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China's capital outflow under control

CRI, May 22, 2015

• China's capital flow has hit a record high, exceeding 80 billion US dollars in the first quarter.

  The country's foreign exchange authority says the recent capital movements are controllable and China is capable of coping with the flow as the country accelerates its financial reforms.

  The State Administration of Foreign Exchange says the capital outflow in the first quarter was expected and the capital flight is not illegal.

  Guan Tao is the head of the Balance of Payments Department of the Forex administration and says the situation has been influenced by various elements.

  "The country's economy is facing huge domestic downward pressure. The global economy is going through dramatic re-adjustment. And the US dollar is maintaining strong momentum. Affected by these factors, domestic companies and individuals follow last year's financial policy, increasing their purchases of foreign assets and de-leveraging their debt, leading to less settlement and more purchases of foreign exchange."

  He adds that the current capital outflow is within expectation and cannot be easily classified as covert capital flight.

  Experts say the current balance of payments deficit is partly affected by undesirable economic figures in the first quarter.

  Liu Sheng jun is a senior economist from Lujiazui Institute of International Finance in Shanghai

  He says fears over management risks are mounting as economic growth is not ideal.

  "One reason is China's economic data, especially the figure from the first quarter, is not satisfactory. Worries over business risk is increasing. Another factor is the yuan is being pushed to appreciate with the dollar."

  Experts say capital is expected to move towards countries along the route of the "One Belt, One Road" initiative.

  The Forex administration says China's capital flow will undergo fluctuations and difficulties will be felt long-term.

  But the trade surplus and ample forex reserves provide a strong cushion for China to resist market shock.

  Also, the Renminbi exchange rate has become more resilient.

  Liu says the chronic balance of payments deficit is hard to crack and the country needs to accelerate its financial reform.

  "it's hard to reverse the trend in a short time, because we are undergoing a long-term economic difficulty which is also known as the 'new normal'. To change the situation, one solution is to change the pricing strategy of the renminbi and turn to the monetary policy of "a basket of currencies".

  Experts suggest some areas are more open to foreign capitals.

  They believe that confidence in China's economy will increase as foreign capital moves into the country.

   

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