Funds an important indicator of China's capital flows
China's central bank saw its yuan funds outstanding for foreign exchange fall 190.5 billion yuan ($28.7 billion) to 23.4 trillion yuan in July, official data showed on Sunday.
The drop, more than the 97.7 billion yuan in June, was the ninth consecutive monthly decline, the Xinhua News Agency reported on Sunday.
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, said the Xinhua report.
Such funds are an important indicator of foreign capital flows in and out of China as well as domestic yuan liquidity, it said.
The UK's vote to exit the EU and the attempted coup in Turkey together continue to unsettle global financial markets, resulting in capital flowing to safe-haven assets like the US dollar and yen, Liu Jian, a senior analyst at the Bank of Communications, told the Global Times on Sunday.
In addition, seasonal factors including outbound summer vacation trips, cross-border enterprise clearings and dividend payments overseas also weigh on the yuan funds outstanding for foreign exchange, he said.
Concerns about capital outflows have been on the rise as the economy slows, and the currency has weakened since the nation revamped its forex mechanism last year, according to Xinhua.
On August 11, 2015, the People's Bank of China (PBC), the central bank, adjusted the yuan's central parity against the dollar, making it more market-oriented and setting the yuan's value against a basket of major currencies.
However, Liu noted that the status quo of the yuan funds outstanding for foreign exchange could be improved in the short term.
Investors' risk aversion is likely to decline, he said, noting the pace of capital flowing out of China may slow.
Investors have gradually realized that two-way fluctuation of the yuan is normal, Liu noted.
The yuan strengthened on Friday against the US dollar to 6.6543, up 0.4 percent from the prefix of 6.6255, according to data from the PBC.
Liu forecast that the yuan's inclusion in the IMF's Special Drawing Rights currency basket in October will attract capital into China.
