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China's forex regulator says foreign outflows 'under control'

China's forex regulator says foreign outflows 'under control'

FILE PHOTO: A man is seen next to signs of Chinese Yuan and U.S. dollar at a foreign exchange store in Shanghai, January 8, 2016. REUTERS/Aly Song

HONG KONG :China's foreign exchange regulator said on Wednesday the recent retreat of foreign investments from the country amid a weakening yuan was "well under control" and that Beijing would continue to open up both outbound and inbound investment channels.

Overseas investments in Chinese markets totalled just over 8 trillion yuan ($1.2 trillion) at the end of last year.

However, the country's slowing economy, reeling under strict COVID-19 containment measures, and U.S. interest rate hikes have resulted in a surge in outflows in recent months, weighing on the currency.

The latest monthly flows data showed foreigners withdrew a net $17.5 billion from local shares and bonds in March.

Volatility in China's financial markets and foreign investment into the country was "a natural response" in a "complicated context", Wang Lei, Deputy Director-General, Capital Account Management Department, State Administration of Foreign Exchange (SAFE) told a virtual China capital market conference.

"We see that inflow and outflow are quite natural in securities investment. Everything has been well under control and I see this partial adjustment doesn't change the overall balance of the cross-border capital flow(s) in China."

China has held off giving new quotas since the start of 2022 under its main outbound investment scheme - the qualified domestic institutional investor (QDII) program - with a total of $157.5 billion quotas granted since 2006.

That followed a $40 billion quota issuance in 2021, or a 35 per cent increase in a single year.

Outflows from yuan-denominated debt have accelerated in recent weeks with overseas funds selling a net $2.3 billion of bonds in the week ended May 18, coinciding with a plunge of more than 6 per cent in the yuan since late April.

"We'd like to precautiously promote a two-way balanced liberalisation of the financial market. This general trend is quite certain, I'm sure," SAFE’s Wang said, without mentioning QDII.

However, the regulator highlighted opening up moves in the private market.

Wang said SAFE plans to "tap into the pilot of the private equity market reform", highlighting two pilot schemes for foreign and domestic financial firms to invest and raise private equity assets across the border.

KKR and BlackRock, among other foreign firms, got Chinese regulatory approvals in recent weeks, allowing their local units to raise funds for investing overseas under one of the pilots, Qualified Domestic Limited Partnership schemes.

Source: Reuters

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