How Did Foreign Exchange Reserves Disappear?

The decline in foreign exchange reserves has been "dismantled".

Finally, based on previous discussions, we can comb out how foreign exchange reserves "disappear".

Since June 2014, official reserves have fallen from the peak of nearly US $4 trillion, and so far the total decrease has been about US $760 billion.

How did these foreign exchange reserves disappear?

Mainly includes several parts: 1. Changes in valuation factors: since June 2014, the US dollar has appreciated by about 20%, assuming that the share of non US dollar assets in foreign exchange reserves is 30%, the external reserves caused by valuation factors have dropped by about 240 billion US dollars.

2. Although the current account has maintained a favorable balance, due to the "import overpayment" and other reasons,

The "capital flow" has continued to run deficits since 2014, resulting in a total outflow of funds of about $230 billion.

3. Under capital and financial projects, the cumulative outflow of funds is about US $79 billion due to the increase in overseas direct investment and the strengthening of devaluation expectations.

(4) the remaining US $210 billion may be generated through channels other than statistical data, such as underground banks.

Trade data are collected by customs offices, reflecting the "traces" of goods in and out of a country's borders. We can interpret them as "real logistics".

Generally speaking, the "real logistics" will be accompanied by the corresponding payment behavior and generate the matching "capital flow".

"Capital flows" can be collected through the banking system (published by China's safe), but not reflected in Customs Trade data.

Strictly speaking, the "real logistics" (trade surplus) itself does not bring the corresponding RMB demand increase or decrease, and the "capital flow" that matches the "real logistics" directly affects the RMB demand.

In the long past, the deviation between "real logistics" and "capital flow" is not large. We can see that the trade surplus before 2012 was basically the same as the trade surplus in cross-border payments, but the two continued to deviate from the second half of 2014.

2015 full year

Nearly 600 billion dollars, but the actual "recovery" of the amount of less than 130 billion.

That is to say, the huge trade surplus has not been converted into the corresponding payment behavior, so it has not been pformed into the demand of RMB.

This may be the main reason for the "surplus puzzle".

Further, is the deviation between "real logistics" and "capital flow" after all? Is it caused by "low export revenue" (unreclaimed export payments) or "excessive import payments" (excessive import payment)? Data show that the latter is a more important reason: in 2015, China's imports amounted to less than 1 trillion and 700 billion US dollars, but it paid 2 trillion and 200 billion US dollars abroad, and the difference between the 500 billion may be related to the motive of "capital outflow".

Looking back, whether it is "capital flow" returning to "real logistics" or "real logistics" close to "capital flow"? The short term may depend on the attitude of the regulatory authorities, and the medium and long term will depend on the future of China's economy.

What needs to be prompted is that, according to our previous calculations, China's trade surplus is not very large. That is to say, in 2015, China's foreign trade sector really made "nearly $600 billion", but because of the unstable exchange rate expectations, many of its funds were left abroad in the name of "imports".

The market has no long bulls and no permanent shorts. This part of the fund used to be the force that led to the depreciation of the RMB. But if the exchange rate is expected to reverse, will it become the promoter of appreciation?

Distinguish "

"And" current account ".

Current account is a broader concept than trade account and a more accurate characterization of exchange rate fundamentals.

Over a long period of time, the scale of China's service trade is relatively small, which is almost negligible compared with trade in goods, making the concept of "trade account" and "current account" almost equal.

However, since 2010, the deficit in China's service trade has expanded rapidly, and the deficit in service trade has accounted for 36% of the surplus of trade in goods in 2015, and its scale obviously can not be ignored.

It can be seen that although the surplus in trade in goods is still reaching a new high, the current account surplus after service trade (and the first and two incomes) has been peaking since 2009.

Along with the thinking of the previous section, if we observe the "cash flow" situation in the current account, although the current account is still in surplus, the "capital flow" has been running deficit since 2014.

That is to say, the current account is no longer "new" but "reducing" the demand for RMB.

This is the second angle for us to understand the puzzle of surplus.

Based on the above analysis, we have the following conclusions:

(1) the trade surplus as a traditional "fundamental" factor supporting the exchange rate has declined significantly.

(2) the "import overpayment" under trade is likely to cause the actual foreign exchange earnings to be much lower than those seen in the trade surplus data.

(3) influenced by the rising trade in services, the difference between trade items and current items began to expand significantly, and the representativeness of trade surplus data began to decline.

(4) 30% of the decline in foreign exchange reserves can be explained by factors such as "overpayment", which may also be related to the expected depreciation of the RMB exchange rate. However, there will be a rotation in the short run. Unless the RMB has a long-lasting depreciation expectation, this part of the fund will not necessarily become a capital return to the domestic market in the future.