SAFE cites better economic prospects
Money outflows from China have eased because of such factors as sound economic prospects, a favorable balance of trade and sufficient foreign exchange reserves, and steps will be taken to defuse risks in line with the principles of reform and opening-up, the State Administration of Foreign Exchange (SAFE) said on Thursday in a statement posted on its website.
In the first quarter of 2016, China had a foreign exchange settlement deficit of $124.8 billion, down over 24 percent from $164.4 billion in the fourth quarter of 2015, according to data from the SAFE.
"The trend of a weakening dollar, caused by the Federal Reserve's delay in hiking rates, the stability of the yuan and investors' increasing risk tolerance as global financial markets stabilize have contributed to reduce fund flows from China," Liu Jian, a senior analyst at Bank of Communications, told the Global Times on Thursday.
Liu noted that sound short-term economic figures in China also relieved the outflow pressure.
Growth rates for value-added industrial output, fixed-assets investment and retail sales in the first quarter were faster than in the January-February period. In March, the business outlook - as measured by the Purchasing Managers Index - improved, and domestic financial markets became relatively stable. Because of these developments, cross-border fund flows stabilized, SAFE spokesperson Wang Chunying said in the statement.
However, the pressure of outflows may persist in the long run, commented Liu. "The Federal Reserve will raise interest rates sooner or later, risk aversion in the market may increase on account of global economic downward pressure and the outlook for the economy is uncertain."
The authorities will pursue reform of foreign exchange management and improve the management of foreign debt and cross-border fund flows to help develop the real economy and support the use of foreign exchange for real investment.
Also, strict measures will be taken, including supervising and analyzing international payments, guiding compliance verification by banks and fighting breaches of laws and regulations, said Wang.
Liu said that China "should also attract global investment. For example, the People's Bank of China [the central bank] can expand qualified foreign institutional investors' presence in the domestic capital market through both direct and indirect investment."
