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October 19, 2016

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Yuan funds for forex fall US$50b

CHINA’S central bank saw its yuan funds outstanding for foreign exchange drop 337.5 billion yuan (US$50 billion) to 22.91 trillion yuan in September, data showed yesterday.

It was the largest monthly drop this year and marks the 11th consecutive month of declines, suggesting increasing capital flight pressure.

As the yuan is not freely convertible under the capital account, the central bank has to purchase foreign currency generated by China’s trade surplus and foreign investment in the country, adding funds to the money market. Such funds are a vital indicator for foreign capital flow in and out of China as well as domestic yuan liquidity.

Concerns about capital outflows have been on the rise as the economy slowed, the possibility of a US rate hike loomed, and the yuan has fallen since China revamped its forex mechanism last year.

China’s forex reserves fell to US$3.17 trillion at the end of September, the third straight monthly drop. Han Huishi, a China Construction Bank analyst, blamed the drop on short-term factors.


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