CHINA may see more capital inflows in the rest of 2014 after experiencing some money flight in recent months, the country’s foreign exchange regulator said yesterday, as the yuan recovers due to improved confidence in the economy.

    Guan Tao, the head of the department of international payments at the State Administration of Foreign Exchange (SAFE), also said that China’s rising foreign exchange reserves could stoke long-term inflationary pressures.

    “The domestic economy is stabilizing, which helps boost market confidence, and the foreign trade situation has started improving, and the interest rate differential remains. These factors could lead to pressure on capital inflows,” he said.

    But capital flows could remain volatile in the second half as the economy still faces uncertainties, along with risks from monetary policy adjustments in major economies.

    “The renminbi [yuan] exchange is now near equilibrium and two-way cross-border capital flows have become a new norm,” he said.

    China’s economy grew slightly faster than expected in the second quarter as a flurry of government stimulus measures kicked in, but analysts said the government will likely need to offer further support to meet its 7.5 percent economic growth target for 2014.

    China was under pressures from capital inflows in the first quarter, but the tide turned in the second quarter as volatility in the yuan fuelled outflows, Guan said.

    The central bank was seen intervening to weaken the yuan in February and March as a means to punish speculators. The central bank was concerned about punters skirting China’s capital controls to bring foreign currency into the country and profit from expected yuan appreciation.

    The yuan has shown some signs of stabilizing in recent weeks but is still down 2.3 percent so far this year. Traders are unsure when authorities will allow it to return to a gradual appreciation path.

    China’s central bank and commercial banks sold 88.3 billion yuan (US$14.3 billion) worth of foreign exchange on a net basis in June, according to a calculation based on central bank data released Tuesday.

    China’s current account surplus may widen in the second quarter, but net inflows under its capital account may decline sharply, or even show a deficit, Guan said. (SD-Agencies)