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Basic balance in external payments in H2: SAFE

(China Daily)

13:16, September 13, 2012

China will achieve basic balance in its external payments in the second half of 2012, with fluctuations in two-way capital flows becoming more frequent as the yuan nears its equilibrium level, the top foreign exchange regulator said on Wednesday.

China swung into a capital and financial account deficit in the second quarter of $41.2 billion, after a surplus of $56.1 billion in the first quarter and a deficit of $29 billion in the fourth quarter of 2011, according to data from the State Administration of Foreign Exchange.

The capital and financial account surplus stood at $14.9 billion in the first six months of 2012, SAFE said.

"When the international payment and yuan currency rate near reasonable and balanced levels, fluctuations in two-way cross-border capital flows become inevitable," SAFE said in a report on its website.

"With the improvement in the yuan currency formation mechanism and reduced foreign exchange intervention by the central bank, it will become normal for China to have a current account surplus and capital and financial account deficit," it added.

SAFE revised down the current account surplus in the second quarter to $53.7 billion from an initial $59.7 billion.

In the first half of 2012, China's current account surplus totaled $77.2 billion, equivalent to 2.1 percent of the country's gross domestic product, down from 2.8 percent in the first six months of 2011.

"The falling surplus in international payments and slower rise in China's foreign exchange reserves are in line with the direction of the country's macro control policy and is conducive to promoting external economic balance," SAFE said.

It played down the risks of rising capital swings to the economy, citing the country's large foreign exchange reserves and steady trade surplus, as well the fact the economy was growing.

The report concluded that as long as there were no major risk events at home or abroad, "our country will achieve basic balance in international payments".

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