Chinese banks purchased $1.3 billion in FX in May, calming fears about possible capital flight

A report today by Chinese news source Global Times has stated that China’s banks made net foreign exchange purchases of $1.3 billion for clients in May, the country’s forex regulator said on Wednesday, releasing data that help dispel worries about possible capital flight.

“Banks bought a net $1.3 billion worth of foreign exchange for clients in May, showing a major turnaround,” Wang Yungui, head of policy and regulations at the State Administration of Foreign Exchange (SAFE), told a news conference in Beijing Wednesday.

“The FX market is becoming more balanced. We hope this could help market players better allocate capital and hedge foreign exchange risks,” he said.

Earlier data from the SAFE showed that banks sold a net $17.3 billion in foreign exchange settlements in April. Mr. Wang stated that China had net capital inflows of around $20 billion in the first five months but, according to the Global Times report, did not elaborate.

The government has said the outflows seen earlier were “normal” and should not be considered as capital flight. Outflows reached a record in March as investors reacted to China’s interest rate cuts and a weakening yuan.

Mr. Wang also said that China will push forward with yuan convertibility on the capital account, and help the IMF assess if the yuan should be included in the fund’s currency basket, known as Special Drawing Rights (SDR).

“China is actively trying to join the SDR, but it should be a natural process that requires all conditions to be ripe,” Mr Wang concluded.

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