China: Expect net fund inflows in August - ING

Iris Pang, Economist at ING suggests that expect net fund inflows for China in August as data in July reflected a significant reduction in outflows.

Key Quotes

“Fast appreciation of the CNY has finally stemmed capital outflows. Data from banks’ forex net settlement on behalf of clients and monthly changes in the central bank’s position of forex purchases show that net outflows were tiny in July compared to previous months.”

“The net forex balance of banks on behalf of clients was -CNY42.80bn (equivalent to $6.36bn), which means there was still a small net outflow in July, but the scale shrunk 46% in one month. At the same time, the central bank’s net change in forex purchases was -$4.64bn (reduced from -$34.32bn in June).”

“This implies either that the whole system’s outflow has slowed remarkably, which is also reflected in stabilized foreign reserves, or it could mean that the central bank intervened less in the forex market to support yuan, or both.”

“Looking forward, the strong CNY in August suggests that net fund inflows become increasingly likely in August. If so, the PBoC need not accelerate yuan appreciation as fast as in early August. That said, a depreciation back towards 6.77, the level of USDCNY a month ago, would trigger fresh capital outflows, so is unlikely. For the same reason, we do not expect SAFE to relax capital outflow guidance. Our forecast on USDCNY for end 2017 at 6.65 appears to be on the right track.”