China's FX Inflows Remained Positive in July but Slowed Significantly from June

Overview

Based on State Administration of Foreign Exchange data, Goldman Sachs assesses that China recorded moderate net FX inflows in July 2026. Its preferred composite indicator showed net inflows of US$7 billion, down significantly from US$34 billion in June. The current account remained the main support, but portfolio-investment-related outflows and a lower FX conversion ratio indicate limited improvement in cross-border flows.

Core views

The report believes that FX inflows did not cease in July but retreated from June's stronger level. Current-account net inflows were US$41 billion, mainly driven by US$61 billion in net inflows related to goods trade; a wider services trade deficit and increased outflows in income and transfers partly offset this. The portfolio investment channel continued to see outflows. Although northbound Bond Connect turned to inflows of US$2 billion, this was insufficient to reverse overall portfolio investment outflows.

Analysis framework

The report combines onshore spot FX transactions, newly signed and canceled forward transactions, and cross-border RMB flow data to construct a composite FX flow indicator; it also cross-checks the current account, portfolio investment, FX conversion ratios, valuation-adjusted official FX reserves, and changes in commercial banks' net foreign assets.

Methodology notes

• Cross-Border Capital Flow MonitoringComposite FX Flow Indicator

  Measures net FX inflows by combining onshore spot FX transactions, forward transactions, and cross-border RMB flows.

  In July, onshore spot transactions recorded net inflows of US$18 billion, newly signed and canceled forward transactions recorded outflows of US$4 billion, and cross-border RMB flows recorded outflows of US$7 billion, resulting in total net inflows of US$7 billion.

• Reserve AdjustmentFX Valuation Adjustment

  Excludes FX valuation effects from changes in official FX reserves.

  Official FX reserves increased by US$3 billion on a book basis, but estimated FX valuation effects added US$14 billion; therefore, reserves actually declined by US$11 billion after adjustment.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• RMB Exchange Rate

  Cross-border FX inflows and the FX conversion ratio are important marginal indicators of RMB supply and demand.

  Strengths

  Overall net FX inflows remained positive in July, while the current account maintained a sizable surplus.

  Weaknesses

  Net inflows narrowed significantly from June, and the goods trade FX conversion ratio declined.

  Comparison

  Current-account inflows were US$41 billion, while the portfolio investment channel recorded outflows of US$9 billion.

  Risks

  Expanded portfolio outflows, a widening services trade deficit, or a further decline in FX conversion willingness.

• China Bonds

  Northbound Bond Connect flows reflect changes in foreign investors' allocation to RMB bonds.

  Strengths

  Northbound Bond Connect shifted from net outflows of US$2 billion in June to net inflows of US$2 billion in July.

  Weaknesses

  The overall portfolio investment channel still recorded net FX outflows.

  Comparison

  Modest Bond Connect inflows coexisted with US$21 billion in outflows of broader portfolio-investment-related net foreign receipts.

  Risks

  Changes in global interest rates, RMB exchange-rate expectations, and risk appetite may affect foreign allocation.

Key data

• Composite Net FX InflowsUS$7 billionJuly 2026; net inflows were US$34 billion in June 2026.
• Current-Account Net InflowsUS$41 billionNet inflows were US$65 billion in June.
• Goods-Trade-Related Net InflowsUS$61 billionNet inflows were US$81 billion in June.
• Goods Trade FX Conversion Ratio54%65% in June and 58% in the second quarter of 2026.
• FX Outflows Through the Portfolio Investment ChannelUS$9 billionOutflows were US$4 billion in June.
• Portfolio-Investment-Related Net Foreign ReceiptsOutflows of US$21 billionA broader proxy for capital flows; outflows were US$36 billion in June.
• Northbound Bond Connect FlowsInflows of US$2 billionOutflows of US$2 billion in June.
• Official FX ReservesUS$3.419 trillionIncreased by US$3 billion in July from US$3.416 trillion in June; decreased by US$11 billion after excluding valuation effects.
• Increase in Commercial Banks' Net Foreign AssetsUS$41 billionIncreased by US$26 billion in June; ending balance was US$1.573 trillion.

Impact & implications

Moderate positive FX inflows help stabilize expectations for cross-border RMB supply and demand and external liquidity, but the smaller inflow scale, declining conversion ratio, and continued portfolio investment outflows indicate that market participants remain cautious in FX conversion willingness and risk appetite. If the current-account surplus weakens or portfolio outflows expand, the FX market balance will face greater pressure.

Risks

• The composite FX flow indicator relies on multiple SAFE data series and proxy indicators; changes in methodology may affect monthly interpretation.
• Book changes in official FX reserves are affected by FX valuation effects and cannot be directly equated with actual cross-border capital flows.
• Portfolio-investment-related data have different coverage scopes, and conclusions may differ between FX-denominated measures and combined RMB and foreign-currency measures.

What to watch

• Whether the goods trade FX conversion ratio can stabilize and recover.
• Subsequent changes in the services trade deficit and outflows in income and transfers.
• Whether northbound Bond Connect flows and broader portfolio-investment-related net foreign receipts improve.
• Changes in official FX reserves after valuation adjustment, as well as trends in commercial banks' net foreign assets.