Chinese appetite for foreign currency grows

China's appetite for foreign currency increased in September, leading to a net foreign exchange purchase among banks, according to data released by the country's top foreign exchange regulator on Thursday.

Chinese institutions and individuals bought 179.3 billion U.S. dollars in foreign currency and sold 163 billion U.S. dollars in exchange for 1.1 trillion yuan in September, the State Administration of Foreign Exchange (SAFE) said.

As a result, the banks' forex transaction deficit more than doubled to 16.3 billion U.S. dollars from that in August, when Chinese banks posted their first monthly net foreign exchange purchase in 13 months.

In the first nine months, China sold 1.43 trillion U.S. dollars of foreign currency in exchange for 8.78 trillion yuan while buying 1.25 trillion U.S. dollars in foreign currency, resulting in net foreign exchange sales of 172.3 billion U.S. dollars.

The fluctuation in forex transactions contributed to changes in China's foreign reserves.

According to SAFE, people were more willing to hold foreign currency in the third quarter, even though the renminbi's exchange rate rebounded with the greater trade surplus.

SAFE data showed people sold only 69 percent of foreign currency received from foreign trade and investment in the third quarter, compared with 77 percent in the January-March period.

Guan Tao, director of the International Balance of Payment Department of SAFE, attributed the phenomenon to the method behind the renminbi's exchange rate, which has allowed greater two-way fluctuation against the U.S. dollar since March.

In March, the central bank began to widen the yuan's daily trading band in the foreign exchange spot market from 1 percent to 2 percent.

A stronger U.S. dollar in global markets led Chinese enterprises and individuals to increase foreign currency deposits and reduce their borrowing in foreign currencies to avoid their exposure to forex fluctuations, he said.

The official noted capital outflow did exist but stressed that it caused no risk or problem as the change fits the country's macro control targets.

"There's no panic hoarding of foreign currencies," he said, pointing to a more diverse holding of foreign currenties among ordinary people other than the SAFE.

A larger trade surplus also left policymakers quite comfortable toward the capital outflow.

The country's trade surplus in September more than doubled from last year to 31 billion U.S. dollars, compared with 49.8 billion U.S. dollars seen in August, with the accumulated surplus reaching 231.6 billion U.S. dollars from January to September, up 37.8 percent from the previous year.

As the central bank cut its regular intervention in the forex market, China looks certain to become a net capital exporter in coming months, according to the latest investment figures.

Chinese made an overseas investment of 9.79 billion U.S. dollars in non-financial sectors in September while receiving 9.01 billion U.S. dollars in the month, according to the Ministry of Commerce.

While the country continued to build up its trade surplus in its current account, it saw a rare decline in foreign reserves, which Guan said was only changes in book value amid an increase of 7.7 percent of the U.S. Dollar Index in the third quarter.

By the end of September, China's foreign reserves fell by 100 billion U.S. dollars from the second quarter to reach 3.89 trillion U.S. dollars.

The U.S. dollar-denominated value of China's foreign reserves will fall as a result of weaker book value of assets in other foreign currencies, he said.

"It's normal for major currencies to rise or fall, and it's unnecessary to overreact to such volatility," he added.