China's yuan drops as regulator sounds concern over capital outflows

[BEIJING] China's yuan declined the most in two weeks as the foreign-exchange regulator highlighted concerns over capital outflows amid indications money is leaving the nation.

China is increasingly finding itself in a situation similar to the 1998 Asian financial crisis with emerging markets under pressure of capital outflows as the dollar strengthens, Guan Tao, head of the State Administration of Foreign Exchange's international payment department, said at a forum in Beijing on Saturday. There will be uncertainties this year while the nation remains attractive to long-term capital, SAFE said in a report on Sunday.

The yuan fell 0.08 per cent, the biggest loss since Feb 2, to 6.2457 per US dollar as of 11:41 am in Shanghai, China Foreign Exchange Trade System prices show. The currency was at a 1.9 per cent discount to the central bank's fixing, the most since Feb 6 and within the 2 per cent limit. The People's Bank of China raised the reference rate by 0.02 per cent to 6.1273."The capital outflow concern is causing fluctuations in the financial market and resulting in the drop in the yuan," Chen Hufei, a Shanghai-based macroeconomic policy analyst at Bank of Communications, said by phone.

In Hong Kong's offshore market, the yuan declined the most in two weeks, dropping 0.17 per cent to 6.2527 a US dollar, according to data compiled by Bloomberg. Twelve-month non-deliverable yuan forwards lost 0.12 per cent to 6.3778, trading 2.07 per cent weaker than the Shanghai spot rate.

A net US$324 billion (S$438.86 billion) flowed out of China in 2014, not counting foreign direct investment, swinging from inflows of US$56 billion the previous year, according to Swiss investment bank UBS. The nation's capital account posted a US$91.2 billion deficit in the fourth quarter, a record in data going back to 1998.

Foreign direct investment accelerated 29.4 per cent from a year earlier to US$13.9 billion in January, compared with a 10.3 per cent gain in December, the Ministry of Commerce said in Beijing on Monday. Outbound investments grew 40.6 per cent to US$10.2 billion. The Bloomberg Dollar Spot Index has advanced 2.6 per cent this year.

BLOOMBERG