Chinese more willing to keep foreign currencies

Chinese people were more willing to keep foreign currencies and sell their yuan-denominated assets in July, data from the State Administration of Foreign Exchange (SAFE) has indicated.

Individuals and institutions exchanged 127.5 billion U.S. dollars in foreign currencies for Renminbi through Chinese banks, while buying 127 billion U.S. dollars of foreign currencies from financial institutions during the month. This resulted in a foreign exchange surplus in banks of 500 million U.S. dollars, according to SAFE.

Although Chinese banks swung back to a foreign exchange surplus in July from a 3.6-billion-U.S.-dollar deficit in June, surplus data has narrowed sharply from 5.1 billion dollars in May, 7.8 billion in March, 4.4 billion in February and 19.4 billion dollars in January.

The banks reported a foreign exchange deficit of 3.7 billion U.S. dollars in April.

Compared with these spot market figures, forward contracts, which reflect investors' outlook towards the relative value of the Renminbi, showed they chose to buy in foreign currency assets as the yuan weakens.

In July, companies and individuals signed forward contracts with Chinese banks to buy 15.2 billion U.S. dollars in foreign currencies at a future date agreed by both sides. At the same time, investors agreed with banks in their forward contracts to exchange 11.8 billion U.S. dollars.

After the yuan's central parity hit a record high of 6.267 against the greenback on May 2 this year, the Chinese currency weakened by about 646 basis points, as of Friday.

In the first seven months, the banks posted a cumulative deficit of 8.8 billion U.S. dollars in foreign exchange in forward contracts. This has raised concerns that an outflow of funds might be under way in the world's second-largest economy.

In the January-July period, overseas business-related proceeds of domestic institutional and individual clients via banks totaled 1.44 trillion U.S. dollars, with 1.35 trillion U.S. dollars paid to overseas businesses, SAFE data showed.

Surpluses, which make up part of China's foreign exchange reserve along with current account surpluses and foreign direct investment inflow, do not include banks' own foreign exchange transactions or interbank transactions, according to SAFE.