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Yuan funds at Chinese banks decline
By Feng Jianmin |
December 20, 2011, Tuesday
|
Print Edition
Print Edition
YUAN funds at Chinese banks fell for the second month in November as several factors, including a drop in foreign investment and weaker expectations for a yuan appreciation, contributed to an outflow of foreign capital from banks.
Analysts forecast the People's Bank of China will soon cut reserve requirements for banks to ensure liquidity.
Yuan funds at financial institutions accumulated from foreign-exchange purchases stood at 25.46 trillion yuan (US$4 trillion) as of the end of November, down 27.9 billion yuan from a month earlier, data from the PBOC showed. For the past two months the figure fell a combined 52.8 billion yuan, the first decline since 2007.
The PBOC uses yuan to pay for the purchase of foreign currencies as they enter the Chinese market. The demand from exporters and foreign investors to change the currencies into yuan is viewed by economists as a major source of the yuan funds.
"The decrease of yuan funds last month was due to a combination of reasons, including a drop in trade surplus, a cut in foreign direct investment, and an outflow of speculative foreign capital as the yuan fluctuated," said Gui Haoming, a senior researcher with Shenyin & Wanguo Securities.
China's trade surplus in November narrowed to US$14.5 billion from US$17 billion in October and fell 34.9 percent from a year earlier, the General Administration of Customs said last week, due to weak exports.
Foreign direct investment in China also fell 9.8 percent annually in November, the first year-on-year drop in 28 months, the Ministry of Commerce said on Thursday. The yuan weakened against the dollar in November for the first time this year.
"If inflation in December continues to slow, the central bank will cut reserve requirements again before mid-January," Gui said.
Gao Li, an analyst with Huachuang Securities, said: "Along with the easing of liquidity pressure overseas, foreign capital will likely flow back."
Analysts forecast the People's Bank of China will soon cut reserve requirements for banks to ensure liquidity.
Yuan funds at financial institutions accumulated from foreign-exchange purchases stood at 25.46 trillion yuan (US$4 trillion) as of the end of November, down 27.9 billion yuan from a month earlier, data from the PBOC showed. For the past two months the figure fell a combined 52.8 billion yuan, the first decline since 2007.
The PBOC uses yuan to pay for the purchase of foreign currencies as they enter the Chinese market. The demand from exporters and foreign investors to change the currencies into yuan is viewed by economists as a major source of the yuan funds.
"The decrease of yuan funds last month was due to a combination of reasons, including a drop in trade surplus, a cut in foreign direct investment, and an outflow of speculative foreign capital as the yuan fluctuated," said Gui Haoming, a senior researcher with Shenyin & Wanguo Securities.
China's trade surplus in November narrowed to US$14.5 billion from US$17 billion in October and fell 34.9 percent from a year earlier, the General Administration of Customs said last week, due to weak exports.
Foreign direct investment in China also fell 9.8 percent annually in November, the first year-on-year drop in 28 months, the Ministry of Commerce said on Thursday. The yuan weakened against the dollar in November for the first time this year.
"If inflation in December continues to slow, the central bank will cut reserve requirements again before mid-January," Gui said.
Gao Li, an analyst with Huachuang Securities, said: "Along with the easing of liquidity pressure overseas, foreign capital will likely flow back."
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