rather than deposits in foreign currencies.
However, against a background of highly relaxed global liquidity, the deposit interest rates of foreign currencies such as U.S. dollar and Singapore dollar are relatively low.
"We refer to the deposit interest rates of the same industry and the entire market, including deposit interest rates of DBS Bank and OCBC Bank, the deposit interest rates are relatively low. Thus, it is more suitable to exchange foreign currencies into Renminbi (RMB) deposits from the aspect of the investment," said the person from Singapore Branch of Chinese large commercial bank.
But the market entities' willingness to settle foreign exchange is weakening, and the willingness to hold foreign exchange is increasing.
This may attribute to many enterprises took the wait-and-see attitude after missing the optimal selling chance due to the continuous RMB appreciation in 2020, and expected the U.S. dollar would appreciate. Moreover, residents or companies are more willing to retain foreign exchange for reinvestment.
According to Huachuang Securities, the mean value of the rate of foreign exchange selling and buying in 2020 stood at 41 percent and 39 percent, respectively, but before 2019, the figures amounted to above 47 percent and 49 percent respectively, showing enterprises were less willing to sell foreign exchange.
Meanwhile, the foreign exchange selling is also affected by the expectation of the foreign exchange market. Chang Ran, senior researcher of Zhixin Investment Research Institute, said that as the U.S. economy is taking a turn for the recovery, foreign trade enterprises are optimistic about the U.S. dollar with more willingness to hold U.S. dollars.
-- Further development of "foreign exchange holding in public hands"
The market entities' increasing holding of foreign currencies reflects the in-depth advancement of the "foreign exchange holding in public hands" implemented by financial regulatory authorities.
According to the report released by SAFE, in 2020, the net outflow of outbound investment (net increase of assets) was 314.2 billion U.S. dollars, of which the net outflow of deposits stood at 130.4 billion U.S. dollars, up by 28 percent year on year. Against the background of relaxed global liquidity, banks increase outbound borrowing, and the enterprises increase overseas deposits.
Industries' experts said that China's widening financial opening and the increasing need of residents on global wealth management decide the trend of market entities' holding of foreign currencies.
However, with the deepening trend, market entities will gradually release the large number of deposits in foreign currencies, thus, prudent monitoring is needed for the cross-border capital flow.
Chang Ran added that residents have relatively weak capability in controlling overseas investment risk, and the investment loss risks will increase after they accumulate more and more foreign currencies.
(Edited by Jiang Feifan with Xinhua Silk Road, 346129473@qq.com)
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