Capital outflows from China eased in fourth quarter: FX regulator

BEIJING (Reuters) - China’s foreign exchange regulator tried to reassure worried global investors on Thursday about capital outflows from world’s second-largest economy, saying they had eased in the fourth quarter, despite data showing a record drop in foreign exchange reserves in December.

Capital outflows have gained momentum since China’s surprise devaluation of the yuan last August, fanned by concerns about its economic slowdown and expectations of interest rate rises in the United States.

However, the State Administration of Foreign Exchange (SAFE) said on its website that net outflows of foreign exchange were down 61 percent in the fourth quarter from the third quarter.

It also said the risk of cross-border capital flows was generally under control and the impact of capital outflows on the economy was controllable.

Chinese banks sold a net $164.4 billion worth of foreign exchange in the fourth quarter of 2015, compared to $196.1 billion in the third quarter, according to data from SAFE.

Still, there were signs that capital outflows grew by year end as the Chinese banks posted a $89.4 billion surplus in spot foreign exchange settlements in December, up sharply from November’s $54.8 billion.

“The figure showed an increasing number of Chinese companies and individuals preferred to hold dollars in view of the yuan’s recent weakness,” said Liu Dongliang, analyst from China Merchants Bank in Shanghai.

“There are still pressures for capital outflows,” said Liu.

The regulator also said it has not issued new measures to restrain foreign exchange purchases or sales, though currency traders and banks have reported a number of such steps by authorities in recent months to control cross-border flows and crack down on speculation in the yuan currency.

China’s central bank said on Monday it will start implementing a reserve requirement ratio (RRR) on offshore banks’ domestic yuan deposits to help set up a long-term mechanism to regulate fund flows.

Sources have also told Reuters that SAFE has ordered banks in some of the country’s major import and export centers to limit purchase of U.S. dollars this month, and suspended forex business for some foreign banks, including Deutsche, DBS and Standard Chartered at the end of last year.

The regulator also played down the risk of falling in the country’s foreign exchange reserves, saying China has ample reserves to fend off external shocks.

“The fluctuation of foreign exchange reserves is normal given the complex domestic and external economic and financial environment,” it said.

China’s foreign exchange reserves, the world’s largest, posted their biggest annual drop on record in 2015, sliding $512.66 billion to $3.33 trillion as the central bank bought yuan to support the exchange rate.

Reserves dropped by a record $107.9 billion in December alone.

Reporting By China monitoring team and Xiaoyi Shao; Editing by Kim Coghill