Flight of capital eases; currency exchange stable

China's cross-border capital outflow has slowed significantly since the start of this year, a senior official of the State Administration of Foreign Exchange said on Tuesday.

SAFE statistics show that foreign exchange reserves declined by $28.6 billion in February, significantly less than the $99.5 billion they dropped in January, said Wang Yungui, director of the policy and regulation department at SAFE, speaking at a news conference. The outflow declined by $107.9 billion in December.

Total foreign exchange reserves at the end of February stood at $3.2 trillion, he said.

Net foreign exchange purchases from nonbanking sectors, which show demand from domestic enterprises and individuals, have narrowed sharply in recent months.

There were $35 billion in net foreign exchange purchases from nonbanking enterprises and individuals in February, compared with $69.4 billion in January and $88.1 billion in December, indicating that capital flight is easing, Wang said.

"In March, capital outflows further declined from the February level," he added.

The yuan's exchange rate gradually stabilized in February, and has risen slightly since the beginning of March, Wang said.

The pace of "storing foreign exchanges in enterprises and individuals" also slowed, he said.

He also said that the administration is studying the drafting of rules for levying a tax on foreign exchange transactions, or a Tobin tax, to rein in cross-border currency speculation.

Wang Chunying, deputy director of the balance of payments department of SAFE, said three internal and external factors have contributed to the reduction of capital flight. The international financial markets have gradually stabilized, and the yuan's exchange rate has also become stable, reducing demand for foreign exchange purchases, she said.

In February the balance of foreign currency deposits increased $8.3 billion, but less than January's $19.6 billion, she said.

Moreover, China's foreign exchange management policy has remained largely unchanged, she said, except that regulation was strengthened to ward off speculative activities, which helped anchor market sentiment.

Because China's GDP growth remains high among major economies and the fundamentals of the economy remain sound, the country will continue to attract foreign investors.

"In the near future, cross-border capital flows will remain stable," she said.