UPDATE 1-China sees relatively big net capital inflows in 2014

Tue Feb 25, 2014 5:47am EST

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BEIJING Feb 25 (Reuters) - China is likely to see relatively big net capital inflows this year, though the U.S. Federal Reserve's tapering of its stimulus programme could help ease some pressures, the country's foreign exchange regulator said on Tuesday.

The improved global economic environment in 2014 and China's efforts to push forward reform will likely to continue to attract capital inflows, the State Administration of Foreign Exchange (SAFE) said.

China's central bank and regulators have been trying to deter waves of hot money inflows which picked up steam last year as domestic money market rates and bond yields climbed and the yuan currency continued to slowly appreciate.

The foreign exchange regulator expected that cross-border capital flows will become more volatile in the coming months.

"Especially when the QE tapering gradually takes effect, the pace of increases in the funds outstanding for foreign exchange may ease or even drop," SAFE said on its annual capital flow oversight report, referring to the Fed's quantitative easing programme involving massive bond purchases.

China should not underestimate the effects of the U.S. tapering though China has been so far unaffected by Fed's withdrawal policy, SAFE said.

China's central bank and commercial banks purchased 272.9 billion yuan ($44.75 billion) worth of foreign exchange on a net basis in December 2013, the fifth months of net purchases since August, indicating net capital inflows.

With capital flows remaining volatile, China will strengthen oversight on cross-border capital flows to prevent potential risks, it added.

Official figures showed Chinese banks posted a surplus of 1.68 trillion yuan in their foreign exchange settlements in 2013, up 210 percent from the previous year.

China's economy shows signs of slowing from the stellar growth rates of years past as the government looks to shift the emphasis to structural reform rather than growth for its own sake.

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