State Administration of Foreign Exchange: Foreign investors net purchased $10.1 billion worth of domestic stocks and funds in the first half of the year

   On July 22, the State Council Information Office held a press conference on foreign exchange receipts and payments data for the first half of 2025. In response to a question from a China Securities Journal reporter, Li Bin, Deputy Director of the State Administration of Foreign Exchange, stated that since the beginning of this year, the foreign exchange situation has been complex and volatile, with significantly increased risks and challenges. Facing external shocks, China's foreign exchange market has withstood pressure, maintained stable operations, and demonstrated strong resilience. Overall, various types of investment into China have shown positive trends. From January to May, net inflows of equity-based direct investment into China reached $31.1 billion, up 16% year-on-year. Net inflows of securities investment into China amounted to approximately $33 billion, reversing the net outflow trend seen in the second half of last year.

    Jia Ning, Director of the Balance of Payments Department at SAFE, noted that foreign investment in domestic stocks has recently shown an overall positive trend. In the first half of the year, foreign investors net increased their holdings of domestic stocks and funds by $10.1 billion, reversing the overall net reduction trend of the past two years. Particularly in May and June, the net increase scale rose to $18.8 billion, indicating a growing willingness among global capital to allocate to China's stock market.

    Exchange Rate Outlook Remains Stable

    Li Bin stated that since the beginning of 2025, the external environment has become more complex and volatile, with rising unilateralism and protectionism, weakened momentum in global economic and cross-border trade growth, and increased turbulence in international financial markets. China has accelerated the implementation of more proactive macroeconomic policies, focused on expanding domestic demand, and effectively addressed external challenges. The economy has maintained overall stability with steady progress, and high-quality development has been continuously consolidated. The foreign exchange market has operated smoothly, demonstrating strong resilience and vitality, with performance exceeding market expectations.

    Responding to a question from China Securities Journal, Li Bin noted that the RMB exchange rate has remained fundamentally stable. In the first half of this year, the RMB appreciated by 1.9% against the US dollar, fluctuating within a range of 7.15 to 7.35. This maintained basic stability at a reasonable and balanced level while serving as an automatic stabilizer for macroeconomic and international payments adjustments.

    Expectations in the foreign exchange market remained stable. Li Bin noted that indicators such as forwards and options suggest no significant unilateral expectations for either appreciation or depreciation of the renminbi. Market transactions were rational and orderly: when the renminbi weakened, enterprises increased their foreign exchange settlements at higher rates; when it strengthened, they increased purchases at lower rates. Overall, there were no irrational trading behaviors such as chasing gains or cutting losses.

    The balance of payments has remained fundamentally balanced. Li Bin indicated that since the beginning of this year, China's current account surplus has grown steadily while remaining at a reasonable and balanced level overall. Corresponding to the current account surplus, the non-reserve financial account has shown a deficit roughly equivalent in scale to the current account surplus, presenting a pattern of autonomous balance in the balance of payments. Overall, various types of investment into China have shown positive trends. From January to May, net inflows of equity-based direct investment into China reached $31.1 billion, up 16% year-on-year. Net inflows of securities investment into China amounted to approximately $33 billion, reversing the net outflow trend seen in the latter half of last year. Outbound investment has progressed in an orderly manner. During the same period, equity-based outbound direct investment totaled $51.9 billion, remaining largely unchanged year-on-year, while outbound securities investment remained active.

    Regarding cross-border capital inflows, Li Bin noted that in the first half of the year, non-bank sectors including enterprises and individuals recorded a net inflow of $127.3 billion, continuing the net inflow trend since the second half of last year. Notably, the second quarter saw a 46% quarter-on-quarter increase in net inflows. By category, net inflows under goods trade remained high in the first half, foreign investors generally increased their net holdings of domestic stocks and bonds, while outflows from services trade and repatriation of profits by foreign-invested enterprises proceeded smoothly and orderly.

    Foreign Investment in Domestic Stocks Shows Overall Improvement

    Regarding foreign allocation of RMB assets, Jia Ning, Director of the Balance of Payments Department at the State Administration of Foreign Exchange, stated that since 2025, foreign allocation of RMB assets has remained generally stable. Foreign investment in RMB bonds has increased, with foreign holdings of domestic RMB bonds currently exceeding $600 billion, reaching a historically high level. Recently, foreign investment in domestic stocks has shown an overall positive trend. In the first half of the year, foreign investors net increased their holdings of domestic stocks and funds by $10.1 billion, reversing the overall net reduction trend of the past two years. Particularly in May and June, the net increase expanded to $18.8 billion, indicating a growing willingness among global capital to allocate to the domestic stock market.

    “We judge that foreign capital allocation to RMB assets still has relatively stable and sustainable growth potential,” said Jia Ning. Currently, the market value of domestic bonds and stocks held by overseas investors accounts for 3%-4% of the total. Supported by multiple positive factors, foreign capital is expected to continue gradually increasing its allocation to RMB assets.

    Jia Ning further analyzed that robust economic fundamentals have created a stable macro environment for foreign investment in China. As the effects of domestic demand expansion policies become apparent, the steady and positive economic momentum is expected to further consolidate. Recently, several international investment banks have expressed optimism about China's development opportunities, upgrading their ratings on Chinese assets from neutral to overweight.

    " The high-quality development of financial markets has created a favorable policy environment for foreign investment in China." Jia Ning stated that China's commitment to high-level opening-up, continuous improvement of financial market connectivity mechanisms, expansion of investment channels, and optimization of the investment environment have significantly enhanced the convenience for foreign capital to participate in China's financial markets. Simultaneously, China has established a relatively comprehensive and deep financial market system, with both its bond and stock markets ranking second globally in terms of market capitalization. The abundance of financial products and strong liquidity provide foreign investors with diverse options for allocating RMB assets.

    The global demand for diversified asset allocation has created favorable development opportunities for foreign investment in China. Jia Ning believes that in recent years, increased volatility in international financial markets has led investors to widely recognize the need for more diversified and dispersed global asset allocation. With its stable value and relatively independent return performance globally, the renminbi has become an important asset for global investors to diversify risks and a key target for enhancing returns. A recent survey by the Official Forum of International Monetary and Financial Institutions of 75 central banks revealed that 30% of respondents plan to increase their allocation of RMB assets.

    Abundant Policy Toolkit

    Regarding the outlook for China's foreign exchange market in the second half of the year, Li Bin stated that under open conditions, a country's foreign exchange market is influenced by multiple internal and external factors. “Overall, three favorable factors—high-quality economic development, steady progress in opening up, and enhanced resilience of the foreign exchange market—will support the continued stable operation of China's foreign exchange market. The RMB exchange rate has the conditions to maintain fundamental stability at a reasonable and balanced level,” Li Bin said.

    Li Bin emphasized that China's economic fundamentals remain sound, providing a solid foundation for the stable operation of the foreign exchange market. In the first half of this year, China's gross domestic product (GDP) grew by 5.3% year-on-year, with further optimization of the economic structure. In the second quarter, domestic demand—including final consumption and gross capital formation—contributed 77% to economic growth, a 17-percentage-point increase quarter-on-quarter. China has adopted expanding domestic demand as a long-term strategy, continuously promoting the integrated development of scientific and technological innovation with industrial innovation. The steady and positive momentum of the domestic economy will provide solid support for the stable operation of the foreign exchange market.

    China continues to expand high-level opening-up, with a stable pattern of self-balancing international payments. Li Bin stated that China remains committed to upholding free trade and multilateralism, with economic and trade partners spanning over 150 countries and regions worldwide. Concurrently, high-level institutional opening-up will advance steadily, and two-way investment and financing channels in financial markets will continue to broaden. This will help promote the coordinated development of foreign trade and cross-border investment while facilitating balanced cross-border capital flows.

    China's foreign exchange market has demonstrated increasing resilience and enhanced capacity to withstand external shocks. Li Bin noted that at the macro level, the market-based formation mechanism of the RMB exchange rate has been continuously improved, enhancing exchange rate flexibility to promptly release external pressures and promote supply-demand equilibrium. At the micro level, enterprises' awareness of exchange rate risk neutrality has been steadily rising, with cross-border RMB transactions growing steadily. In the first half of the year, both the hedging ratio of enterprises' foreign exchange and the proportion of cross-border RMB receipts and payments under goods trade reached around 30%, both hitting record highs. Reduced foreign exchange risk exposure helps maintain rational market trading. From a policy perspective, the foreign exchange market has accumulated substantial experience in counter-cyclical adjustments and possesses a rich reserve of policy tools. Regulatory effectiveness in the foreign exchange sector has steadily improved, and the ability to prevent and mitigate risks from external shocks has continuously strengthened.