A well-known Chinese financial commentator, the Barbarian Warrior (老蛮), recently wrote an article analyzing China’s foreign trade data for 2020 and found that about $400 billion of foreign currency went to unknown destinations. Another Chinese financial commentator, “By the Bar”, has also observed a large amount of foreign exchange outflow from China, which, according to his analysis, may have gone out in four ways.
Laoban: Where did China’s dollars go?
Chinese financial commentator “Barbarian Warrior”, who is good at data analysis, released an article “2020 China’s foreign trade panorama” on January 24, which ends with an “ultimate question”: in 2020, China will have $400 billion of foreign exchange The destination is unknown.
According to Laoban’s analysis, in 2020, the size of China’s foreign trade surplus in goods will reach the second highest ever at USD 535.1 billion, of which there will be a deficit of USD 147.3 billion in the area of trade in services and a net position of USD 34.3 billion in the area of investment (actual utilization of foreign capital of USD 144.4 billion – outward investment of USD 101.1 billion), which in total means that China’s net foreign exchange income in 2020 will be USD 535.1 – 1,473+ = USD 422.1 billion. 343 = $422.1 billion.
In addition to the above net foreign exchange income of $422.1 billion, China also absorbed $68 billion in foreign exchange income in the first three quarters of 2020 by issuing foreign debt, and in the fourth quarter it actually continued to issue U.S. debt on a large scale, which will theoretically increase, adding up to a net dollar absorption of $490.1 billion in China in 2020.
After foreign exchange enters the country, it either exists in major bank accounts and turns into foreign exchange deposits; or it is converted into foreign exchange holdings through the central bank into RMB, said Laoban. China, as a country with strict foreign exchange control, foreign exchange goes to these two places, there can be no other place.
First of all, check the foreign exchange deposits of financial institutions. Checking the central bank database, the foreign exchange deposits of Chinese financial institutions were US$889.2 billion at the end of 2020 and US$757.7 billion at the end of 2019, an increase of US$131.5 billion.
The central bank’s foreign exchange holdings, on the other hand, shrank by CNY100.9 billion, slightly equal to a contraction of USD15.3 billion.
Calculated, the actual increase in dollars within the Chinese financial system was only $131.5 billion – $15.3 billion = $116.2 billion.
This is the problem, according to Laoban, the scale of foreign investment absorption based on trade in services, trade in goods, foreign investment and foreign debt data is about 500 billion dollars, but the actual increase of dollars in the financial system is only a little over 100 billion dollars, and 400 billion dollars is still unknown. Where did all these dollars go, please?
By Column: The Four Possible Flows of Foreign Exchange
Another Chinese financial commentator, “Wants to talk”, also observed the problem of where China’s large amount of foreign currency is going.
“In a January 25 article titled “Where did the foreign currency go? According to an article titled “Where did the foreign exchange go?”, many official figures from the Chinese Communist Party show a large inflow of foreign exchange, but the inflow is not reflected in the central bank’s data at all.
First, data released by the General Administration of Customs of the Communist Party of China on Jan. 14 showed that China’s exports in yuan terms in 2020 were 17.93 trillion yuan, up 4% year-on-year; imports were 14.23 trillion yuan, down 0.7%; and the trade surplus was 3.7 trillion yuan, up 27.4%.
Voucher said that the customs data trade surplus of 3.7 trillion yuan, which is quite amazing data. But the customs caliber data uses the accrual principle, as long as there are customs declarations will be included in the statistics. In fact, it may happen that there is a declaration of export but the foreign exchange is not remitted (or postponed).
In contrast, the data of foreign-related payments and receipts by banks on behalf of customers adopts the principle of funds receipt and payment system, which reflects the actual flow of funds (actual remittance of foreign exchange). Bank representative foreign-related payment data, goods trade surplus of 1.42 trillion, of which the actual remittance of goods trade surplus of 1.19 trillion customs statistics, calculated at 32%, that is, 68% of the customs statistics trade surplus, the funds did not remit.
Secondly, the CDS data shows that in 2020 overseas institutions to increase the allocation of Chinese bonds more than trillion; bank data on behalf of foreign-related payments and receipts show that the capital and financial account surplus of 1.1 trillion yuan in 2020, which all show that there is a large surplus inflow of financial items.
Wang Chunying, spokesman of the Foreign Affairs Bureau, introduced the balance of payments to see a net inflow of $270 billion of all kinds of foreign investment to China from July to November, and $340 billion of all kinds of domestic outward investment, which means that from July to November, China’s capital and financial term deficit of $70 billion.
The question is: What went wrong with the large surplus in the financial account of foreign-related receipts and payments on behalf of banks, but the deficit in the financial account of the balance of payments was USD 70 billion?
According to the question, considering that the foreign-related payments made by banks on behalf of their clients do not include the banks themselves, the banks should have a large capital outflow (foreign credit, etc.).
Thirdly, from the balance of payments, in the first three quarters, China had a current account surplus of 1.18 trillion RMB, but a large part of the surplus (667.6 billion) was somehow missing (errors and omissions); a small part (490.3 billion) was formed into foreign investment (capital outflow); and 2% (24.9 billion) was formed into foreign exchange reserves.
The voucher indicates that from the data on foreign-related receipts and payments from banks (actual remittance of foreign exchange), for the whole year of 2020, China had a surplus of $1.42 trillion in trade in goods, a deficit of $637.8 billion in trade in services, and a deficit of $1.12 trillion in primary and secondary income. When the three items are aggregated, the current account has a cumulative deficit of RMB 368.8 billion for the year. However, 1.1 trillion RMB was borrowed from abroad (capital and financial account surplus), which again shows that China has a negative earning capacity and a strong borrowing capacity. Thus, both in terms of the rapid growth of broad-based foreign debt and the increased opening of China’s financial items, China is strengthening its ability to borrow money from outside, which may mean that earning capacity is not that desirable.
Fourth, the column points out that there is no stranger event than that in December 2020, the bank balance surplus of 435.7 billion, which is a leading indicator of foreign exchange accounts, would have increased the central bank’s foreign exchange accounts by a large amount through the interbank market flat (sold to the central bank), but the central bank’s foreign exchange accounts fell by 32.87 billion instead.
Stretching a little longer may reveal some clues, explained by the column.
In 2018, the bank settlement deficit affects the central bank’s foreign exchange account decline rate of 60%; in 2019, the bank settlement deficit transmitted to the central bank’s foreign exchange account decline rate of only 6.2%, it can be seen that a large number of bank settlement deficit is not leveled (i.e. not through the interbank market from the central bank to purchase foreign exchange), which leads to a very small decline in the central bank’s foreign exchange account, but the pressure accumulates in commercial banks; in 2020, the The bank balance surplus of RMB 1,078,305 billion, but the central bank’s foreign exchange account falls by RMB 1009 billion against the trend, which should be an opportunity for commercial banks to fill the balance deficit hole left in the previous two years (i.e., not selling the balance surplus to the central bank).
By the column concluded that in 2020, China’s trade in goods generated RMB 3.7 trillion in foreign exchange and financial items generated over a trillion (bank data on foreign-related receipts and payments on behalf of customers, with an annual surplus of RMB 1.1 trillion in funds and financial accounts), China’s foreign exchange may have flowed out (or not been repatriated) in the following four ways.
1) 68% of the customs trade surplus in goods (equivalent to RMB 2.5 trillion) was not repatriated.
2) Balance of Payments errors omitted in the first three quarters, with RMB 667.6 billion of foreign exchange unaccounted for.
3) bank capital outflows (foreign credits, etc.), which consumed foreign exchange.
4) A large bank surplus in foreign exchange settlement or used by commercial banks to fill the deficit hole in foreign exchange settlement left in previous years, etc. Resulting in the situation in 2020 is exactly the opposite of 2019 (bank balance deficit in 2019 but a tiny decline in the central bank’s foreign exchange share, bank balance surplus in 2020 but a decline in the central bank’s foreign exchange share of more than 4 times in 2019).
By the column that a large amount of foreign exchange through the above four ways were used up, not bought by the central bank to become foreign exchange accounts, resulting in 2020 central bank foreign exchange accounts counter trend decline of 100.9 billion yuan.
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