Business / Finance

Slump seen in net foreign exchange purchases

By Jiang Xueqing (China Daily) Updated: 2014-03-19 07:38

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Xu Bo, a research analyst at the financial research center of the Bank of Communications Co Ltd, expected that speculative money inflows into China would wane because the expectation for continuous appreciation of the yuan has changed.

He emphasized that the slump in the nation's exports in February was a major cause for the new currency purchase position.

The country posted an unexpected trade deficit of nearly $23 billion last month with its exports falling 18.1 percent year-on-year.

Experts said the trade figures were distorted by the effects of the weeklong Spring Festival holiday.

"We expect that China's exports will remain slightly weaker than imports after taking into consideration the operating environment for domestic foreign trade companies, changes in international division of labor and the exchange rate," Xu said.

He pointed out that foreign direct investment into China stood at $8.55 billion in February, down $2.22 billion from the previous month, thus also affecting the forex purchase position.

In spite of the negative factors, Xu noted that China still has a trade surplus and capital inflows, and that domestic interest rates are higher than those of other major countries.

"We estimate that net forex purchase positions will continue to maintain a relatively high level, totaling 2.5 to 3 trillion yuan this year," he concluded.