MNI 5 Things: Capital Drain Slows as China Banks Sell Less FX

     BEIJING (MNI) - Capital outflow from China may have slowed in December

indicated by declining net sales of foreign exchange by Chinese banks to their

clients. The reverse trend seen last month was coupled with yuan's 1.12%

appreciation against the dollar.

     Here are the key takeaways from data released by the State Administration

of Foreign Exchange on Friday:

     --Banks sold net CNY56.0 billion worth of FX on behalf of its clients, down

from CNY139.4 billion in November. The number is a key indicator of capital

flows in and out of the country. The greater the net sales number, the larger

the outflow.

     --Banks' net purchases of FX forward contracts totaled CNY66.3 billion,

compared with CNY31.9 billion in November. The net purchases position suggested

market participants were betting on a stronger yuan in the longer term. 

     --Banks' total net forex sales, including both transactions with clients

and banks' proprietary trading desks, fell to net CNY48.8 billion from CNY124.1

billion in November. In 2018, banks sold net total CNY390 billion of FX to

clients.

     --China's forex purchase position on the central bank's balance sheet fell

CNY4.04 billion in December, a smaller decline from the CNY57.13 contraction in

November, indicating capital outflow pressure has moderately eased as yuan

strengthened.

     --In 2019, China's foreign exchange market will still have a solid

foundation for smooth operation, as the Fed's slower interest rate hike has

provided more favorable external conditions, Wang Chunying, spokeswoman of SAFE,

said in a statement.

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

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

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