Compilation Principles and Indexes for the IIP

I. Compilation Principles for the IIP

In accordance with the standards of the Balance of Payments Manual (Fifth Edition) published by the International Monetary Fund (IMF), the IIP is a statistical statement which reflects at a specific point the stocks of financial assets and liabilities of one country or region to other countries or regions of the world. Changes in the IIP can be caused by changes in the transactions, prices, and exchange rates, as well as by other adjustments during specific periods. The IIP remains consistent with the BOP statement with regard to the principles of valuation, measurement, and conversion, and together with the BOP statement constitutes a complete international accounts system of the country or region.

Chinas IIP is a statistical statement which reflects at a specific point the stocks of the financial assets and liabilities of China (excluding that in Hong Kong SAR, Macao SAR, and Taiwan Province) to other countries or regions of the world.

II. Explanation of the Major IIP Indexes

According to the standards of the IMF, the items on the IIP are categorized according to assets and liabilities. The assets are divided into China's direct investments abroad, portfolio investments, other investments, and reserves assets, and the liabilities are divided into foreign direct investments, portfolio investments, and other investments. The net position refers to external assets minus external liabilities. The items are specifically defined as follows:

1. Direct Investment: Refers to external investment in which an investor of one country operates an enterprise located in another country with the aim of acquiring effective control over the enterprise. It consists of direct investment abroad and foreign direct investment. Direct investment abroad includes the stocks of the direct investment abroad conducted by China's non-financial sectors, the stocks of the capital fund and working capital appropriated by domestic banks to set up branches overseas, as well as the stocks of the loans between parent companies and subsidiaries both in China and abroad, and the stocks of other receivables and payables. Foreign direct investment includes the stocks of foreign direct investment absorbed by China's non-financial sectors, the stocks of direct investment overseas absorbed by the financial sectors (including foreign investment attracted by branches of foreign financial sectors and Chinese-funded financial sectors, and investments by the foreign party in joint financial sectors), as well as the stocks of the loans between parent companies and subsidiaries both in China and abroad and the stocks of other receivables and payables.

2. Portfolio Investment: Includes some types of investment such as shares, long- and medium-term bonds, and money-market instruments. Portfolio investment assets refer to holdings of negotiable securities, such as shares, bonds, money-market instruments, and derivative financial instruments, which are held by Chinese residents but issued by non-resident enterprises. Portfolio investment liabilities refer to shares and bonds held by non-resident enterprises but issued by Chinese residents.

2.1 Equity Securities: Comprise securities in the form of stocks.

2.2 Debt Securities: Include long-term and medium-term bonds, short-term (one year or less) bonds, and money-market instruments or transferable debt instruments such as short-term treasury notes, commercial papers, and large-sum short-term negotiable certificates of deposits.

3. Other Investment: Refers to all the financial assets and liabilities, including trade credits, loans, currency, and deposits, as well as other assets and liabilities, but excluding direct investments, portfolio investments, and reserves assets. Long term means that the contract period of the relevant financial assets/liabilities is longer than one year, and short term means that the contract period is one year or less.

3.1 Trade Credits: Refers to the direct business credit arising from the import and export of goods between China and other countries. Assets refer to the receivables of China's exporters and the advance payments by Chinas importers, and liabilities refer to the payables of Chinas importers and the advance receipts of China's exporters.

3.2 Loans: Assets refer to the external assets held by domestic institutions by providing loans and lending to overseas institutions; and liabilities refer to the loans borrowed by domestic institutions, such as loans from foreign governments, loans from international institutions, loans from foreign banks, and sellers credit.

3.3 Currency and Deposits: Assets refer to the funds deposited abroad and the foreign cash in stock held by China's financial institutions; and liabilities refer to the overseas private deposits and short-term funds from foreign banks attracted by China's financial institutions, as well as other short-term funds like loans from foreign exporters and individuals.

3.4 Other Assets/Liabilities: Refer to the investments other than trade credits, loans, currency, and deposits, for example, the capital paid by non-currency international institutions and other receivables and payables.

4. Reserves Assets: Refer to the external assets that can be used at any time and are effectively controlled by the PBOC, consisting of monetary gold, special drawing rights (SDRs), the reserves position in the Fund, and foreign exchange.

4.1 Monetary Gold: Refers to the gold held by the PBOC as reserve.

4.2 Special Drawing Rights: is a type of ledger assets, which is allocated by the IMF according to the capital share of its members; it can be used to repay the debt to the IMF and can make up for the deficit in the balance of payments between the governments of member countries.

4.3 Reserves Position in the Fund: Refer to the assets that are in the ordinary accounts of the IMF and that can be used freely.

4.4 Foreign Exchange: Refers to the current assets and liabilities that are retained by the PBOC and that can be used as a means of international compensation.

(State Administration of Foreign Exchange June 4, 2009)