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UPDATE 1-China sees fund outflows in April as growth slows
May 15, 2012 / 12:50 PM / in 6 years

UPDATE 1-China sees fund outflows in April as growth slows

* China’s net FX sales at 60.6 bln yuan in April

* Signal capital outflows as economic growth slows

* May put pressures on c.bank to cut RRR

BEIJING, May 15 (Reuters) - China endured its first month of capital outflows this year in April, signalling persistent domestic and global economic uncertainties may have led some investors to pull short-term funds from the world’s No.2 economy.

China’s central bank and commercial banks sold a net 60.6 billion yuan ($9.59 billion) in foreign exchange in April, Reuters calculation based on official data showed on Tuesday.

China, however, also posted a trade surplus of $18.4 billion in April and foreign direct investment (FDI) inflows of $8.4 billion in the month.

The Commerce Ministry said the country drew $37.9 billion in FDI between January and April, down from $38.8 billion attracted in the same period in 2011.

The April foreign exchange sales reversed net purchases of 124.6 billion yuan in March.

China suffered rare capital outflows for three straight months in the final quarter of 2011, when choppy global markets spooked investors and led them to pull funds from the country.

Signs of capital flight may exert some pressure on the central bank to cut the amount of cash banks must hold as reserves to inject more liquidity into the economy.

China’s central bank said at the weekend that it would cut the reserve requirement ratio (RRR) by 50 basis points, effective from May 18.

That decision was taken after data showed the economy continued to weaken from the first three months of the year, when 8.1 percent growth marked the slowest quarter of expansion in three years.

China is likely to cut RRR by another 100 basis points this year and lean more on fiscal policy to support growth, likely to bottom out in the second quarter at 7.9 percent year on year, a Reuters poll shows.

Most analysts still believe China will continue to enjoy capital inflows in the coming years, albeit at a slower pace.

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