1st LD-Writethru-China Focus: Cross-border capital inflows surge, exodus groundless

China's cross-border capital net inflows rose 38 percent year on year to a total of 55.1 billion U.S. dollars in the first two months this year, China's forex regulator said Thursday.

The surge reversed the capital net outflows which occurred between August-December last year, according to Wang Yungui, an official of the State Administration of Foreign Exchange.

The foreign exchange settlement and sale of foreign-capital banks logged a total deficit of more than 25.4 billion U.S. dollars in the first two months.

Wang attributed the deficit to increasing holdings of U.S. dollar-denominated assets among enterprises and individuals instead of capital outflows.

In the first two months, foreign-currency deposits of enterprises and individuals increased 63.9 billion U.S. dollars while the ratio of exchanging foreign currencies into Renminbi, or Chinese yuan, decreased 10 percentage points in the mean time, Wang told a briefing in Beijing.

In the first two months this year, China's surplus in commodity trade rose almost twelve fold to stand at 120.6 billion U.S. dollars, said Wang.

Meanwhile, actual inflow of foreign investment soared 17 percent year on year to 22.5 billion U.S. dollars.

Robust exports, investment and consumption data indicate China still has great growth potential, according to Wang.

Chinese economic growth has entered a "new normal" of slower growth with the second-biggest economy expanding by 7.4 percent last year and setting a more modest target of around 7 percent in 2015, arousing a new wave of pessimistic forecasts.

In recent years, China has strived to steer the economy away from investment-and infrastructure-led spending towards being more consumer-and household-spending focused.

Structure optimization and spontaneous momentum for growth have been upgraded thanks to China' s continuous economic restructuring efforts in recent years, said Wang.

China has a full "tool kit" at its disposal and will use them if growth nears the lower end of its range, Chinese Premier Li Keqiang told a press conference after the annual parliamentary session earlier this month.

To tap growth potentials, mini stimulus measures could be adopted include reserve requirement ratio and interest rate cuts and tax reductions while plans also in place to engineer longer-term development containing comprehensive reform and major strategies such as construction of "Belt and Road" Asian trade infrastructure, coordinated development of the Beijing-Tianjin-Hebei region, and development of the Yangtze River economic belt.

Overall, there is no data available that supports assertions of capital exodus or predictions of an impending collapse of the Chinese economy, said Wang.

When asked about the Renminbi exchange rate formation mechanism, Wang said market was designed to play a decisive role.

In China's spot foreign exchange market, the yuan is allowed to rise or fall by 2 percent from the central parity rate each trading day. The central parity rate of the yuan against the U.S. dollar is based on a weighted average of prices offered by market makers before the opening of the interbank market each business day.

Wang said the central parity rate of the yuan against other foreign currencies including the euro and the Japanese yen should also be considered when talking about the Renminbi exchange rate formation mechanism.

The central bank was quitting a normal intervention on the exchange rate over the past year, said Wang, adding that market is playing a more and more important role. Endi