Rise comes on back of bal­ance in sup­ply and weak green back

China Daily (Hong Kong) - - BUSINESS - By WANG YANFEI wangyan­fei@chi­nadaily.com.cn

The Chi­nese main­land’s for­eign ex­change re­serves rose in June for a fifth straight month, as tight­ened su­per­vi­sion of out­bound in­vest­ment and a weak dol­lar helped curb cap­i­tal out­flows.

The na­tion’s for­eign ex­change stock­pile climbed to $3.056 tril­lion in June, up by around 0.11 per­cent from the pre­vi­ous month, ac­cord­ing to data re­leased by the State Ad­min­is­tra­tion of For­eign Ex­change on Fri­day.

The cur­rency reg­u­la­tor at­trib­uted the con­tin­ued pos­i­tive trend in the data to ba­si­cally bal­anced for­eign ex­change sup­ply and de­mand and the ap­pre­ci­a­tion of a bas­ket of cur­ren­cies against the dol­lar.

Economists on Fri­day said that sup­ported by strong eco­nomic fun­da­men­tals and the gov­ern­ment’s ef­forts to open up the do­mes­tic cap­i­tal mar­ket, the re­serves are likely to rise slightly in the com­ing months, while re­main­ing largely sta­ble.

Guan Tao, former di­rec­tor of the in­ter­na­tional pay­ments depart­ment at China’s State Ad­min­is­tra­tion of For­eign Ex­change, said dur­ing a con­fer­ence on the ren­minbi in late June that forex re­serves ap­peared to have sta­bi­lized, mainly sup­ported by eased cap­i­tal out­flow pres­sures in re­cent months.

Aside from the forex re­serves fall in Jan­uary to $2.998 tril­lion — the first since March 2011 — re­serves have risen by around 1.5 per­cent as of June, com­pared with the start of the year, the cur­rency reg­u­la­tor said.

Guan said the gov­ern­ment’s en­hanced su­per­vi­sion of out­bound in­vest­ment had grad­u­ally taken ef­fect to help curb cap­i­tal out­flow pres­sures.

From De­cem­ber 2016, the gov­ern­ment in­tro­duced a slew of mea­sures tight­en­ing screen­ing of over­seas in­vest­ment projects — amid con­cern about cap­i­tal out­flows and mar­ket ex­pec­ta­tions for a con­tin­ued de­pre­ci­a­tion of the yuan.

An­a­lysts say that after the yuan ex­change rate against the dol­lar hit a six-year low

counts dol­lar cash at a bank in Taiyuan, cap­i­tal of Shanxi prov­ince.

PBOC to let mar­ket forces shape rates

The Peo­ple’s Bank of China, the cen­tral bank, said late on Thurs­day that the coun­try will al­low the mar­ket to “play a big­ger role in de­cid­ing the ex­change rate of the yuan and in­crease the cur­rency’s re­silience against the dol­lar”.

An­a­lysts said that the yuan will be­come more flex­i­ble against the dol­lar, although it is ex­pected to re­main largely sta­ble.

The cen­tral bank ex­pressed its views through its Shang­hai Head Of­fice, which pub­lished the China Fi­nan­cial Mar­ket De­vel­op­ment Re­port 2016 on its web­site.

The re­port said, “Ef­forts will be made to ac­tively guide and sta­bi­lize mar­ket ex­pec­ta­tions, bal­ance cross-bor­der cap­i­tal flows, and keep the yuan’s ex­change rate ba­si­cally sta­ble at a rea­son­able and bal­anced level.”

Given the still-big in­ter­est rate gap be­tween China and the US, and China’s re­cent tight­en­ing of cross-bor­der cap­i­tal man­age­ment mea­sures, the coun­try is fac­ing less pres­sure from cap­i­tal out­flows; and the yuan is ex­pected to be largely sta­ble in the sec­ond half of this year, said a Si­no­link Se­cu­ri­ties re­port.

But an­a­lysts said since the cen­tral bank has in­tro­duced the “counter-cycli­cal ad­just­ment fac­tor” in set­ting the ref­er­ence cen­tral par­ity rate of the yuan against the dol­lar in late May, the yuan’s ex­change rate against the green­back is set to be­come more flex­i­ble.

“The cen­tral bank re­port on Thurs­day, which said mar­ket forces will have more say in de­cid­ing the ex­change rate of the yuan, shows that the cur­rency may un­dergo big­ger fluc­tu­a­tions fol­low­ing ma­jor changes in the value of the dol­lar in the fu­ture,” said Liu Dongliang, cur­rency an­a­lyst of China Mer­chants Se­cu­ri­ties.

The dol­lar ap­pre­ci­ated sharply in the sec­ond half of last year, lead­ing to big de­pre­ci­a­tion of other cur­ren­cies. But the yuan had re­mained rel­a­tively strong, fail­ing to re­flect the changes in the value of the dol­lar. “The yuan may be­come more re­spon­sive to changes in the dol­lar,” Liu said.

The cen­tral bank also said in its re­port that the fi­nan­cial mar­ket will fo­cus on mar­ket-ori­ented re­forms this year. Mech­a­nisms for for­ma­tion, reg­u­la­tion and trans­mis­sion of mar­ket-ori­ented in­ter­est rates will be im­proved to en­hance the cen­tral bank’s reg­u­la­tory purview of in­ter­est rates, the re­port said.

The coun­try will raise the ef­fi­ciency of the cen­tral bank op­er­a­tions, in­clud­ing stand­ing lend­ing fa­cil­ity, medium-term lend­ing fa­cil­ity and re­verse re­pos, it said.

ZHANG YUN / CHINA NEWS SER­VICE

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