China expects long-term capital inflows to return despite recent volatility

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SHANGHAI (Reuters) – China’s currency regulator expects foreign investment in yuan-denominated assets to rise over the long term, despite recent swings, financial media outlet Caixin reported on Thursday.

The remarks came as foreign investors reduced their holdings of Chinese government bonds at the fastest pace in three years in February, while major economies including the United States tightened monetary policy, prompting concerns. concerns in the markets about increased capital outflows and the depreciation of the yuan.

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“Short-term fluctuations in cross-border investment in securities do not mean a reversal of the long-term trend of foreign investment in China’s capital market,” the State Administration of Foreign Exchange (SAFE) said.

“Affected by recent changes in the external environment, fluctuations in foreign investment in domestic stocks and bonds have increased, (but) this is normal in the complex international economic and financial situation.”

The exchange regulator added that cross-border capital flows under the financial account remained normal and under control, while the value of the Chinese currency was stable.

A number of foreign investment banks and research institutes reported larger capital outflows from China after Russia began its invasion of Ukraine.

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“Exit from China on the scale and intensity we are seeing is unprecedented,” analysts at the Institute of International Finance said in a note in late March.

Data showed foreign investors sold more than 45 billion yuan ($7.08 billion) on a net basis through the Stock Connect program in March, recording the biggest monthly outflow in nearly two years.

Separately, Guan Tao, global chief economist at BOC International and a former senior SAFE official, said the regulator has experience in handling such currency swings when conditions worsen.

He wrote in a government document released Thursday that the private sector could play a role in cushioning the impact of such volatility on international payments. ($1 = 6.3601 Chinese yuan) (Reporting by Winni Zhou and Andrew Galbraith; Editing by Sam Holmes)

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