Lu Lei: The resilience of our country's foreign exchange market has been enhanced, providing good basic conditions for the management of cross-border capital flows

"Historical experience shows that cross-border capital flows are an inevitable reflection of long-term economic development trends and specific economic operation stages." Lu Lei, deputy director of the State Administration of Foreign Exchange, said at the 2022 Financial Street Forum "New Trends in Cross-border Capital Flows and Cross-border Investment" sub-forum on November 22 that from the perspective of long-term economic development, technological iteration, industrial upgrading and market expansion are driving the global productivity layout, thereby promoting the cross-border extension of supply chains and division of labor chains. From the perspective of semiconductors, artificial intelligence and other fields, from the embryonic to the mature state of the industry, it is accompanied by the global flow of capital and the extension and expansion of the supply chain. For example, in the mid-to-late 1990s, the semiconductor industry saw a second large-scale transfer, from the United States and Japan From 1994 to 2000, South Korea's average annual growth rate in attracting foreign investment exceeded 45%, while Taiwan's average annual growth rate exceeded 27% during the same period.

Lu Lei said that from the perspective of specific economic operation stages, demand and supply shocks shape the short-term fluctuations of cross-border capital flows. Comparative advantages of labor force, taxation, and macroeconomic policy adjustments all affect capital flows. For example, thanks to low labor costs, superior geographical location, continuously growing household income and market capacity, South East Asia countries have become one of the best regions to undertake global manufacturing transfer. According to the "Global Investment Trends Monitor Report" of the United Nations Conference on Trade and Development, the scale of foreign direct investment in South East Asia countries increased by 35% year-on-year in 2021. Among them, Vietnam's economic performance has attracted attention, and it continues to attract foreign investment by virtue of cost advantages such as labor, land, and taxation. In 2022, Samsung Electronics plans to invest an additional 3.30 billion US dollars in Vietnam, and Foxconn decides to invest 300 million US dollars to build a new factory in Vietnam.

Lu Lei further said that what is particularly noteworthy is that the world is currently in a new round of US and European withdrawal easing period, and the money markets of emerging economies are under pressure. Under inflationary pressure, interest rates are generally raised in developed economies, and there is a dense "wave of interest rate hikes" around the world. Since 2021, global inflation expectations have risen, geopolitical tensions have further worsened the global supply chain, exacerbated the rise in commodity prices, and the inflation problem in developed economies such as Europe, America, and other countries is prominent. The Federal Reserve has aggressively raised interest rates, the European Central Bank has raised interest rates sharply, and many central banks have followed suit. World Bank research points out that global central banks have been raising interest rates at a synchronized level not seen in

"The cross-border capital flows of emerging economies may or have reversed, and many currencies have experienced large fluctuations." Lu Lei said that according to the data of the Institute of International Finance (IIF), the cumulative net capital outflow of emerging economies from January to October 2022 was 6.20 billion US dollars, and the inflow was 341.90 billion US dollars in the same period in 2021. Since the beginning of this year, except for a few currencies such as the Russian ruble, the Uruguayan peso, and the Brazilian real, which have appreciated against the US dollar, 90% of the currencies have depreciated to varying degrees, and two-thirds of the currencies have depreciated by more than 10%. There are 6 kinds of currencies that have depreciated by more than 20%, including the Sri Lankan rupee depreciated by more than 40%, the Argentine peso depreciated by

In addition, the debt problem of some emerging economies deserves attention. Lu Lei said that in May this year, the Sri Lankan government announced a sovereign debt default of 12.60 billion US dollars, and then declared the country bankrupt. This is not an exception. Research by the international monetary fund (IMF) shows that with the tightening of financial conditions and the appreciation of the US dollar, 25% of emerging economies are in or near debt distress, and more than 60% of low-income countries are facing debt distress. Once the debt crisis and the currency crisis are transmitted and reinforced, they may fall into a vicious circle of self-realization of the crisis.

In the opinion of Lu Lei, our countryforeign exchange marketThe enhanced resilience provides a good foundation for effective cross-border capital flow management. The supply and demand of our country's foreign exchange market is basically balanced, and the cross-border capital flow is generally stable and orderly. Since the beginning of this year, our country's foreign-related economic activities have remained active, and the resilience of the foreign exchange market has been significantly enhanced. In the first three quarters, our country's balance of payments remained basically balanced, with a current account surplus of US $310.40 billion, the highest in the same period in history, an increase of 56% year-on-year; direct investment showed a net inflow, and cross-border capital flows were stable and orderly. Despite the fluctuations in the global financial marekt, under the support of our country's economic stability and sound balance of payments structure, RMB financial assets still maintained a strong international attractiveness, with relatively independent income performance globally At present, the proportion of foreign capital in our country's stock market and bond market is less than 5%, and there is great potential for global capital to further increase the allocation of financial assets in our country.

"In the management of cross-border capital flows under the new security pattern, the focus is on overall openness and security." Lu Lei said that in response to the practical needs of policy spillover effects and capital flow risk management, the IMF report in April this year held that preventive management of excessive cross-border capital inflows can be carried out in advance, which further shows that in order to solve the exogenous problem of capital flows in developing countries, cross-border capital flow management is necessary. The international community should respect the degree and mode of openness chosen by countries according to their national conditions, pay attention to policy spillovers in major developed economies, and create a more just and fairness international environment for developing countries. Specific to the management of cross-border capital flows in our country, the foreign exchange management department has made efforts to improve the foreign exchange management system and mechanism in line with the new development pattern, and improve the two-in-one management framework of "macro-prudential + micro-supervision" in the foreign exchange market to maintain the stable operation of the foreign exchange market and the national economic and financial security. Focusing on developing countries, our country displays the image of a responsible big country, actively participates in international financial governance, and advocates international economic and financial policy coordination. Among them, the macro focuses on pre-adjustment and fine-tuning, and the emphasis is on expectation management; the micro focuses on compliance with the law, and the emphasis is on due diligence and exemption. The more compliance, the more convenient it is. The combination of the two has maintained the stable operation of the foreign exchange market under

Lu Lei stressed that financial security is an important part of national security, and maintaining financial security is a strategic and fundamental event related to the overall economic and social development of our country. The foreign exchange management department will be based on the new security pattern, further coordinate development and security, continuously optimize and improve the management framework of cross-border capital flows, and promote the stable and healthy development of the real economy with high-quality foreign exchange services.