REPORT ON THE CHINA INTERBANK FOREX MARKET IN Q3 2003

 

Market transactions

In the 68 trading days in the third quarter of 2003, the accumulated turnover of the four trading currencies converted into 37.12 billion US dollars. The average daily turnover stood at US$546 million, up 14.37 per cent over last quarter and 38.59 per cent year-on-year. From January to September, the interbank forex market witnessed an accumulated trading volume of US$96.19 billion with an average daily turnover of US$506 million. In September 2003, the interbank forex market recorded a turnover of US$13.74 billion with an average daily turnover of US$572 million.

Compared with last quarter, the average daily turnover in the third quarter of 2003 increased for the USD and the HKD, but decreased for the JPY and the EUR. Compared with the same period of last year, the average daily turnover for the USD, the HKD, the JPY and the EUR all went up significantly.

The USD fluctuated within a narrow range between 8.2766 and 8.2776 in the third quarter. Opening July at 8.2774, the weighted average price of the USD closed September at 8.2770, four bps lower than that of last quarter.

Having had a stable performance early in the quarter, the HKD surged at the end of the quarter. The weighted average price of the HKD started the quarter at 1.0611 and remained stable until September 22. Affected by the international market, the HKD soared to 1.0647 on September 23, 36 bps higher than that of the previous trading day. It closed the quarter at 1.0682, 70 bps higher than 1.0612 at the end of last quarter.

The JPY climbed steadily. Opening in July at 100 to 6.9081, the weighted average price of the JPY touched the quarter low of 6.8740 and hit the high of 7.4576 at the end of September, 5493 bps higher than that of last quarter.

The EUR bottomed out. The weighted average price of the EUR stood at 9.5349 at the beginning of July. After reaching the quarter low of 8.9296 on September 3, values went up quickly, and pinned at 9.6179 by the end of September, gaining 1,548 bps over the last quarter.

Compared with the second quarter of 2003, daily supply in the forex market expanded and daily demand shrank this quarter, with the excess of supply over demand rising by US$8.46 billion over last quarter. The average daily surplus went up by 24.24 per cent and 59.61 per cent respectively over the previous quarter and the same period of last year.

In this quarter, 30 financial institutions involved in 30 interbank forex deals, with an accumulated turnover of US$236.12 million and HK$422.12 million. The most frequently  traded varieties were short terms within one month. The average funding rate of one-week was 1.0541 per cent, almost the same as international levels.

Brief analysis

China’s economy maintained its speedy growth rate. The economy rebounded quickly as SARS abated in China mainland at the end of June. GDP growth rate for 2003 is expected to reach 8.2%, according to experts at the Chinese Academy of Social Sciences. Additionally, with new phenomena emerging in the economy, the PBC raised the deposit reserve ratio by 1 percentage point on September 21, 2003 to prevent excessive increases in loans, and provide a stable financial environment for sustainable, sound and rapid development of the national economy.

Growth in imports and exports leveled off. Preliminary statistics from the Customs Office showed that the grand total of exports and imports from January to August 2003 hit US$522.72 billion with a year-on-year increase of 36.3 per cent. During this period, volumes of exports and imports were US$265.79 billion and US$256.93 billion, 32.5% and 40.6% respectively higher than the previous year; but the favorable balance of trade dropped to US$8.86 billion, a 50.4% decline year-on-year. In August, exports were US$37.42 billion, up 27.2%, imports US$34.62 billion, up 27.3%, and the favorable balance reached US$2.8 billion, up 26.2% year-on-year. The increase rates of exports and imports in August fell by 7.1 and 10.9 percentage points respectively, a considerable and noteworthy decline as compared with the second quarter.

The inflow speed of foreign capital slowed down, with the utilized foreign direct investment (FDI) dropping for the first time in August. The statistics from the Ministry of Commerce demonstrated that from January to August 2003 new contracted FDI reached US$67.53 billion, up 34.33 per cent year-on-year, and the utilized FDI went up by 18.42 per cent to US$36.67 billion. Compared with the same period of last year, in August 2003 the new contracted FDI was US$8.36 billion, up 36.95%; and the utilized FDI was US$3.32 billion, down 28.28%. The Ministry of Commerce estimated that the utilized FDI could be expected to reach US$57 billion for the whole year, exceeding the US$52.7 billion of last year.

The RMB remained stable under pressure. Concerns from the media either deliberately or accidentally exaggerated the pressure of RMB appreciation. Many major developed countries demand that the RMB appreciate, though neutral scholars and experts at research institutions and international organizations hold that RMB should continue to remain stable. Facing the appreciation pressures from some interest groups, the Chinese Government reaffirms that the RMB exchange rate will adhere to a policy of stability.  The Chinese Government will also take effective measures to maintain the balance of payments and dissolve pressures for yuan appreciation. However, the debate about the exchange rate of the RMB will continue.