Stabilized cross-border capital flows and increased value of foreign exchange investment boosts growth

China's foreign exchange reserves in September rose to their highest level so far this year to reach $3.11 trillion (2.6 trillion euros; ￡2.4 trillion), marking growth for the eight straight month, as capital outflows eased thanks to the stronger yuan, central bank data showed on Oct 9.

The reserves were up by $17 billion last month, slightly higher than the market expectation of around $16 billion, while the increase in August was $10.5 billion, according to the People's Bank of China.

It was the first time that the country's foreign exchange reserves had grown for eight consecutive months since June 2014.

A statement from the State Administration of Foreign Exchange said on Oct 9 that stabilized and more balanced cross-border capital flows, together with the increased value of foreign exchange reserve investment, had boosted the growth.

"The base to maintain stable cross-border flows will be stronger in the future," the statement said.

Guan Tao, former director of the international payments department at SAFE, says capital outflow pressure has significantly eased as the yuan has seen solid appreciation since August.

According to data from the Ministry of Commerce, in the first half of this year, the net outflow of overseas direct investment was $41.1 billion, down by 67 percent year-on-year, while the net inflow of foreign direct investment was $55 billion, marking a surplus of cross-border direct investment.

"The reverse of capital flows reflected more rational investment behavior of Chinese companies after the government tightened regulation on outboard mergers and acquisitions," says Guan.

The yuan's daily exchange rate reference was 6.6493 per dollar on Oct 9, while the onshore spot exchange rate climbed to 6.6285 at the close.

It gained more than 7 percent against the dollar through early September, although it has softened recently.

The yuan is expected to see both up and down fluctuations in the future, while the foreign exchange reserve will remain relatively stable, according to a research note from Shenwan Hongyuan Securities.

The central bank also released data about gold reserves, which fell to $76 billion in September, down by $1.7 billion in August.

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(China Daily European Weekly 10/13/2017 page28)