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April 19, 2019

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Forex flows steady, boost coming

China’s cross-border capital flows remained basically unchanged in March, official data showed yesterday. The country’s foreign exchange regulator has also announced a slew of measures to boost the local forex market.

Last month, Chinese commercial banks bought 1.01 trillion yuan (US$151.3 billion) of foreign currencies and sold 1.05 trillion yuan, resulting in a net sale of 41.2 billion yuan, the State Administration of Foreign Exchange said.

Volume narrowed from the 101.3-billion-yuan deficit in February.

In the first quarter, lenders recorded an aggregate net forex sale of 60.7 billion yuan, down 50 percent from that in the same period last year, according to the regulator.

“Cross-border capital flows have shown positive changes in 2019,” said Wang Chunying, spokesperson, chief economist and director of the Department of Balance of Payments at the administration, citing the strength of the yuan and balanced supply-demand dynamics in the market.

In the first three months, the central parity rate of the yuan strengthened 1.9 percent against the US dollar. It also gained 1.9 percent against a basket of currencies monitored by the China Foreign Exchange Trade System.

SAFE said it would work to further optimize foreign exchange management policies, improve the convenience of fund transfers for foreign-owned enterprises and support qualified and capable domestic companies to carry out “real and compliant” overseas investment, Wang said.

To attract more foreign players into China’s capital markets, the authority said it plans to reform the system for qualified institutional investors, simplify their market access and expand their scope of investment.

Reforming the system

“We will reform the QFII and RQFII systems while pushing forward the opening of capital accounts in a steady and orderly way,” Wang added.

China’s Qualified Foreign Institutional Investor scheme allows approved investors to invest in a limited scope of cross-border securities products, while an RMB Qualified Foreign Institutional Investor scheme permits use of yuan funds raised in Hong Kong by the subsidiaries of domestic fund managers and securities houses in Hong Kong to invest in the domestic capital market.

SAFE said it would welcome more participants, such as securities brokers and fund companies, to join the forex market. It would also support the innovation of forex derivatives and launch more options products in the future.

Efforts will also be made to promote channel integration for the opening of the inter-bank bond market, standardizing the management of yuan-denominated bonds issued by overseas institutions and pushing ahead forex reforms in pilot free trade zones, the Guangdong-Hong Kong-Macau Greater Bay Area and Xiongan New Area.


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