China will fend off cross-border capital flow risks: FX regulator

March 29, 2019

BEIJING (Reuters) – China will fend off cross-border capital flow risks and keep the yuan exchange rate basically stable in 2019, the country’s foreign exchange regulator said on Friday.

Cross-border capital flows will be adjusted via “market-based counter cyclical measures”, the State Administration of Foreign Exchange (SAFE) said in a report, without elaborating.

Since 2016, China has imposed stringent curbs to prevent capital flight, a move made in the aftermath of a spectacular stock market collapse during the last economic downturn. Regulators will continue to crack down on illegal foreign exchange activities, SAFE added.

While China’s economy has continued to cool, analysts believe the risk of strong capital outflows has greatly diminished in recent months, as the yuan regained its footing and foreign investors piled back into battered Chinese stock markets.

On March 24, central bank governor Yi Gang said China has basically exited from regular interventions in the foreign exchange market, and that Beijing will push for reforms which enhance the yuan’s exchange rate flexibility.

China will push forward capital account convertibility in an orderly way this year, with further opening-up in its equity and stock markets, SAFE said on Friday.

“(We will) increase the depth of the foreign exchange market, expand trading entities, increase trading tools, expand trading scope, promote market opening, and meet the risk-hedging needs of different entities,” the regulator said.

China’s current account is expected to be “basically balanced” in 2019 as physical goods imports and exports are both likely to rebound and stabilize, maintaining a surplus, it said.

For 2018, China’s final current account surplus came in at $49.1 billion, equivalent to 0.4 percent of gross domestic product (GDP) last year.

China had a final current account surplus of $54.6 billion for the fourth quarter, compared to the $23.3 billion surplus in the July-September, according to SAFE.

(Reporting by Beijing Monitoring Desk and Yawen Chen; Editing by Richard Borsuk)

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