New | China facing capital outflow pressures
China faced pressures from capital outflows in recent months amid rising cross-border volatilities, a senior official at the State Administration of Foreign Exchange said.
Quantitative easing measures by the European Central Bank might have "huge spillover impacts" on the rest of the world, and would exert positive and negative influences on China, said Guan Tao, the head of SAFE's department of international payments.
"A European version QE would to some extent alleviate the tightening impact of the US tapering of its QE policy," he said. "On the other hand, divergent currency policies in the world's main economies may affect the exchange rates between major currencies, which will intensify volatilities on the international financial market."
Guan also said China might have seen a pattern of "current account surplus and capital account deficit" in the fourth quarter of last year.
Banks sold a net US$46.5 billion in foreign exchange settlements during the period, compared with a deficit of US$16 billion in the preceding quarter, after registering surpluses in the first half, data from SAFE shows.
Guan said capital flows volatilities were mainly affected by widened two-way exchange rate fluctuation, a strengthening US dollar, and new risks in domestic economic operations.
"As the market-oriented reform on the yuan exchange rate mechanism is pushed ahead, the central bank has gradually withdrawn from frequent intervention in the foreign exchange market," he said. "The pattern of 'trade surplus and capital outflows' is set to become more normalised."
However, such an adjustment remained "appropriate and endurable" given ample liquidity in the market, he said.
He said that while the yuan weakened against the dollar last year, it remained "relatively strong" against other currencies.
The yuan's nominal effective exchange rate index, measuring its relative strength against a basket of other currencies, appreciated 6.4 per cent last year, while the real rate adjusted for inflation gained 6.2 per cent, both hitting record highs, he said, citing data from the Bank for International Settlements.
