A while ago, we dared to suggest that a new trend was emerging in China’s foreign exchange operations. Instead of being a net buyer of foreign currencies from the market — and conducting monetary policy operations in line with that position — the Chinese state was becoming a net seller of foreign currencies onto the market, and adapting its monetary policy accordingly.
A natural outcome of there not being enough foreign currency inflow into the country. But also of yuan outflows, and fears that the yuan may depreciate more generally.
Statistics that seemed to outline this changing position were, however, dismissed by many analysts. They argued that this was, if anything, a temporary phenomenon. An FX glitch for the interim period. Things would come back on course. Indeed, they noted, the trend had even eased in the last months.
We pointed out that the trend may have eased precisely because the PBoC had dedicated itself to softening these effects. Doing everything in its power to stop the outflows.
So it’s with some interest that we look at the latest forex statistics from China.
Via Chinascope on Wednesday:
SAFE: Bank Net Forex Sales to Custody Accounts Reach USD 3.5 Bn in June
Source: State Administration of Foreign Exchange, ChinaScope Financial (Data)
+ Data released by the State Administration of Foreign Exchange (SAFE) on July 24 shows that Chinese banks purchased USD 129.5 billion in foreign currency on behalf of custody account clients and sold USD 133.1 billion in June, resulting in net sales totaling USD 3.5 billion.
+ In the same period, bank forward forex purchases and sales on behalf of clients stood at USD 10.5 billion and USD 21.2 billion respectively, representing a net forward forex sale of USD 10.7 billion.
+ In June, banks recorded forex receipts and payments on behalf of clients of USD 222.8 billion and USD 216.4 billion respectively, indicating a net increase of USD 6.4 billion.
As Chinascope underscores:
In June, forex purchases by banks declined at a faster pace than that of foreign receipts, suggesting that clients are holding on to their foreign exchange in anticipation of further CNY depreciation.
And here are the charts:
So, say what you will about trade flows… when it comes to dollars that do manage to make their way into the system, the Chinese are not willing to let go of them easily.
The irony is that this comes at a time when the Chinese are trying to persuade the world at large to do the very opposite… encouraging renminbi settlement over FX settlement. A case of do as I say, rather than do as I do.
Indeed, we’d compare it to a situation where an unsuspecting investor is hard sold an equity, even as the management board of said company furiously sells the stock behind the scenes.
So, who’s really getting a good deal in that picture?