China to keep yuan flexible, prepare for external shocks

Yuan banknotes are seen in this illustrative photograph taken in Beijing July 26, 2010. REUTERS/Jason Lee

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SHANGHAI, March 25 (Reuters) – China said on Friday it would maintain the flexibility of the yuan and the stability of the foreign exchange market, pledging to actively prevent and defuse the risks of external shocks.

The tendency of foreigners to invest in China and allocate assets in yuan will not change, said the Chinese exchange regulator. Meanwhile, China expects a reasonable current account surplus this year, despite an expected slowdown in exports.

The comments come amid signs of strong outflows of foreign capital from Chinese markets since Russia launched war on Ukraine, with investors believing Beijing’s friendship with Moscow could become a liability the longer the conflict lasts.

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The growing policy divergence between a hawkish US Federal Reserve and a dovish People’s Bank of China could also lead to capital outflows.

The State Administration of Foreign Exchange (SAFE) said on Friday it will strengthen macro-prudential management of cross-border capital flows and ward off the risks of external shocks.

China will continue to maintain the flexibility of the yuan, step up monitoring of cross-border capital flows, enrich the policy toolkit and guide expectations appropriately, he said.

“The Chinese financial market is increasingly open, and Chinese bonds and stocks have solid investment value,” SAFE said.

“There’s still plenty of room for foreign investors to increase allocation (to Chinese assets), which is good for steady long-term capital inflows.”

In terms of the current account, China’s export growth is likely to slow from a high as the impact of the pandemic on global trade activities eases.

But China’s current account surplus will remain at a reasonable level, SAFE said.

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Shanghai and Beijing newsroom reporting; edited by Philippa Fletcher and Toby Chopra

Our standards: The Thomson Reuters Trust Principles.

Shirlene J. Manley