MNI POLICY: Yuan Seen Stable On Dovish Global Stance: SAFE

     BEIJING (MNI) - The yuan exchange rate should remain stable in the second

half of the year as many global central banks have flagged an easing stance and

the U.S./China rate differential has widened, Wang Chunying, the spokeswoman for

the State Administration of Foreign Exchange told reporters Thursday. 

     Addressing the ongoing impact of trade conflicts with the US on

cross-border capital flows, Wang said the situation is under control.

     Here are the other main points of the briefing

     --Cross-border capital flows will settle at a normal level for the rest of

the year, although there are still some uncertainties including global-wide

trade protectionism, Wang said. Factors including the further opening up of

China's financial markets, more rational expectations to the currency from

two-way price action and better capital flow management are some of the positive

factors supporting stability, she added. 

     --According to SAFE, capital flows have been steady as better domestic

policies have helped balance against the fluctuating state of the ongoing

U.S./China trade talks. Wang noted that since the state of the talks

deteriorated in May, the actual and expected depreciation of the yuan against

the dollar were less than in H2 2018, reflected by slowing demand for forex by

bank clients, which was 44% lower in May and June than seen in the back end of

last year. 

     --The current account is likely to remain in a modest surplus for the whole

year, Wang said, with the  the Q1 surplus being boosted by a jump in goods trade

and a narrowing deficit in service trade. The current account should be able to

stay in good shape in the medium and long term, boosted by rising

competitiveness of the upgraded manufacturing sector, China's strong position in

the global industrial chain and the comparatively high savings rate, Wang said.

     --Foreign debt risks are also under control, as the relevant indexes are

below international standards, Wang said. As of the end of Q1, the total

outstanding foreign debt was just 11% compared with that in 2014, while

outstanding medium and long-term debt (just over a third of the total

outstanding) increased 49%, but short-term foreign debt fell by 4%.

     --The regulator will further open up the capital account at a steady pace,

in accordance with both the economy and financial market moves, Wang said. SAFE

will relax controls on the quota of foreign investments, including reform the

Qualified Foreign Institutional Investors and RMB Qualified Foreign

Institutional Investors, Wang noted, adding that macro prudent management will

strengthen policy tools and boost transparency to smooth market volatility.

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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