China sees lower forex deficit in first quarter

Chinese commercial banks reported a significant drop in net foreign exchange sales in the first quarter as cross-border capital flows stayed balanced and stable, the country's forex regulator said.

Forex purchases by banks stood at $154.4 billion and sales stood at $163.6 billion in March - a transaction deficit of $9.2 billion, up from $8.2 billion in February according to the State Administration of Foreign Exchange.

The total transaction deficit between banks' forex purchases and sales in the first quarter decreased to $18.3 billion, down 55 percent year-on-year, the administration reported.

Chinese lenders bought $434.2 billion worth of foreign currencies and sold $452.5 billion from January to March, according to Wang Chunying, spokesperson for the State Administration of Foreign Exchange.

Forex supply and demand has been basically balanced so far this year, Wang said, noting that the market entities were more willing to borrow forex loans instead of buying foreign currencies from banks.

In line with the forex sales data, China's forex reserves rose to $3.14 trillion at the end of March, $2.9 billion higher than three months ago.

Wang said she expected to see a generally balanced two-way cross-border capital flow this year, supported by domestic policies and economic fundamentals as well as the global economic recovery.

She noted that uncertainties still existed in the external environment, citing a pick-up in international financial market fluctuations this year.

"But we believe that the stability factors are more dominant," she said.

Wang said monetary policy normalization in major economies would be inevitable if global economy continues recovering, but its impact on China would be controllable.

"The adjustments in monetary policy will be a mild and gradual process and are currently in different stages for the major economies, which could help avoid draining global liquidity too quickly," Wang said.

"Given China's sound economic fundamentals, the forex market was now more adapted to external changes and able to handle influences from the international market, as Chinese market entities are trading more rationally with stronger risk awareness," she said.