China Banks Are Net FX Buyers In Sept For 1st Time In 2+ Years

     BEIJING (MNI) - Chinese banks bought more foreign exchange from their

clients in September than they sold, providing fresh evidence of more capital

inflows for the month as the yuan exchange rate showed greater two-way movement

and capital outflow controls continued to have their intended effect.

     The State Administration of Foreign Exchange said Thursday that Chinese

banks bought a net CNY21.8 billion from clients in September, compared with the

net sale of CNY27.6 billion in August. It was the first time banks were net

purchasers from clients since June 2015. 

     This number, along with the forex purchase position number released by the

People's Bank of China this morning, is treated as a key indicator of the level

of capital flows into and out of the country. The bigger the purchase number,

the greater the inflows.

     The PBOC said banks' forex purchase position rose CNY850 million to

CNY21.511 trillion, the first monthly growth since 2015.

     "The net purchase indicates that clients' demand to hold foreign exchange

declined as the yuan's appreciation accelerated in the early part of September,"

Li Liuyang, a foreign-exchange analyst with China Merchants Bank, told MNI. 

     Including banks' proprietary trading, their net purchases stood at CNY1.9

billion in September, compared with August's net sale of CNY25.6 billion.

     For the first three quarters, total forex sales of banks fell 54% to $112.9

billion, according to SAFE, which added that forex sales involving foreign

payments of clients dropped 56% to $111.5 billion. 

     SAFE said that the forex sales ratio of banks' clients, measuring clients'

forex sales as a proportion of their forex incomes, was 63% in the

January-September period, up two percentage points compared with the same period

last year, while the forex purchase ratio of the clients was 66%, down eight

percentage points compared with the first three quarters of 2016.

     Banks' forex sales of currency forward contracts to clients stood at a net

$7.7 billion, compared with a net purchase of $58.1 billion in the same period

last year, an indication that yuan depreciation expectations are fading, SAFE

said.

     The regulator said in a separate statement that "demand and supply in the

forex market is seeing a basic balance, pushing up the rise of foreign

reserves." 

     As of the end of September, outstanding foreign reserves stood at $3.11

trillion, an increase of $98 billion from the end of 2016, SAFE said. 

     Liu Jian, a forex analyst at Bank of Communication, told MNI: "Both the

forex purchase and sales ratios rose in September, showing that forex market

participants were confused about the changes to the yuan exchange rate for the

month."

     The Chinese yuan fluctuated sharply in September, rising to as strong as

6.4350 against the U.S. dollar and dropping to as weak as 6.6842. It ended the

month with a total decline of 0.76%.

--MNI Beijing Bureau; +86 (10) 8532 5998; email: marissa.wang@marketnews.com

--MNI Beijing Bureau; +86 (10) 8532-5998; email: vince.morkri@marketnews.com

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