China's foreign exchange watchdog yesterday downplayed reports by foreign agencies of major capital outflows due to the country's stagnant economic conditions.
While Chinese banks' foreign exchange purchases outweighed sales by $13.9 billion in the second quarter, the deficit was down considerably from $91.4 billion in the first three months of the year, Wang Chunying, a spokeswoman for the State Administration of Foreign Exchange, told a briefing in Beijing.
Similarly, the country's foreign exchange reserves fell by just $36.2 billion in the April-June period, compared with a $113 billion drop in the first quarter, according to official figures.
"The impact of the U.S. government normalizing its monetary policies can be seen, but capital outflow pressure eased in the second quarter and cross-border payments were much more balanced," Wang said.
"The figures show that market players were more willing to sell foreign currencies in the second quarter, and that their motivation to buy them weakened," she said.
The recent improvement in China's major economic indicators and the increased stability of the yuan were the main contributors to the leveling out, she said.
According to official figures, China's economy grew 7 percent year on year in the first half, far outstripping expectations, while exports also surprised the market by growing 2.1 percent in June, after falling by 2.8 percent in May.
Yesterday's statement by SAFE came after several foreign investment banks warned of major capital outflows from China, as the country battled internal problems and the United States raised interest rates, making the dollar a safer haven for investors.
Goldman Sachs estimated that capital outflows topped $224 billion in the second quarter, which it described as "beyond anything seen historically."
Similarly, JPMorgan claimed China was the major contributor to capital outflows among emerging markets in the second quarter, and said it expected the trend to continue.
Investors withdrew $142 billion from the country in the period, it said.
Wang said yesterday that a stronger U.S. dollar was both a challenge and an opportunity for China.
The country will need to deal with more uncertainty in cross-border money flows and greater difficulties in setting its foreign exchange policies, she said.
However, the strengthening of the U.S. currency is a sign of recovery in the world's largest economy, which will increase external demand and provide a more normal environment in which China can continue with its economic reforms and upgrades, she said.
