China May See Moderation In Speed Of Capital Outflow: Think Tank

By Samantha Tan Chiew Ting BEIJING, Feb 16 (Bernama) -- China is likely to see a moderation in the speed of capital outflow after a mass flow last year, according to China's official think tank. Vice President and Senior Research Fellow of the Development Research Centre (DRC) of China's State Council, Long Guoqiang, said capital outflow had already peaked with investors having changed their expectations due to changing dynamics in economic growth. "Many people were optimistic about prospects of the United States and its economic policies. However, the US economic growth has not been as bullish as people have expected, and the Federal Reserve has also adopted a more prudent approach to the market," he said. The attraction or pulling power of the US seems to be waning, Long told a press briefing on the developments and trends in China's current economy and economic policy here Tuesday. He was responding to a question on the massive outflow after China's foreign exchange reserves fell US$99.5 billion to US$3.2 trillion in January, the lowest level since May 2012. Long said last year there was a massive outflow in China and other emerging economies, but this situation could be at its peak and there should be a moderation in the speed of the outflow. "But there are always different views when it comes to market expectations and prospects and there are always people acting against the market, but I personally I think the outflow has peaked," he said. Hong explained the outflow last year was due to new developments in the US economy, adjustment of its monetary policies and a slump in commodities prices. He said the outflow was a normal situation for capital to pursue higher returns, adding during the financial crisis in 2008, there were also heavy flows from developed countries to developing regions. Long said while a mass flow of capital would affect the economy, China has advantages such as having a large forex reserve base, adding the outflow does not have major impact on its real economy. Furthermore, there are still institutional barriers for the capital outflow as China's yuan is freely convertible only under the 'current account' and not under 'capital account', he explained. -- BERNAMA