China's capital and financial account swung to a deficit of $71.4 billion in the second quarter, from a surplus of $56.1 billion in the first quarter, creating a first-half capital account deficit of $20.3 billion, the nation's foreign exchange regulator reported on Tuesday.
"Our country did see capital outflows to some extent in the first half, although such outflows did not amount to a large-scale flight," the State Administration of Foreign Exchange said in a statement published late on Tuesday.
Traders said Chinese firms began keeping dollars on hand in the last quarter of 2011 amid signs that China's economic growth was slowing, putting depreciation pressure on the yuan.
Retaining dollars was a reverse from the way domestic banks and their corporate clients, after the yuan's 2005 landmark revaluation, tended to sell their dollar earnings as quickly as possible.
In addition, the crisis in the euro zone has forced Western banks, in particular European ones, to pull cash out of China to help cope with liquidity difficulties at home, further reducing dollar supply in trading, traders said.
"Chinese firms actually have plenty of dollars on hand but they don't want to trade them actively given the prospect of yuan depreciation," said a dealer at a Chinese state-owned bank in Shanghai.
"Cash withdrawal by foreign banks for use in their home markets has also strained dollar supply in trading to some extent," he said.
INDUSTRY BARELY GROWING
China's official factory purchasing managers' index (PMI) fell to an eight-month low of 50.1 in July from 50.2 in June, suggesting the sector is barely growing, a survey by the National Bureau of Statistics showed on Wednesday.
The HSBC PMI, also published on Wednesday, rose to a seasonally adjusted 49.3, its highest level since February, but July marked the ninth straight month when the private-sector PMI was below 50, indicating contraction.
Spot yuan was trading at 6.3702 per dollar at midday, weaker than Tuesday's close of 6.3627. The yuan has generally weakened so far this year, dropping 1.2 percent as of midday Wednesday.
Traders said they expected the yuan to move between 6.35 and 6.40 per dollar in August, citing a rough balance of dollar supply and demand at these levels.
Before trading began, the People's Bank of China (PBOC) fixed the yuan's midpoint slightly stronger at 6.3305 from Tuesday's 6.3320.
The central bank has recently used the yuan's midpoint, the base rate from which the Chinese currency can rise or fall a maximum 1 percent in a day, to signal the government's intention to let it depreciate slightly in line with the dollar's global strength.
But the PBOC has also fixed the midpoint slightly above the yuan's trading levels to prevent the currency from falling too sharply.
Offshore one-year dollar/yuan non-deliverable forwards were largely stable on Wednesday, changing hands around 6.4290 in afternoon trade, implying the yuan would fall 0.9 percent in 12 months from the midday spot yuan rate.
Offshore spot yuan in Hong Kong traded at 6.3760 at midday, slightly weaker than the onshore spot rate.