China posts first monthly forex transaction deficit

Chinese bought more foreign currency than they sold in August, resulting in the first monthly deficit in foreign exchange purchases in 13 months, China's foreign exchange regulator said Tuesday.

Chinese institutions and individuals bought 147.4 billion U.S. dollars in foreign currency and sold 146.6 billion U.S. dollars in exchange for 903.3 billion yuan in August, according to data from the State Administration of Foreign Exchange (SAFE), China's forex regulator.

China's growing appetite for foreign currency has led to a deficit of 800 million U.S. dollars in foreign exchange transactions in the month, suggesting that Chinese tend to hold foreign currencies.

The deficit was compared with a 1.2-billion-U.S.-dollar surplus in July, and the fluctuation in forex transactions contributed to changes in China's foreign reserves.

The latest data on foreign exchange transactions followed a surprising drop in China's funds outstanding for foreign exchange and a decline in foreign direct investment (FDI) for the same month.

Considered part of China's broad money supply, funds for foreign exchange stood at 29.5 trillion yuan (4.79 trillion U.S. dollars) at the end of August, down 31.2 billion yuan from a month ago, the central bank said Monday.

Meanwhile, FDI into China's mainland hit its lowest volume in nearly five years to reach 7.2 billion U.S. dollars in August, down 14 percent from a year ago, the Ministry of Commerce said on Tuesday morning.