PBOC's Forex Position Narrows In July

     BEIJING (MNI) - The foreign-exchange purchase position of the People's Bank

of China fell slightly in July, fueling expectations the purchase position will

go up in the near future.

     The PBOC's foreign-exchange position fell CNY4.647 billion to CNY21.51

trillion in July, the 21th straight monthly drop, compared with a decrease of

CNY34.315 billion in June, according to data from the PBOC released on

Wednesday.

     The forex purchase position is viewed as an indicator of Chinese capital

flows. The larger the decline, the larger capital outflows are seen to be.

     "The narrowing of the decrease of the PBOC's forex position can be

attributed to the steady appreciation of the yuan against the dollar," Liu Jian,

a senior analyst at Bank of Communications, said on Wednesday. "As depreciation

expectations weaken further and macro- and micro-prudential regulations continue

to be strengthened, which lowers the demand for forex purchases, capital flows

are becoming more balanced."

     The yuan strengthened against the dollar in July, rising from 6.7796 at the

closing on June 30 to 6.7290 on July 31.

     Meanwhile, foreign-exchange reserves rose $23.93 billion to $3.081 trillion

in July, the sixth straight increase, adding to evidence that depreciation

expectations have eased.

     The yuan has strengthened further in August, and was last traded at 6.6880

on Wednesday morning, leaving analysts and traders to expect a potential rise of

the PBOC's forex position in the near future, despite July's decrease.

     "I actually expected the forex position to rise in July," a Shanghai-based

forex trader at a commercial bank told MNI after the PBOC data was released.

"After the recent appreciation of the yuan, the possibility for it [forex

position] to go up has become even higher."

     Liu agreed with the trader, saying that he expects the forex position to

"increase in the next one or two months."

--MNI Beijing Bureau; +86 10 85325998; email: he.wei@marketnews.com

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

[TOPICS: MAQDS$,M$A$$$,M$Q$$$]