Economy

China Relaxes Policy That Restricts Yuan Outflow

China Relaxes Policy That Restricts Yuan Outflow

Net foreign exchange (forex) sales by Chinese banks rose slightly in March while capital outflow still remained tame, official data showed Thursday.

Sources told Reuters on Wednesday that China's central bank has relaxed some of the curbs on cross-border capital outflows, the first signs of easing of measures put in place previous year as authorities and financial markets feel more confident that pressure on the yuan has eased.

Foreign central banks held $81.1 billion in yuan assets at the end of past year, up 13 percent, with 92.5 percent of those assets in bonds, SAFE data showed.

Expectations for further yuan depreciation have weakened significantly, State Administration of Foreign Exchange (SAFE) spokeswoman Wang Chunying told a news conference. The deficit widened from February's US$10.1 billion but below US$19.2 billion in January.

China's capital-outflow pressure eased notably in the first quarter, thanks to improving domestic economic performance and a weakening USA dollar, Ms. Wang said.

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In the first quarter, banks' net forex sales were US$40.9 billion, down 67 percent from a year earlier.

There had been rising concerns about capital flight since the second half of 2016, when the economy was facing looming downward pressure and the Chinese yuan was in the middle of a losing streak against the USA dollar. The yuan has since gradually recovered.

The authorities have stepped up compliance scrutiny but the country's foreign-exchange policies haven't changed, she said.

Another indicator of cross-border capital flow, China's forex reserves rose for the second month in a row in March to 3.0091 trillion US dollars, the first back-to-back increase since April 2016.

Reuters, citing unnamed banking sources, says that the decision comes as China's leaders and financial markets feel more confident that pressure on the yuan and the country's foreign exchange reserves has diminished, thanks largely to a pullback in the surging USA dollar.

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The International Monetary Fund said in a report that the capital outflow pressure could be exacerbated by tightening of global financial conditions or a shift toward protectionism in advanced economies.

China's improving economy has helped support the currency even as the USA central bank raises interest rates, Wang said.

Solid fundamentals and appeal to overseas investors will help capital flows move toward equilibrium, Wang said.

"China's foreign exchange management will not turn back, we will not go back down the old road of capital controls", said Wang.

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