1st LD-Writethru: Chinese banks' forex settlement deficit expands in H1

China continued to have a deficit in its foreign exchange settlement in the first half of the year with expanded volume from that in the second half of 2014, official data showed on Thursday.

Chinese lenders bought 866.5 billion U.S. dollars worth of foreign currency and sold 971.9 billion U.S. dollars, resulting in a net sale of 105.4 billion U.S. dollars, said Wang Chunying, spokeswoman of the State Administration of Foreign Exchange.

The forex settlement deficit stood at 62.5 billion U.S. dollars in the second half of 2014 and China continued to see a surplus in its foreign exchange settlement in 2014, but the volume narrowed significantly, indicating easing capital inflows.

The fluctuations in cross-border capital flows have been stabilizing recently, Wang said.

The forex settlement deficit hit 91.4 billion U.S. dollars in the first quarter, but narrowed to 13.9 billion U.S. dollars in the second quarter. In April alone the deficit hit 17.3 billion U.S. dollars, but May saw 1.3 billion U.S. dollars of surplus and June reported 2.1 billion U.S. dollars of surplus.

The strengthening U.S. dollar was a key factor for China's cross-border capital outflow in the first quarter, but the pace of outflow slowed in the second quarter, Wang said.

"There was no continuous large-scale capital outflow in the first half of the year. The pressure in the second quarter was down from the first quarter," Wang said.

Forex reserves saw a similar picture. China's forex reserves dropped 113 billion U.S. dollars in the first quarter, but only 36.2 billion U.S. dollars in the second quarter.

It is a common practice for banks to sell foreign currencies to firms or individuals and buy foreign currencies from them. Known as bank exchange, it can be used to measure the supply-demand relationship in the interbank forex market and impact the yuan's exchange rate. Endi