China’s record-breaking balance of payments, with a foreign currency surplus in 2021 supporting the yuan’s rally. A huge flow of foreign capital ended up in the coffers of Beijing, due to the high yields of bonds in local currency and the continuing boom in exports of products made in China. Global finance is betting on Chinese stocks thanks also to the stability of the currency exchange rate, a script that could be repeated in 2022. However, we will have to wait for the effects of the rise in US rates on the differential of yields on onshore securities.
The currency surplus supports the yuan
The current account surplus that measures trade in goods and services in 2021 rose to $ 224.2 billion last year, the highest since 2013. The capital account surplus reached $ 83.2 billion. the best since 2010.
This was revealed by the data released by Safe, the state administration that monitors capital flows on behalf of the central bank. The figures reflect China’s large trade surplus during the pandemic and foreign capital inflows in the face of yuan-denominated bonds.
The trade surplus, as is well known, reached a record of 676 billion dollars, driven by the strong foreign demand for goods made in China and also by the decline in outbound travel, which limited the deficit in trade in services.
Surplus that has given wings to the price of the yuan which in 2021 strengthened by 2.7% against the US dollar, extending the 6.7% gain recorded in 2020. The offshore yuan is close to 6.33 per dollar, a level recorded in December when the Central Bank increased the bank reserve ratio in foreign currency.