Investment Rating - The industry rating is "Buy" as of March 22, 2026, consistent with the previous rating [4]. Core Insights - The report highlights that net settlement remains at a high level, with cross-border capital inflow significantly supplementing M2 and base currency [12]. - In February, the arbitrage trading return rate declined rapidly, with the US dollar and RMB showing a strong dual performance. The US dollar index rose by 0.54%, influenced by reduced interest rate expectations and increased demand for safe-haven assets due to geopolitical tensions [13]. - The report indicates that the net cross-border capital inflow in February remained high, with a surplus of 247.3 billion yuan in bank customer foreign exchange payments, a year-on-year increase of 39.1 billion yuan [14]. - The willingness to settle in RMB has significantly increased, with net settlement in February reaching 383.3 billion yuan, a year-on-year increase of 431.1 billion yuan [34]. Summary by Sections Section 1: Current Observation - The report discusses the February data on bank settlement and foreign exchange payments, noting that net settlement remains high and cross-border inflows are providing significant support to M2 and base currency [12]. Section 2: Arbitrage Trading Returns - The arbitrage trading return rate has decreased, with the RMB appreciating against the US dollar by 1.34% in February, driven by strong export performance and overall increased willingness to settle [13][14]. Section 3: SDR Major Economies Tracking - The report includes tracking of major economies, noting a slight seasonal increase in unemployment rates in China and the US, and a marginal appreciation of the Japanese yen against the offshore RMB [8]. Section 4: Historical Data - Historical data on bank foreign exchange payments and settlements is provided, showing trends in surplus and deficits across various categories, including goods and services [17][35].

Investment Rating - The industry rating is "Buy" [4] Core Views - The trade return ratio has turned positive again, and the service trade deficit has significantly narrowed [16][18] - The cross-border capital flow is expected to gradually return, positively impacting domestic liquidity [5][19] - The service trade deficit for December 2025 was 966 billion CNY, a year-on-year decrease of 466 billion CNY, with a full-year deficit of 13,760 billion CNY, down 2,544 billion CNY, approximately 16% [18] Summary by Sections 1. Current Observation - The State Administration of Foreign Exchange (SAFE) released data on China's international balance of payments for December 2025, indicating a potential impact on the central bank's willingness to settle foreign exchange [16] - The trade return ratio is at a historical high, with a monthly unconverted trade net outflow of 447 billion CNY, a year-on-year increase of 1,392 billion CNY [17] 2. Arbitrage Trading Returns - The arbitrage trading return rate for 10Y US Treasury bonds in CNY has dropped significantly to -1.77%, indicating a shift in cross-border capital dynamics [17] 3. Service Trade Deficit - The service trade deficit has narrowed significantly, with major contributions from improved policies for foreign visitors, reduced international shipping costs, and enhanced competitiveness in high-tech services [18] 4. Cross-Border Liquidity Outlook - Despite the recent appointment of Kevin Warsh as the next Federal Reserve Chair, the trend of cross-border capital return is expected to continue, influenced by the Fed's monetary policy stance [19][21] - The short-term liquidity in the US remains tight, with limited space for balance sheet reduction, while long-term prospects depend on economic performance [20][21]

Investment Rating - The industry investment rating is "Buy" [2] Core Views - December saw a record high in both cross-border net inflow and net settlement scale, with the bank's foreign-related payment surplus reaching 801.1 billion CNY, a year-on-year increase of 400.2 billion CNY [14][17] - The arbitrage trading return rate declined significantly, influenced by the depreciation of the US dollar against the offshore RMB, which fell by 1.32% to 6.98 [14][17] - The cross-border funds' net inflow in December was the highest on record, driven by a substantial increase in merchandise trade surplus [17][31] Summary by Sections Section 1: December Cross-Border Net Inflow and Settlement - The bank's foreign-related payment surplus in December was 801.1 billion CNY, with a year-on-year increase of 400.2 billion CNY, primarily due to a significant expansion in merchandise trade surplus [17] - The net settlement in December reached a historical high of 705.5 billion CNY, with a month-on-month increase of 589.1 billion CNY and a year-on-year increase of 780.6 billion CNY [31] Section 2: Arbitrage Trading Returns - The arbitrage trading return rate for 10Y US Treasury bonds in RMB terms fell by 1.43 percentage points to -1.77% due to the marginal appreciation of the RMB [14][17] - The 10Y China-US interest rate spread widened by 15 basis points, with the 10Y US Treasury yield rising by 16 basis points [14] Section 3: Cross-Border Funds and M2 Liquidity - Cross-border funds contributed significantly to M2 liquidity, with a total of 774.4 billion CNY added, reflecting an increase of 863.2 billion CNY month-on-month [55] - The cross-border funds' inflow had a pull rate of 0.10% on M2, indicating a continued upward trend [55]