Net cap­i­tal Q1 in­flows ‘pos­i­tive’

Com­pa­nies ‘more will­ing’ to hold for­eign cur­rency, SAFE re­ports

China Daily (Canada) - - BUSINESS - By JIANG XUEQING jiangx­ue­qing@ chi­nadaily.com.cn

China had net cap­i­tal in­flows through­out the first quar­ter, al­though the sur­plus nar­rowed each month dur­ing the pe­riod, ac­cord­ing to the State Ad­min­is­tra­tion of For­eign Ex­change.

In the first quar­ter, do­mes­tic banks’ for­eign-ex­change set­tle­ments to­taled $516.8 bil­lion and for­eign-ex­change sales reached $357.5 bil­lion, yield­ing a sur­plus of $159.2 bil­lion. That was up 57 per­cent from the pre­vi­ous year.

But the sur­plus fell to $40.2 bil­lion in March from $45.7 bil­lion in Fe­bru­ary and $73.3 bil­lion in Jan­uary.

“Pos­i­tive changes are tak­ing place in terms of cross-bor­der cap­i­tal flows, al­though the cur­rent sit­u­a­tion of net in­flows continues,” Guan Tao, who runs SAFE’s bal­ance-of-pay­ments­de­part­ment, told re­porters on Thurs­day in Bei­jing.

The “pos­i­tive changes” mainly re­fer to Chi­nese com­pa­nies’ grow­ing in­cli­na­tion to in­crease their for­eign-cur­rency hold­ings, he said.

In March, for­eign-cur­rency de­posits in­creased by $14.4 bil­lion, ris­ing 3 per­cent from the aver­age level of the pre­vi­ous two months. Guan didn’t spec­ify whether these were cor­po­rate or in­di­vid­ual de­posits, or both.

The govern­ment is aim­ing for “a bal­ance of sup­ply and de­mand for for­eign ex­change and hopes to im­prove macroe­co­nomic reg­u­la­tion and con­trol”.

Guan said the coun­try also aims to see com­pa­nies re­duce their cur­rency mis­matches and bet­ter han­dle the risks of cross-bor­der cap­i­tal flows.

On Thurs­day, the yuan closed at 6.2489 to the dol­lar, down 113 ba­sis points from Wed­nes­day.

The de­pre­ci­a­tion of the yuan since mid-Fe­bru­ary has slowed­down­for­eign-cur­rency set­tle­ments by Chi­nese com­pa­nies, which are wait­ing for signs of the cur­rency’s longert­erm trend.

Li Wei, a Shang­hai-based econ­o­mist at Stan­dard Char­tered Plc, said the yuan’s weak­en­ing is a tem­po­rary phe­nom­e­non and global in­vestors’ in­ter­est in the cur­rency will con­tinue to grow with its in­ter­na­tion­al­iza­tion and the di­ver­si­fi­ca­tion of chan­nels to use it.

“In­vestors be­lieve that the yuan still has room for ap­pre­ci­a­tion in the medium and long term. They also be­lieve that China will con­tinue to record a trade sur­plus and a cap­i­tal-ac­count sur­plus in the next two or three years,” Li said.

“We es­ti­mate that the yuan will rise to 6.04 to the dol­lar by the end of this year.”

Guan said it’s nor­mal for the yuan to rise and fall against the dol­lar and that the ex­change rate will be­come more flex­i­ble as mar­ket forces are given more em­pha­sis.

“People should not over­in­ter­pret the cur­rent small ad­just­ment of the ex­change rate of the yuan against the dol­lar. In­stead, they should pay more at­ten­tion to the medium- and long-term prospects,” he said.

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