China's Q2 Current Account Surplus Surges on Robust Exports

--Current Account Surplus Equal To 1.2% of GDP

--SAFE Says FX Reserves Increased $46.3 Bln In H1

     BEIJING (MNI) - China's current account surplus surged to $50.9 billion

(CNY348.8 billion) in the second quarter from $18.4 billion in the first

quarter, the State Administration of Foreign Exchange (SAFE) announced Thursday.

     SAFE said the capital and financial accounts, which include net error and

omission numbers, saw a deficit of $0.4 billion (CNY3.1 billion) in the second

quarter, significantly shrinking from the $39.3 billion surplus during the

January to March period. 

     For the first half of this year, the current account surplus was $69.3

billion (CNY475.4 billion) while the capital and financial account surplus was

$38.9 billion (CNY267.6 billion), SAFE said. 

     SAFE said in its semi-annual report that the current account surplus for

the first half was equivalent to 1.2% of GDP.

     SAFE said that the country's international payment situation was

approaching a "basically balanced" level based on a number of factors: the

robust domestic economy has boosted market confidence; the yuan exchange rate

has started to show greater two-way fluctuations as the "counter-cyclical

factor" that was added into the yuan's fixing model has started to take effect;

and the international financial market has maintained a basic level of

stability.

     Cross-border capital flows "maintained good momentum at a stable pace,"

SAFE added. The non-reserve capital account surplus reached $67.9 billion in the

first half, compared with a $178.7 billion deficit during the same period last

year. The non-reserve capital account saw its first surplus in the first quarter

following 11 straight quarters of deficits, SAFE noted.

     The surplus for China's goods trade was $132.1 billion in the second

quarter -- higher than the first quarter's $82.3 billion, SAFE said. In the

first half, the surplus rose to $214.4 billion as strong outside demand led to

increases in volumes and prices of exports.

     The deficit for the services trade was $74.4 billion in the second quarter,

compared with a deficit of 60.7 billion in the first quarter, according to SAFE.

In the first half, the deficit expanded to $135.1 billion, mostly due to

increasing outbound tourism and overseas study by Chinese residents. 

     Direct investment turned to a net inflow in the first half of the year at

$13.9 billion, compared with a net outflow of $49.4 billion in the same period

last year. SAFE attributed the reversal to the overseas direct investments of

Chinese companies becoming "more rational" and to increased foreign direct

investment.

     SAFE also said the country's foreign-exchange reserves increased $46.3

billion in the first half, compared with a fall of $448.7 billion in 2016, when

the PBOC was widely believed to have stepped up market intervention to stabilize

the yuan against the greenback. The SAFE number excludes valuation and

exchange-rate changes and is a better reflection of real money flows.

     For the second half of this year, SAFE  expects the current account to

continue to show a significant surplus while international payments remain in

balance.

     Cross-border capital flows are also expected to remain stable, in line with

market expectations.

     SAFE said it will continue to push forward capital account convertibility

at a prudent pace and build up a macro-prudential management and micro-market

regulation system.

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

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

[TOPICS: MMQPB$,M$A$$$,M$Q$$$,MI$$$$,MT$$$$]