China Capital Outflow Pressures Eased Further In July: SAFE

--Forex Purchases Decrease Sharply 

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

in July as the yuan exchange rate rose at a stable pace, data released Wednesday

by the State Administration of Foreign Exchange (SAFE) showed.

     Banks sold a net CNY42.8 billion worth of foreign exchange to clients in

July, significantly down from CNY92.3 billion in June, SAFE said. July 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 banks' clients accounted for 63% of the total

foreign-exchange expenses of banks, down four percentage points from June, SAFE

noted.

     "Cross-border capital flows were stable with good momentum, and the balance

of supply and demand in the foreign-exchange market has been better than the

previous two months," SAFE said in a statement on its website.

     For the January to July period, banks sold a net CNY533.7 billion in forex

to clients, compared with CNY490.9 billion in sales in the first half of this

year. 

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

sales. Meanwhile, tightened macro-prudential management over capital flows also

weakened the willingness for foreign-exchange purchases," Liu Jian, forex

analyst with Bank of Communications, told MNI.

     In July, the yuan exchange rate strengthened 0.75% against the U.S dollar,

compared with a 0.17% depreciation in the same period last year. 

     "Individuals' willingness to hold forex decreased 27% year-on-year and 35%

month-on-month in July as individuals are more rational in using the exchange

rate under stable market expectations," SAFE noted.

     In addition, the improved performance of the Chinese economy and

comparatively stable global financial market have improved cross-border capital

flows, SAFE said.

     Total net forex sales by Chinese banks in July fell to CNY104.9 billion

from CNY142.5 billion in June.

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

including the level of foreign-exchange reserves.

     China's foreign-exchange reserves rose in July for the sixth month in a

row, increasing by $23.93 billion to $3.0807 trillion. The rise was much larger

than the $3.22 billion gain in June, and nearly equaled May's increase of $24.03

billion. The level of foreign-exchange reserves is now at its highest since

October 2016.

     "Cross-border capital flows will remain stable with strong support from

economic fundamentals. Moreover, the further opening up of the domestic market

will also have a positive effect," SAFE concluded.

--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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