China says yuan appreciation expectations rising

BEIJING (Reuters) - China might see increased foreign exchange inflows this year as expectations of yuan appreciation mount, the State Administration of Foreign Exchange (SAFE) said on Monday.

SAFE also said it expected a smaller current account surplus this year as a percentage of GDP but a larger overall balance of payments surplus. The currency regulator made the comments in a report accompanying revised balance-of-payments data for 2009.

"The relatively higher domestic interest rate and mounting expectations for yuan appreciation will increase the scale of cross-border carry trade," the report said.

The currency regulator sounded an optimistic note on a greater surplus in China's international balance of payments due to an expected narrowing of its trade surplus and a quicker pace in outbound investments.

"The country's international balance of payments situation will be further improved this year, with the momentum of widening trade surplus continuing to ease," the report added.

SAFE revised the 2009 current account surplus to $297.1 billion from the $284.1 billion figure issued earlier this year, while the capital and financial account surplus was also revised up to $144.8 billion from $109.1 billion.

The currency regulator also noted the challenges of managing inflation expectations and pursuing structural adjustments in the face of global risks.

"China's economy is still facing some pronounced problems, as there are many uncertain factors in the global financial market, and it is a big challenge to transform the economic growth model," SAFE said.

(Reporting by Zhou Xin, Aileen Wang and Alan Wheatley; Editing by Ken Wills)