Big swings in cross-border capital flows and significant changes in China's foreign exchange reserves continued to affect the currency market last year. What conclusions can we draw from these cross-border capital flows? How do we reach an objective understanding of the changes in China's foreign exchange reserves? And how do we rationally assess the relationship between exchange rate policy and cross-border capital flows?

In general the capital outflow trend has slowed,but the pressure should not be underestimated.

In the first three quarters of 2016,the accumulated deficit in international payments under the capital and financial account totaled US$303.2 billion,showing a year-on-year decrease of 5.2%. If net errors and omissions are included,the broad-based capital and financial-account deficit was US$466.5 billion,essentially equal to the total in the same period of 2015. However,foreign exchange reserves continued to be under pressure as the basic international payments surplus declined substantially.

The difference between the current account balance and direct investment is an indicator of the balance of international payments,and is therefore referred to as the basic balance of payments. In the first three quarters of 2016,China's basic balance of payments showed a surplus of US$97.1 billion,for a 67% decline from a year earlier. This reflected a 28% drop in the current account surplus over the same period. At the same time,there was a net deficit of US$75.7 billion in direct investments,compared with a surplus of US$54.1 billion in the same period of 2015.