China's foreign exchange regulator said on Wednesday that risks from cross-border capital flows will be generally under control in 2017, a day after the country reported that its forex reserves had fallen to near six-year lows. Chinese authorities have taken a raft of steps in recent months to curb capital flight from the country to support its weakening yuan currency, while trying to bring in more foreign investment.
The crackdown may have slowed outflows in January, but China's forex reserves unexpectedly fell below the closely watched $3 trillion level, sowing doubts over how much longer authorities can afford to defend both the currency and its reserves. "International payments will remain basically balanced, and risks from cross-border capital flows are generally controllable," the State Administration of Foreign Exchange (SAFE) said in a statement. The regulator also said that China's capital and financial account deficit will narrow somewhat this year, while it will maintain a current account surplus.
China's economy still faces weak global demand and financial market volatility caused by expectations of further interest rate rises by the US Federal Reserve, the regulator added. Preliminary data from SAFE showed China had a $210.4 billion current account surplus and a $47 billion deficit on the capital and financial account in 2016.
In the fourth quarter, China had a current account surplus of $37.6 billion and a deficit of $37.6 billion on its capital and financial account, the preliminary data showed. Such figures are subject to revisions. China's current account in 2016 was equivalent to 1.9 percent of gross domestic product (GDP), the regulator said, down from 2.7 percent in 2015. The current account surplus was about 6 percent of GDP in 2009 and 10.1 percent in 2007. The steady decline is due to narrowing surplus and economic growth.
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