2nd LD-Writethru: Chinese banks' net forex sales rise mildly

Chinese banks had 36.4 billion U.S. dollars in net foreign exchange sales in March, up slightly from February but still markedly lower than the previous two months, official data showed Thursday.

Chinese lenders bought 117.6 billion U.S. dollars' worth of foreign currency last month and sold 154 billion dollars, the State Administration of Foreign Exchange (SAFE) said in a statement.

The data marked the ninth consecutive month of deficits and was higher than the 33.9 billion dollars recorded in February. However, it has narrowed from the 54.4 billion U.S. dollars seen in January and 89.4 billion U.S. dollars in December.

The figures show that the pressure of cross-border capital outflows has eased significantly compared with the start of this year, SAFE spokesperson Wang Chunying said at a press conference on Thursday.

In the first quarter, banks registered 124.8 billion U.S. dollars of net forex sales, according to SAFE.

Until recently, concerns about capital outflows had been on the rise as the economy slowed and the Chinese currency had fallen since China revamped its forex mechanism last year.

But in the past quarter, companies' willingness to buy foreign currency has weakened, Wang told reporters.

The outstanding foreign currency deposits held by Chinese firms and individuals rose 8.4 billion U.S. dollars in March, a narrower increase than the 8.8 billion U.S. dollars in February and 16.7 billion in January.

"Market sentiment has become more rational, and cross-border capital flows have been steady," Wang said.

She attributed the change to resumed stability in international financial markets and positive signs in the domestic economy.

China's economy expanded 6.7 percent year on year in the first quarter, slowing further from the previous quarter but better than many had feared. Exports and industrial profits have returned to growth, with manufacturing activity picking up and fixed-asset investment accelerating.

Less capital outflow pressure was also reflected in a return to growth in forex reserves and steadier movement of the yuan starting in February, Wang said.

In the first quarter, the yuan weakened by 1.3 percent in real effective exchange rate, the weighted average of its value relative to other major currencies adjusted for inflation, and by 2.3 percent in nominal effective rate, the unadjusted value, according to the Bank for International Settlements.

The declines were "within a steady range," said Wang, who noted that the currency remains "basically stable on a reasonable and balanced level".

Cross-border flows will remain stable in the future, she predicted, citing a bright outlook for the Chinese economy in the long term and the country's huge forex reserves as a buffer against shocks.

"We cannot rule out the possibility of temporary factors [affecting China's capital flows] ... but the medium- and long-term trend will not be changed," Wang said.

The heightened pressure of capital exodus earlier this year was partly caused by a U.S. interest rate hike in December, which drew money out of emerging markets.

Wang is confident the country is ready to gradually adapt to future higher U.S. interest rates, and China's economic and financial policies will be able to counter the capital outflow pressure.

Reforms will be deepened to support market optimism about the Chinese economy, she noted.

SAFE will further open up the capital account in a steady and orderly way and reform the yuan's exchange rate formation mechanism to make it more market-based, according to the spokesperson.

Banks will be given more flexibility in managing their forex positions, and authorities are considering allowing more derivatives to be traded on the forex market, she said. Endi