China swings into capital account deficit in second quarter

Reuters Business News
Posted: Jul 31, 2012 7:41 AM
China swings into capital account deficit in second quarter

BEIJING (Reuters) - China's capital and financial account swung into a deficit of $71.4 billion from a surplus of $56.1 billion in the first quarter as domestic firms and residents increased their holdings of foreign currencies amid the global turbulence, the nation's foreign exchange regulator said on Tuesday.

China has suffered sporadic capital outflows since late last year as choppy global markets have spooked investors and led them to pull funds from the country.

"The current situation is that domestic institutions and individuals increase their holdings of foreign exchange assets instead of the central bank. There is no sign yet of capital flight," the State Administration of Foreign Exchange (SAFE) said in a statement on its website,

"As balance of payment and yuan currency approach the equilibrium and reasonable level, it is inevitable to see cross-border capital inflow and outflow, as well as two-way yuan currency fluctuations," it said.

Capital account deficit in the first half was $20.3 billion.

China's current account surplus widened to $59.7 billion in the second quarter from $23.5 billion three months earlier, according to the SAFE.

Current account surplus in the first half of 2012 was $83.2 billion, down 5 percent from a year earlier, the data showed. The surplus was equivalent to 2.3 percent of GDP, down from 2.7 percent in 2011, offering fresh evidence that the world's second-largest economy is relying less on external demand.

The surplus-to-GDP ratio has comfortably fallen below the threshold that U.S. Treasury Secretary Timothy Geithner thought was needed to keep the global economy well balanced.

China's current account surplus was about 6 percent of GDP in 2009 and 10.1 percent in 2007. The steady decline has been helped by the country's solid economic growth in recent years.

(Reporting by Langi Chiang and Kevin Yao; Editing by Jason Subler and Jeremy Laurence)