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BEIJING, July 23 China may see more capital
inflows in the rest of 2014 after experiencing some money flight
in recent months, the country's foreign exchange regulator said
on Wednesday, as the yuan recovers due to improved confidence in
Guan Tao, the head of the department of international
payments at the State Administration of Foreign Exchange (SAFE),
also said at a news conference that China's rising foreign
exchange reserves could stoke long-term inflationary pressures.
"The domestic economy is stabilising, which helps boost
market confidence, and the foreign trade situation has started
improving, and the interest rate differential remains. These
factors could lead to pressure on capital inflows," he said.
But capital flows could remain volatile in the second half
as the economy still faces uncertainties, along with risks from
monetary policy adjustments in major economies.
"The renminbi (yuan) exchange is now near equilibrium and
two-way cross-border capital flows have become a new norm," he
China's economy grew slightly faster than expected in the
second quarter as a flurry of government stimulus measures
kicked in, but analysts said Beijing will likely need to offer
further support to meet its 7.5 percent economic growth target
China was under pressures from capital inflows in the first
quarter, but the tide turned in the second quarter as volatility
in the yuan fuelled outflows, Guan said.
The central bank was seen intervening to weaken the yuan in
February and March as a means to punish speculators. The PBOC
was concerned about punters skirting China's capital controls to
bring foreign currency into the country and profit from expected
The yuan has shown some signs of stabilising in recent weeks
but is still down 2.3 percent so far this year. Traders are
unsure when authorities will allow it to return to a gradual
China's central bank and commercial banks sold 88.3 billion
yuan ($14.3 billion) worth of foreign exchange on a net basis in
June, according to a Reuters calculation based on central bank
data released on Tuesday.
China's current account surplus may widen in the second
quarter, but net inflows under its capital account may decline
sharply, or even show a deficit, Guan said.
The SAFE is closely watching the country's rapid rise in
short-term foreign debt, but the level of foreign debt is
manageable given China's huge foreign exchange reserves.
Even though China's capital account is not open, there are
leaks in the system and illicit inflows and outflows are common
in the world's second-biggest economy.
Worried that a surge in funds entering or leaving China may
hurt its economy and complicate its monetary policy, the
currency regulator said in January that authorities are
considering introducing a Tobin tax.
The Tobin tax is in effect a tax on foreign exchange
Turning to China's $3.99 trillion foreign exchange reserves,
the world's largest, Guan warned that further rapid rises in the
cash pile may stoke inflation in asset price rises, he said.
"The large rise in foreign exchange reserves has led to a
big rise in the central bank's base money, which could bring
about inflationary pressures as well as pressures on asset
prices," he said.
Premier Li Keqiang said in May that China's war chest of
foreign exchange reserves had become a headache as its continued
rise could stoke inflation in the long term.
Guan said China should gradually reduce its trade surplus
and encourage more outbound investment to help limit the rapid
accumulation of foreign exchange reserves.
(Reporting by Kevin Yao; Editing by Jacqueline Wong & Kim