Slide in foreign exchange reserves 'under control'
Concerns over the recent capital flight from China should not be overstated, a government official said Thursday, while experts called for the establishment of a more market-oriented exchange rate mechanism.
Wang Xiaoyi, deputy administrator of the State Administration of Foreign Exchange (SAFE), said during a press conference on Thursday that there has been a certain level of capital outflows since the second half of 2014, and it's a "fact" that the country's foreign exchange reserves have been falling in recent months.
According to statistics revealed by SAFE on Thursday, domestic banks' foreign exchange settlement, or purchases of foreign exchange, reached the equivalent of 782.9 billion yuan ($123.3 billion) in September, while sales of foreign exchange amounted to 1,478.1 billion yuan in the same month, leading to a deficit of 695.3 billion yuan.
The SAFE data also showed that China's foreign exchange deficit amounted to about 1.9 trillion yuan in the first three quarters of 2015.
A foreign exchange deficit indicates that the demand for foreign currencies exceeds market supply.
Wang also noted at the press conference that the foreign exchange deficit in the third quarter of 2015 was larger than in the previous quarter, indicating growing demand among enterprises and individuals for foreign exchange.
China's foreign exchange reserves have also slumped, Wang said, but added that the fall is "under control."
According to a statement from the People's Bank of China, the country's central bank, on October 16, China's foreign exchange reserves fell to $3.51 trillion by the end of September, down from $3.55 trillion in August.
Capital outflows in China reached $250 billion in the first half of 2015, up from $26 billion in the same period last year, according to the latest semi-annual report from the US Treasury on global economic and exchange rate policies, which was published on Monday.
But the current capital outflow is "different in essence" from panic-driven capital flight, Wang stressed.
He noted that the current capital outflows show a tendency that China's foreign exchange reserves, which used to be held mostly by the central bank, are increasingly being held by enterprises and individuals.
It also shows a stronger inclination on the part of domestic enterprises to invest abroad, thanks to government policies such as the "One Belt, One Road" initiative, Wang noted.
Non-financial outbound direct investment reached $87.3 billion in the first three quarters of 2015, up 16 percent year-on-year.
Ding Jianping, a finance professor at Shanghai University of Finance and Economics, told the Global Times on Thursday that part of the reason for the recent capital outflows is that some investors believe the yuan will weaken further. However, if the yuan's current exchange rate remains stable for more than half a year, the investors would also suffer great losses.
"It's like a bet," Ding noted.
Wang said that there are "no grounds for continuous devaluation" in the yuan, given China's general economic situation.
China's GDP rose by 6.9 percent year-on-year in the third quarter, the National Bureau of Statistics (NBS) reported on Monday, which is a "relatively high" growth rate compared to other major economies in the world, Wang argued.
The U.S. Treasury report also pointed out that the increase in the amount of capital outflows came after the central bank announced a decision to adjust the system for fixing the yuan's central parity rate on August 11.
But Wang said the recent capital outflows were not caused directly by adjustment of the central parity rate system, and that the adjustment is an "important" strategy in pushing the yuan's exchange rate toward a more "balanced" level.
Lu Zhengwei, chief economist at Industrial Bank Co, told the Global Times on Thursday that the key to balancing China's capital flows is to reform the current exchange rate system to make it more market-oriented.
"Economies that adopt a totally floating currency rate mechanism, most of which are developed countries, are less likely to be troubled by capital outflow problems, because their exchange rates fluctuate on a free basis according to the changing demands in their foreign exchange market, and that would in turn keep the country's capital inflows and outflows in a balanced state," he noted.
Lu said that once China establishes a more elastic exchange rate mechanism to match the country's increasingly active capital movement, capital outflows will be a "normal phenomenon" that do not deserve special attention.
