China forex settlement surplus narrows in 2014

Foreign currencies are placed next to 100 yuan banknote. [Photo/IC]

BEIJING - China continued to see a surplus in its foreign exchange settlement in 2014, but the volume narrowed significantly, indicating easing capital inflows to the country, official data showed on Thursday.

Chinese lenders bought $1.9 trillion worth of foreign currency last year and sold $1.77 trillion, resulting in a net buy of $125.8 billion, the State Administration of Foreign Exchange (SAFE) said in a statement.

This marked a 53 percent drop from the surplus seen a year earlier, said Guan Tao, director of the International Balance of Payment Department of SAFE, at a press briefing.

Notably, after registering surplus in the first two quarters of 2014, the foreign exchange settlement swung to a deficit in the third quarter and saw the deficit widening to $46.5 billion during the October-December period, fanning concerns of massive capitals flowing out of China as the economy slowed.

Guan attributed the fluctuations to the US QE tapering that led to capital flowing out of emerging markets, as well as investors' cautious sentiment towards China's slowing expansion.

"The current adjustment is moderate and within the limit," he noted.

Data out on Tuesday showed China's economy grew 7.4 percent in 2014, the weakest annual expansion in 24 years as the country is bracing the new normal period of slower growth but higher quality.

"The world economy went through an uneven and slow recovery in 2014," said Guan, adding that China registered a relatively high economic growth rate and renminbi deposit rates will continue to be higher than those of other major currencies which can help maintain China's attraction to foreign capital.

The normalization of US monetary policies this year will present both challenges and opportunities to capital flows for China. With a stable and relatively fast economic growth pace, China has ample foreign exchange reserves and a relatively strong buffer to cope with cross-border capital flows, he told reporters.