News Analysis: Capital outflow pressure eases in China

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News Analysis: Capital outflow pressure eases in China

(Xinhua) 19:14, September 22, 2013

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Capital outflow pressure in China is easing as the country's economy stabilizes, according to analysts.

Newly-released data showed that China's total yuan funds outstanding for foreign exchange (forex) reversed two consecutive months of decline and rose in August.

The funds stood at 27.39 trillion yuan (4.48 trillion U.S. dollars) at the end of August, up 27.32 billion yuan month on month, the central bank said.

The funds, a major indicator of international capital movement into or out of China, declined in June and July, raising concerns of massive capital outflows.

However, Lian Ping, economist at the Bank of Communications, said,"Cross-border capital has begun to return to China as the economy shows signs of stabilizing."

Analysts believed that the slow growth of foreign trade in the first half, and the U.S. Federal Reserve's plan to taper off quantitative easing three (also known as QE3) are the main reasons behind the capital outflows.

Cai Hongbo, an economic expert at the Beijing Normal University, said an improvement in August exports and a strengthening yuan have pushed up demand for Chinese currency.

He added that August forex data follows a series of economic figures pointing to a firming Chinese economy.

China's manufacturing activities posted a strong recovery in August, with the official purchasing managers' index (PMI) for the manufacturing sector rising to 51.0 percent last month from 50.3 percent in July, according to the China Federation of Logistics and Purchasing.

The country's exports rose 7.2 percent year on year in August, accelerating from 5.1 percent in July, according to customs figures.

An increase was also seen in retail sales, industrial production and investment in the manufacturing sector, according to official figures.

"A rebound in forex data indicates strengthening confidence in the Chinese economy against the backdrop of currency devaluation and tumbling stocks in some emerging markets," said Lian Ping.

"Looking ahead at the next few months, the forex data will see either a slight increase or a moderate decline," said Zhao Qingming, a researcher at China Construction Bank.

Zhao believed that the country's economic growth is still considered high for any major economy in the world. Although there are uncertainties brought by Fed's plan to taper off its quantitative easing, he ruled out the possibility of any large capital inflows and outflows taking place in China.