Exporter FX Conversion Slows but Foreign Capital Returns, Supporting RMB

Overview

Based on data from the State Administration of Foreign Exchange (SAFE) and China Central Depository & Clearing Co., Ltd. (CCDC), this report analyzes dynamics in the RMB FX market. The core conclusion is that despite a continued weakening in exporters' willingness to convert FX, significant rebound in capital account portfolio inflows, coupled with expectations of easing geopolitical tensions, supports a bullish view on the RMB.

Core views

On the current account side, the exporter FX conversion ratio has declined for three consecutive months, falling to 62.6% in May (from 67.5% in March), reflecting cautious sentiment among exporters amid global uncertainty and rising import costs. The capital account stands out as portfolio inflows rebound for the second consecutive month. SAFE data shows a net inflow increase of USD 18 billion (the largest since 2021), of which approximately USD 7.2 billion was converted into RMB in the onshore spot market. CCDC data corroborates this trend, with foreign investors net purchasing USD 13 billion of Chinese bonds in May, marking the first net buying since April 2025, primarily driven by the strong year-to-date performance of Chinese government bonds and the market's underweight position. The report argues that the sustainability of portfolio inflows and expectations of easing geopolitical risks together form the basis for a positive RMB outlook.

Analysis framework

The institution adopts a balance of payments dual-account analysis framework, separating the impact of the current account and capital account on RMB exchange rates. It cross-validates capital flow trends using SAFE customer-driven USD sales data, exporter conversion ratios, and CCDC bond holding changes. Additionally, it combines market positioning (underweight Chinese bonds) with asset performance (YTD returns on Chinese government bonds) to deduce the sustainability of capital inflows.

Methodology notes

• Industry/Sector Analysis FrameworkSupply and Demand Framework

  FX Market Supply and Demand Analysis

  By splitting FX market drivers into exporter conversion behavior (supply side) and portfolio inflows (demand side), this approach helps understand the root causes of exchange rate movements.

• Cycle and Prosperity FrameworkProsperity Turning Point Analysis

  Identification of Capital Flow Turning Points

  Judging the turning point of capital account prosperity through continuous monthly data changes (e.g., portfolio inflows turning from negative to positive) foreshadows a reversal in exchange rate trends.

• Macroeconomic framework

  Balance of Payments Dual-Account Transmission

  Distinguishing the different impact mechanisms of the current account and capital account on exchange rates; capital account inflows can offset the negative impact of slowed current account conversions.

Key data

• Exporter FX Conversion Ratio62.6% (May 2026)Declined for the third consecutive month; 67.5% in March
• Capital Account Portfolio InflowsUSD 18 billionLargest single-month inflow since 2021
• Onshore Spot Market RMB ConversionUSD 7.2 billionAccounts for approximately 40% of portfolio inflows
• Foreign Investors' Net Bond PurchasesUSD 13 billionFirst net buying since April 2025

Impact & implications

The report believes that improved capital account inflows can partially offset the drag on the RMB from declining exporter conversion willingness. If portfolio inflows persist and geopolitical risks ease, the RMB is expected to receive further support. The market's underweight position in Chinese bonds implies there is still room for capital inflows.

Risks

• Continued global uncertainty suppresses exporters' willingness to convert FX
• Escalation of geopolitical conflicts could reverse capital inflow trends
• Volatility in Chinese bond yields affects foreign investors' allocation willingness

What to watch

• Whether subsequent monthly SAFE capital account data continues to show inflows
• Changes in foreign investors' bond holdings per CCDC data
• Impact of geopolitical risk developments on risk appetite