MNI 5 Things: Chinese Banks Sell More FX In Aug; Outflows Up

     BEIJING (MNI) - China banks sharply increased net selling of foreign

exchange to their clients in August, a sign of rising capital outflows at a time

of a weakening yuan and an escalating Sino-U.S. trade war, according to data

from the State Administration of Foreign Exchange released Thursday.

     --Banks sold a net CNY63.3 billion in foreign currency, the most since June

2017. This compared with CNY2.9 billion in July. The number is a key indicator

of capital flows in and out of the country. The greater the net sale number, the

larger the outflow.

     --In terms of forward contracts, banks were net forex sellers on behalf of

their clients in August, suggesting market participants are betting on a weaker

yuan in the longer term. Banks' net sales of forex forward contracts totalled

CNY36.9 billion, compared with a net sale of CNY102.8 billion in July. This

reflects stricter capital controls imposed in recent months, including the

reimposition of a 20% reserve requirement on FX forward purchases on Aug 6 to

raise the cost of shorting the yuan.

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

and banks' proprietary trading desks, rose to a net CNY101.7 billion in August

from CNY63 billion in July, SAFE said. For the first 8 months of the year, banks

purchased a net total CNY205.2 billion from clients.

     --The regulator said China is capable of dealing with potential external

shocks in an effective way to guarantee the stability of forex market, and that

macro prudential management will enable counter-cyclical control of cross-border

capital flows.

     --The country's forex reserves fell by USD8.2 billion in August to a total

of USD3.11 trillion at the end of the month.

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

--MNI London Bureau; +44208-865-3829; email: Jason.Webb@marketnews.com

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