China saw net foreign capital inflows in the first five months of the year, suggesting stabilization in a leakage of funds which had been among reasons behind the central bank’s efforts to boost liquidity.
A net $20 billion in capital flowed into China in the first five months of the year, according to an official at the State Administration of Foreign Exchange in Beijing on Wednesday. China’s banks bought a net $1.3 billion of foreign currency in May, reversing net sales in the previous eight months.
China’s government has kept the currency from depreciating sharply against the U.S. dollar this year to stem outflows and support its bid for the yuan to enter the International Monetary Fund’s Special Drawing Rights basket. The central bank twice cut the amount of cash banks need to set aside as reserves, moves interpreted as compensating for earlier leakages.
“The condition of cross-border capital transactions is developing to a more balanced stance” in the second quarter, Wang Yungui, director of the general affairs department at SAFE, said at a press briefing in Beijing. “We are happy to see a balanced market, as that’s more beneficial for market players to allocate capital.”
A slowing economy, squeezed corporate profits and the end of a multi-year currency upswing have given investors fewer reasons to pile in to China this year. Meanwhile, President Xi Jinping’s crackdown on corruption gave more reasons for the nation’s rich to send some of their wealth abroad.
“More balanced capital flows ease fears about hot money exiting China’s economy, and reduce the need for reserve requirement cuts to offset lost liquidity,” said Bloomberg economist Tom Orlik. “Looking forward, the coming increase in interest rates in the U.S., or concern about the future of the euro zone, could both trigger renewed turmoil in international capital flows.”
— With assistance by Xiaoqing Pi