Goldman Sachs: China's Net FX Inflows Rose to USD 50 Billion in May

Overview

Based on the latest data from the State Administration of Foreign Exchange (SAFE), this report provides high-frequency tracking of China's cross-border FX flows in May 2026. The core conclusion is that China's net FX inflows expanded in May, with Goldman Sachs' comprehensive preferred measure indicating net inflows of USD 50 billion for the month, further increasing from USD 37 billion in April. This improvement was primarily supported by the goods trade surplus under the current account, while the securities investment channel also showed signs of recovery, particularly as foreign investors resumed net buying of RMB bonds via Bond Connect. Additionally, the actual increase in official FX reserves, after excluding exchange rate valuation fluctuations, corroborates the trend of capital inflows.

Core views

Total Volume and Structure of Capital Inflows: Goldman Sachs' comprehensive FX flow indicator shows net inflows of USD 50 billion in May. By transaction channel, domestic spot transactions contributed USD 34 billion in net inflows, new forward contracts and unwinding added USD 14 billion, and cross-border RMB flows contributed approximately USD 2 billion. This indicates that the return of capital was not driven by a single channel but was the result of multiple sources working in tandem. Current Account Remains the Primary Support: The current account channel recorded USD 37 billion in net inflows in May (vs. USD 34 billion in April). Of this, goods trade-related net inflows rose to USD 53 billion, but notably, the goods trade FX settlement ratio fell from 56% in April to 51%, suggesting a marginal weakening in corporate willingness to settle FX. FX outflows corresponding to the services trade deficit narrowed to USD 11 billion, while the income and transfer accounts recorded minor outflows of USD 5 billion. Significant Recovery in Securities Investment Channel: The securities investment channel recorded USD 7 billion in net FX inflows in May. More significantly, northbound Bond Connect flows turned positive, with net inflows of USD 13 billion for the month, ending the sustained net outflows seen since April 2025, driven primarily by government bond purchases. As a broader proxy for capital flows, cross-border receipts and payments for securities investments (including both foreign currency and RMB-denominated) also showed net inflows of USD 18 billion in May, up from USD 14 billion in April. Reserves and Bank Assets Validation: Official FX reserves nominally rose from USD 3.411 trillion in April to USD 3.442 trillion in May. Considering valuation losses of approximately USD 8 billion due to exchange rate movements, reserves actually increased by USD 39 billion after excluding this factor. Meanwhile, commercial banks' net external assets increased by USD 15 billion in May, reaching a stock of USD 1.505 trillion, further evidencing either an increased willingness among domestic institutions to hold external assets or the phenomenon of funds being retained offshore.

Analysis framework

Rather than relying solely on a single metric such as bank FX settlement/sales or Balance of Payments data, the report employs a 'Preferred FX Flow Measure.' This metric integrates multiple dimensions—including bank FX settlement/sales on behalf of clients, changes in forward contracts, and cross-border RMB receipts/payments—to more comprehensively capture real cross-border fund movements denominated in both foreign currencies and RMB. When analyzing changes in FX reserves, the institution adopted an 'ex-valuation effect' approach. Since official FX reserves are denominated in USD but underlying assets include multiple currencies such as EUR and JPY, exchange rate fluctuations cause changes in book value. By estimating and deducting these non-transactional changes, analysts can more accurately identify reserve changes caused by actual cross-border capital flows, thereby assessing true supply and demand pressures.

Methodology notes

• Macroeconomic framework

  Construction of Comprehensive FX Flow Indicator

  Single-dimension FX settlement/sales data covers only foreign currency transactions and easily misses cross-border RMB flows. The report aggregates spot/forward FX settlement/sales with cross-border RMB receipts/payments to construct a composite indicator reflecting both local and foreign currency cross-border flows, providing a more comprehensive measure of true FX supply and demand conditions.

• Macroeconomic framework

  FX Reserve Valuation Effect Adjustment

  Officially reported FX reserve balances are affected by exchange rate conversion and asset price revaluation. Analysis requires estimating P&L from exchange rate movements based on global reserve currency composition and excluding it; the remaining change represents actual Balance of Payments transaction results, a critical step in judging capital outflow or inflow pressure.

• Industry/Sector Analysis FrameworkVolume-price decomposition

  Goods Trade FX Settlement Ratio Analysis

  Decomposes the goods trade surplus into two factors: 'trade volume' and 'settlement willingness.' Even if the trade surplus widens, a declining settlement ratio implies exporters prefer retaining FX rather than converting to RMB, reflecting changing micro-level expectations on exchange rates and serving as an important leading signal for forecasting FX rate trends.

Key data

• May Preferred Net FX InflowsUSD 50 billionIncreased MoM from USD 37 billion in April, indicating accelerating capital inflows
• May Current Account Net InflowsUSD 37 billionIncluding USD 53 billion net inflows from goods trade and USD 11 billion outflows from services trade
• Goods Trade FX Settlement Ratio51%Lower than 56% in April and Q1 average of 74%; willingness to settle FX declined marginally
• Northbound Bond Connect Net InflowsUSD 13 billionFirst positive reading since April 2025, driven primarily by government bond buying
• FX Reserve Change Ex-Valuation+USD 39 billionNominal increase of USD 31 billion, offset by approx. USD 8 billion valuation drag

Impact & implications

The improvement in May FX flow data suggests that pressure from China's cross-border capital outflows has been temporarily alleviated, with even notable capital repatriation observed. The turnaround in the securities investment channel, especially Bond Connect, reflects recovering allocation demand from foreign institutional investors for Chinese interest rate bonds, providing substantive support for RMB exchange rate stability. However, the decline in the goods trade FX settlement ratio signals that market participants still maintain some wait-and-see attitude toward holding FX, implying the foundation for RMB appreciation remains fragile; future attention should focus on whether settlement willingness recovers as the exchange rate stabilizes.

What to watch

• Trends in the goods trade FX settlement ratio in subsequent months to assess whether corporate settlement willingness continues to weaken
• Sustainability of Bond Connect capital inflows and changes in bond type composition
• Direction of changes in commercial banks' net external assets as a window into domestic institutional asset allocation preferences