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Update: China sees capital account deficit, volatile fund flows in H2

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China's central bank has intervened heavily to keep the yuan steady after it shocked global markets by devaluing the yuan by nearly 2 per cent on Aug 11, running down its foreign exchange reserves by a record amount that month.

[BEIJING] China is likely to continue to see a deficit on its capital and financial account in the second half amid global market volatility, the foreign exchange regulator said on Wednesday.

Concerns over China's economic slowdown and possible interest rate rises by the US Federal Reserve have fuelled a wave of capital outflows, which intensified after China's surprising yuan devaluation last month. "Cross-border capital flows will be relatively volatile," the State Administration of Foreign Exchange (SAFE) said in a statement on its website.

Expectations of an upcoming Fed interest rate rise and currency volatility in emerging markets will continue to affect international financial stability and fuel risk aversion, the SAFE said. "Looking at the domestic environment, the downward pressure persists in the process of economic transition, while domestic borrowing costs continue to decline," it said.

China posted a deficit of US$125.6 billion on its capital account and financial account in the first half of 2015, including US$40.6 billion in the March-June quarter.

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China had a current account surplus of US$148.6 billion in the first half, including US$73 billion in the second quarter, the SAFE said in its international balance payment report.

China's current account surplus in the first half was equivalent to 3.1 per cent of gross domestic product, it said.

China will keep the yuan basically stable while improving management of its foreign exchange reserves to ensure safety, the regulator said.

China's central bank has intervened heavily to keep the yuan steady after it shocked global markets by devaluing the yuan by nearly 2 per cent on Aug 11, running down its foreign exchange reserves by a record amount that month.

It also said that the authorities will strengthen monitoring of cross-border capital flows.

The authorities have taken some incremental steps to curb capital outflows that intensified since the country's surprising yuan devaluation last month.

REUTERS

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