China’s Forex Market Holds Steady in May as Cross-Border Activity Picks Up

Quick overview

China’s foreign exchange market came through May without much drama, holding its ground even as currency markets elsewhere were dealing with a rough stretch of volatility. Data released by the State Administration of Foreign Exchange on Monday showed the market kept moving at a healthy clip, with transactions across enterprises, individuals, and other non-banking sectors hitting $1.5 trillion for the month, a 22% jump from the same period last year.

Overall market turnover came in at $3.4 trillion, roughly flat year-on-year, which deputy head and spokesperson Li Bin described as reflecting general stability in market operations.

Capital flows held up too. Net inflows from non-banking sectors reached $62.5 billion in May, edging up 1% from April. On the banking side, forex settlement posted a surplus of $35.8 billion, though that was down 11% from the previous month.

Breaking down where the flows came from, goods trade remained the main driver of net inflows, which has been the consistent story for most of this year. Services trade ran a deficit, as it typically does. Dividend payments from foreign-funded enterprises ticked up for seasonal reasons, and overseas investors were net buyers of both domestic stocks and bonds during the month.

Li also noted that market sentiment stayed composed through May, with participants settling and purchasing foreign exchange based on actual business needs rather than speculative positioning. That is the kind of language Beijing tends to use when it wants to signal that nothing unusual is happening under the surface.

The steady reading comes at a time when plenty of other things are moving in global currency markets, from the yen’s pressure ahead of a widely expected Bank of Japan rate hike to the dollar’s recent softness tied to US-Iran diplomacy. Against that backdrop, China’s numbers read less like a headline and more like a quiet signal that the yuan market is in a different place than most.

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Sophia Cruz

Financial Writer - Asian & European Desks

Sophia is an experienced writer, reporter and newsdesk member, mostly on the financial sectors. For the past 5 years Sophia has covered a wide variety of topics such as the financial markets, economics, technology, fin-tech and trading. Sophia has been a part of the FX Leaders team since 2017 and works on producing valuable content and information for traders of all levels of experience.

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