China Capital Outflow Pressures Eased Further In August: SAFE

     BEIJING (MNI) - Chinese banks sold less foreign exchange to their customers

in August as the yuan exchange rate rose sharply for the month, data released

Monday by the State Administration of Foreign Exchange (SAFE) shows.

     Banks sold a net CNY27.6 billion worth of foreign exchange to clients in

August, down from CNY42.8 billion in July and significantly lower than CNY92.3

billion in June, SAFE said. August sales were the lowest since the CNY21.7

billion sold in August of last year.

     The change indicates that the willingness of banks' clients to purchase

foreign exchange has continued to decrease as the yuan has gained strength.

     Foreign-exchange purchases by bank clients accounted for 61.5% of the total

foreign-exchange expenses of banks, down 1.2 percentage points from July and

about the same level as the beginning of 2014, SAFE noted.

     Forex sales by bank clients comprised 62.2% of the total foreign-exchange

income of banks, up 0.2 percentage point from July, SAFE said. 

     "The stable and strong momentum of the yuan has made domestic market

participants more rational in the process of overseas businesses," SAFE said in

a statement on its website, noting that the willingness to purchase foreign

exchange had dissipated significantly.

     Net capital inflows and forex sales of banks' clients in the goods trade

increased, SAFE said, with net foreign exchange sales of banks to their clients

rising 26% on a monthly basis in August.

     Capital inflows from foreign direct investment increased 30%

month-on-month, SAFE noted.

     "In August, foreign-exchange purchases under the companies' investment

income item started to fall from the peak, and foreign-exchange purchases of

individuals saw an obvious slowdown compared with the same period last year,"

the regulator said. 

     For the January to August period, banks sold a net CNY561.4 billion in

forex to clients, compared with CNY553.7 billion in the January-July period.

     "The strong yuan effectively supported the reduction of foreign-exchange

sales. As a result, the willingness to make foreign-exchange sales grew, and

decreased for forex purchases" Liu Jian, forex analyst with Bank of

Communications, told MNI.

     In August, the yuan exchange rate strengthened 1.96% against the U.S

dollar, the biggest gain since July 2005. 

     In addition, the solid performance of the Chinese economy and further

opening-up of Chinese markets, combined with stable  market expectations,

resulted in the stabilization of cross-border capital flows, SAFE said.

     Total net forex sales by Chinese banks in August fell to CNY25.6 billion

from CNY104.9 billion in July.

     The cross-border capital flow situation improved based on key data,

including the level of foreign-exchange reserves. Foreign-exchange reserves

surged $10.8 billion in August to $3.092 trillion, the seventh consecutive

monthly increase, according to SAFE.

     "Cross-border capital flows will continue to improve as the yuan maintains

its stability and exports increase in the short term," Liu said.

--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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