China runs a structural pattern of "trade surplus, capital outflow," so a trade surplus does not necessarily mean the renminbi must appreciate, and capital outflow does not necessarily mean the renminbi must depreciate.

At present, China's economic performance continues to show an overall stable trend of development toward new growth and improvement. However, the domestic contradiction of strong supply and weak demand is prominent, and the foundation for a steady and improving economy still needs to be consolidated. Some views hold that Chinese companies now have a foreign trade surplus exceeding one trillion US dollars, but the goods go out while the money does not come back, and the country's foreign exchange reserves have not increased accordingly. This indicates that market entities lack confidence in the economy, which is an important reason for weak domestic investment and consumption demand and low price levels. Some suggest either restoring mandatory foreign exchange settlement, requiring companies to repatriate export earnings and convert them into renminbi, or restricting companies' outward investment and making them invest more domestically.

The author does not agree with this. Back then, "mandatory foreign exchange settlement" reflected the reform idea of "concentrating foreign exchange supply and safeguarding foreign exchange demand." In early 1994, the exchange rate was unified, the banking settlement and sales system was implemented, and conditional convertibility under the current account was achieved. At that time, against the background of foreign exchange scarcity, the foreign exchange retention and surrender system for Chinese-funded enterprises was abolished, requiring 100% settlement of their current account foreign exchange income, while allowing their trade and trade-related freight, insurance, and commission service payments to be purchased at bank counters with valid documents. This reflected the reform art of "retreating in order to advance." Marked by "exchange rate stability and increased reserves," the old and new foreign exchange management systems achieved a smooth transition. On the basis of incorporating foreign-invested enterprises into the banking settlement and sales system in the second half of 1996 and abolishing the remaining current account exchange restrictions at the end of that year to achieve full current account convertibility, China gradually relaxed the mandatory settlement requirement and implemented voluntary settlement starting in August 2007. This had nothing to do with current account convertibility; rather, it was an important measure by China to promote trade and investment facilitation.

For most of the period before the "8.11" exchange rate reform in 2015, China's domestic foreign exchange market was continuously oversupplied. To prevent the renminbi exchange rate from appreciating too quickly, the central bank stepped in to buy the excess foreign exchange sold in the market. From 1994 to 2014, except for six years, China's balance of payments showed a pattern of "twin surpluses" in the current account and capital account, with foreign exchange reserve assets (arising from transactions) continuing to increase substantially. At that time, funds outstanding for foreign exchange were the main channel for the central bank's base money injection, leading to imported excess liquidity. To avoid breeding risks of credit expansion, inflation, and asset bubbles, the central bank was forced to withdraw base money by raising the statutory deposit reserve ratio and issuing central bank bills.

In the early stage of the "8.11" exchange rate reform, China suffered a high-intensity cross-border capital flow shock, and the renminbi exchange rate trend reversed. In 2015 and 2016, the balance of payments showed a pattern of "current account surplus, capital account deficit, and a sharp decline in foreign exchange reserve assets." In 2017, the "8.11" exchange rate reform achieved a successful turnaround, and in early 2018 it was announced that exchange rate policy would return to neutrality, with the central bank basically withdrawing from normal intervention in the foreign exchange market. In August 2019, the renminbi exchange rate broke through 7. As the degree of exchange rate marketization increased and the flexibility of two-way fluctuations strengthened, China's balance of payments gradually formed an autonomous equilibrium pattern of "current account surplus, capital account deficit, and small fluctuations in foreign exchange reserve assets." This expanded the central bank's autonomous space for monetary policy and laid an important foundation for China's modern central banking system. The central bank's base money injection has shifted from funds outstanding for foreign exchange to domestic credit channels. By the end of August 2026, funds outstanding for foreign exchange accounted for 43.6% of the central bank's total assets, significantly down from the high of 83.3% at the end of 2013. On this basis, improving the base money injection mechanism, such as strengthening fiscal and monetary policy coordination and improving open market operations in government bonds, is an important part of building a scientific and robust monetary policy system.

Restoring the mandatory foreign exchange settlement system would not only go against the reform direction of trade and investment facilitation, but could also push monetary policy back into a situation where it is hijacked by exchange rate policy. More critically, the autonomous equilibrium pattern of the balance of payments means that the current account and capital account balances are mirror images of each other, and the larger the current account (or goods trade) surplus, the greater the net capital account outflow. For example, last year's foreign trade surplus was 1.2 trillion US dollars, the current account recorded a record surplus of 735 billion US dollars, the non-reserve financial account also recorded a record deficit of 820.1 billion US dollars, and foreign exchange reserve assets decreased only slightly by 51.3 billion US dollars. This kind of capital outflow is not necessarily related to investor confidence, but is the balancing item of the current account surplus in a statistical sense. In the past, the trade surplus became the central bank's accumulation of foreign exchange reserves, belonging to official external asset deployment. Now the trade surplus directly becomes private external asset deployment. Within the private sector, if enterprises, households, non-bank financial institutions, and other non-bank sectors invest more abroad (that is, the banking settlement and sales surplus is smaller or even a settlement and sales deficit), the banking sector can use less and may even need to repatriate overseas positions (reflected as smaller or even negative net increases in "portfolio investment" and/or "other investment" assets in the balance of payments statement). If non-bank sectors invest less abroad (that is, the banking settlement and sales surplus is larger), the banking sector must use more, turning more of the banking settlement and sales surplus into its own foreign exchange positions, external portfolio investment (reflected as a net increase in "portfolio investment" assets in the balance of payments statement), or external lending or deposits abroad (the latter two reflected as a net increase in "other investment" assets in the balance of payments statement).

Pursuing a "twin surplus" in the balance of payments where "not one is missing" is essentially the inertial thinking of "loose entry and strict exit" from the period of foreign exchange scarcity, making moral judgments about cross-border capital flows and subjectively believing that capital inflows are good and capital outflows are bad. This not only violates the policy orientation of the "15th Five-Year Plan" regarding "raising the level of capital account opening" and "expanding space for two-way investment cooperation," but may also affect the efficiency of foreign exchange resource use. According to international investment position statistics, by the end of 2025, among China's four major categories of external financial assets, in descending order: the share of reserve assets fell from a high of more than 70% to 31.8%; the share of outward direct investment assets was 30.4%, up 24.0 percentage points since data began in 2004, only 1.4 percentage points lower than the share of reserve assets in the same period; the share of outward other investment assets was 20.8%, up 3.1 percentage points from 2004; and the share of outward portfolio investment assets was 16.9%, up 7.0 percentage points from 2004. Based on calculations using balance of payments data, in 2025 China's return on outward direct investment was 4.41%, 2.33 percentage points higher than the return on outward non-direct investment in the same period (including outward portfolio investment, other investment, and reserve asset investment).

At that time, Japan encouraged private outward investment during a period when its goods trade surplus was relatively large. Now, Japan's goods trade has long turned into a deficit, but relying on the investment income surplus earned from private outward investment, Japan still maintains a relatively large current account surplus to this day. This is exactly the goal China should pursue in the future: looking at both gross domestic product (GDP) and gross national income (GNI), and valuing both "China's economy" and "Chinese people's economy."

In addition, interpreting capital outflow as pressure for renminbi depreciation is also biased. China runs a structural pattern of "trade surplus, capital outflow," so a trade surplus does not necessarily mean the renminbi must appreciate, and capital outflow does not necessarily mean the renminbi must depreciate. Just as the United States runs a structural pattern of "trade deficit, capital inflow," one cannot simply use the trade deficit to explain and predict depreciation of the US dollar index, or use capital inflows to explain and predict appreciation of the US dollar index.