China's FX regulator sees increasing volatility in capital flows

BEIJING (Reuters) - China's slowing economic growth and United States monetary tapering will lead to increasing fluctuations in cross-border capital flows, the country's foreign exchange regulator said on Thursday.

Capital flows into China picked up last year, but may reverse this year, as economic growth loses momentum and the yuan currency continues to depreciate.

"Currently there are still many unstable and uncertain factors in domestic and global markets," Guan Tao, head of the department of international payments at the State Administration of Foreign Exchange (SAFE) said in a webcast carried on the website of the official People's Daily newspaper.

"We expect cross-border capital flows will keep two-way fluctuations," Guan said, highlighting slowing growth as a factor for swings in capital flows.

But he added that China was "capable of handling" the recent volatility in such cross-border capital flows, which has seen slower net capital inflows recently.

In February, SAFE said China was likely to see relatively big net capital inflows this year, though some market factors such as US tapering may trigger two-way flows.

Chinese banks posted a US$40.2 billion surplus in spot foreign exchange settlements in March, indicating capital inflows but easing from February's surplus of US$45.7 billion, SAFE data showed.

The yuan has depreciated 3 per cent versus the dollar so far this year after the PBOC guided the currency weaker in February and March to deter speculators from betting on a one-way appreciation.

Guan added there was no need to worry about such moves in the currency and expected two-way fluctuations of the yuan exchange rate would be more frequent in future.