On October 22, the State Council Information Office held a press conference to present the foreign exchange balance data for the first three quarters of 2024. During the event, Li Hongyan, Deputy Director of the State Administration of Foreign Exchange, underscored the important role of a resilient market and the solid foundations that will support the stable operation of the foreign exchange market as China continues to pursue high-quality economic development and high-level openness.
Li noted that in September, the Federal Reserve announced a 50 basis point interest rate cut, marking a shift after more than two years of tightening policy, which adjusted the interest rate differential between China and the U.S. Although uncertainties remain regarding the future pace and path of the Fed’s interest rate cuts, market expectations have been adjusting alongside U.S. economic data. Historical trends indicate that changes in U.S. monetary policy can have spillover effects on global financial markets. While China’s foreign exchange market has faced challenges, it has generally remained stable, thanks largely to strong domestic fundamentals. Li asserted that the future of China’s economy will increasingly enhance market resilience, creating better conditions for the stable functioning of the foreign exchange market.
Li emphasized three key points. Firstly, China’s sustained economic recovery will help solidify the internal foundation for the stable operation of the domestic foreign exchange market. This year, the economy has shown overall stability, with the recently released GDP data for the first three quarters indicating a 4.8% year-on-year growth rate, which is relatively high globally. China has also reinforced macroeconomic policy adjustments, implementing a series of stimulus measures designed to boost economic recovery and enhance market confidence, thereby supporting cross-border trade and investment, and further stabilizing the foreign exchange market.
Secondly, the establishment of a new high-level open economic system will enhance the stability of international payments and the functioning of the foreign exchange market. China’s innovation-driven development strategy and its advantages across the entire industrial chain will continue to play a crucial role, allowing foreign trade to stabilize and the current account to operate within reasonable bounds. The ongoing systematic advancement of high-level institutional openness is broadening cross-border investment channels and facilitating transactions, which in turn promotes a balanced flow of cross-border capital. Altogether, this balanced and stable international payments situation will contribute to the maintenance of the yuan’s stability within a reasonable and balanced range.
Thirdly, increasing resilience in the foreign exchange market will help adapt to and mitigate the effects of external changes. At the macro level, China’s market-oriented mechanism for the renminbi (RMB) exchange rate has been continuously improving, strengthening the currency’s role as an automatic stabilizer for international payments. On a micro level, companies are becoming more adept at using foreign exchange derivatives to manage exchange rate risks and are increasingly opting for cross-border RMB transactions to reduce currency mismatch risks. So far this year, the ratio of companies engaging in foreign exchange hedging has reached 27%, with 30% of cross-border transactions in goods using RMB, both figures being historically high. These positive developments at both macro and micro levels have mitigated the impact of exchange rate fluctuations on businesses, fostering more rational market expectations and transactions.
Regarding the influence of the RMB exchange rate on Chinese exporters, Li explained that both theory and practice indicate that various factors—including external demand, domestic manufacturing capabilities, and cost factors—collectively affect a nation’s exports, with exchange rates being just one of many influencing elements. In China’s case, the ongoing improvement in foreign trade this year is primarily attributed to domestically enhanced competitiveness and a relatively stable demand in global trade. Over a longer timeframe, these factors have similarly driven export growth.
Li further discussed this year’s exchange rate movements, stating that the onshore RMB to U.S. dollar spot rate (CNY) has depreciated slightly by about 0.3%, maintaining overall stability amidst two-way fluctuations. Even with a noticeable rebound in the RMB to U.S. dollar exchange rate during August and September, such movements were in line with a general weakening of the U.S. dollar and a common response among non-dollar currencies. The RMB’s appreciation has been moderate compared to international levels, resulting in a mild impact on trade.
Li concluded by stressing that the foreign exchange authority remains highly vigilant regarding changing circumstances. Given the persistent uncertainties in the external environment, the foreign exchange management department will continue to monitor and assess international economic and financial trends as well as the monetary policies of major developed economies. They are committed to accumulating and summarizing responsive experiences, enriching the toolbox of policy measures, and implementing counter-cyclical macroprudential adjustments when necessary to ensure the stable operation of the foreign exchange market.
