In recent years, the scale of foreign direct investment in China has been basically stable, and foreign direct investment has continued to grow. With the implementation of the "One Belt, One Road" strategy and the increasing willingness of enterprises to go abroad, the scale of foreign investment in China has an accelerating trend. Since 20 14, China enterprises have carried out large-scale overseas mergers and acquisitions, and China's foreign direct investment has surpassed that of foreign direct investment. From the figures of cross-border M&A cases in China in recent ten years, it can be seen that both the number and the amount of cross-border M&A cases are increasing rapidly, and the foreign direct investment of China enterprises is one of the reasons for the decrease of foreign exchange reserves.
The outflow of funds related to overseas mergers and acquisitions also has a great impact on the RMB exchange rate, which makes the RMB exchange rate face great depreciation pressure. Maintaining the basic stability of RMB exchange rate and exchange rate expectation is an important policy orientation of the People's Bank of China. When the exchange rate fluctuates greatly, the central bank will use foreign exchange reserves to intervene in the exchange rate market.
The second reason for the decrease of China's foreign exchange reserves is capital outflow.
Due to the gradual recovery of the American economy and the impact of the Federal Reserve's interest rate hike, the exchange rate of the US dollar has risen in the international market. As China's official foreign exchange reserves are denominated in US dollars, foreign exchange reserves held in other currencies are affected by exchange rate changes, and some non-US dollar assets are reduced when converted into US dollars. At the same time, China's economy is currently facing structural problems. Since 20 14, China's GDP growth rate has gradually slowed down, and there is still great downward pressure on medium and long-term economic development. Most speculators are not optimistic about China's economy and expect the RMB to face the risk of depreciation, so they transfer their capital abroad. The recent decline in the stock market has led to the withdrawal of a large amount of funds from the stock market, which may also flow overseas. China's central bank was forced to use its foreign exchange reserves to defend the renminbi. With the intensification of capital outflow, the used foreign exchange reserves are gradually increasing.
The third reason for the decrease of China's foreign exchange reserves is that foreign exchange is hidden by the people.
Holding foreign exchange for the people refers to the mechanism of relaxing the foreign exchange retention quota of export-receiving enterprises under the system of "willing to settle and sell foreign exchange", thereby increasing the foreign exchange reserves of enterprises and individuals and reducing the national foreign exchange reserves. To put it simply, "storing foreign exchange in the people" means that the official foreign exchange reserves held by the central bank are transformed into private holdings through buying foreign exchange in the market. Since the second quarter of 20 14, with the RMB exchange rate changing from unilateral appreciation to two-way fluctuation, domestic institutions and individuals have also begun to optimize the currency structure of assets and liabilities. One of the important trends is that they began to increase foreign exchange deposits and foreign assets, while reducing foreign exchange loans and foreign liabilities, which also affected China's foreign exchange reserves.
The fourth reason for the decrease of China's foreign exchange reserves is accounting reorganization.
The accounting reorganization of foreign exchange reserves will have an impact on the amount of foreign exchange reserves denominated in dollars. In the past year, the exchange rate of the US dollar has continued to strengthen. Compared with the end of June in 20 14, by the end of September in 20 15, the euro, the pound and the yen depreciated by 18.4%,1.6% and 15.5% respectively. Affected by this, the non-US dollar assets in foreign exchange reserves have shrunk after being converted into US dollars, resulting in a decline in the book value of some foreign exchange reserves. However, this reduction is not a real loss, and the purchasing power of products and services in the corresponding countries will not change because of the depreciation of the relevant currencies against the US dollar.