China's yuan funds for foreign exchange post milder drop in May

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The Chinese central bank's yuan funds outstanding for foreign exchange continued to drop in May but the decline was milder than April, a sign of eased capital outflow pressure.

The funds totaled 21.55 trillion yuan (3.16 trillion US dollars) at the end of May, down 29.33 billion yuan from a month earlier, marking the 19th straight month of decline, according to the latest data from the People's Bank of China.

It was also the sixth month in a row that the funds posted smaller month-on-month decreases.

The People's Bank of China building in Beijing. /VCG Photo

As the Chinese currency is not freely convertible under the capital account, the central bank has to purchase foreign currency generated by China's trade surplus and foreign investment in the country, adding funds to the money market.

Such funds are an important indicator of cross-border foreign capital flows and domestic yuan liquidity. A decrease of the funds often signals higher capital flight pressure.

There have been concerns about capital flight since the second half of 2016, when the economy was facing downward pressure and the Chinese yuan was in the middle of a losing streak against the dollar.

But the yuan has gradually recovered from its weakness as the Chinese economy firmed up in the first quarter of the year, with forecast-beating GDP growth, and the greenback became less volatile.

Measured by the central parity rate, the yuan has appreciated more than two percent against the dollar so far this year.

Another indicator of less capital outflows, China's forex reserves, rose for the fourth month in a row in May to total 3.05 trillion US dollars, an increase of 24 billion US dollars from a month earlier.

(Source: Xinhua)