Slump seen in net foreign exchange purchases

The headquarters of the People's Bank of China, the nation's central bank, in Beijing. Provided to China Daily

China's net foreign exchange purchase was 128.25 billion yuan ($20.71 billion) in February, the latest statistics from the central bank showed on Tuesday.

But the net forex purchases fell sharply from 437.4 billion yuan in January, hitting their lowest point since September 2013.

Sun Junwei, China economist for HSBC Holdings Plc, said the drop reflects the impact of China's adjustment of the yuan's exchange rate.

The yuan weakened against the US dollar on Monday after the People's Bank of China, the nation's central bank, widened the yuan-dollar daily trading band to 2 percent on either side from 1 percent around the daily midpoint rate.

Sun noted that the PBOC has been fixing the daily midpoint for the yuan's level against the US dollar recently.

Due to the latest adjustment, the yuan exchange rate against the dollar has fallen nearly 1.9 percent since Feb 17, she said.

"A series of actions showed that China's decision-makers are unwilling to see continuous capital inflows," she said.

"They want to dispel strong expectations for yuan appreciation by having a more flexible exchange rate. Two-way fluctuations of the yuan will bring two-way cross-border capital flows," she added.

Xu Bo, a research analyst at the financial research center of the Bank of Communications Co Ltd, expected that speculative money inflows into China would wane because the expectation for continuous appreciation of the yuan has changed.

He emphasized that the slump in the nation's exports in February was a major cause for the new currency purchase position.

The country posted an unexpected trade deficit of nearly $23 billion last month with its exports falling 18.1 percent year-on-year.

Experts said the trade figures were distorted by the effects of the weeklong Spring Festival holiday.

"We expect that China's exports will remain slightly weaker than imports after taking into consideration the operating environment for domestic foreign trade companies, changes in international division of labor and the exchange rate," Xu said.

He pointed out that foreign direct investment into China stood at $8.55 billion in February, down $2.22 billion from the previous month, thus also affecting the forex purchase position.

In spite of the negative factors, Xu noted that China still has a trade surplus and capital inflows, and that domestic interest rates are higher than those of other major countries.

"We estimate that net forex purchase positions will continue to maintain a relatively high level, totaling 2.5 to 3 trillion yuan this year," he concluded.