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China sees H2 cross-border capital flows basically stable despite trade, global growth risks

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BEIJING, July 18 (Reuters) – China expects cross-border capital flows to remain basically stable in the second half of the year, in spite of uncertainties in the global economy and trade protectionism, its foreign exchange regulator said on Thursday.

Positive factors outnumber the negative, as the international monetary policy environment is relatively loose and the U.S. trade deficit with China is increasing, Wang Chunying, a spokeswoman at the State Administration of Foreign Exchange (SAFE), said at a news briefing.

China is expected to post a surplus in its current account in the second quarter of this year and a small surplus for all of 2019, she said.

While the yuan currency has fluctuated this year along with twists and turns in the deepening U.S.-China trade dispute, China’s foreign exchange reserves rose to the highest in more than a year in June, with outflows kept in check by tight capital controls and inflows buoyed by growing foreign purchases of Chinese stocks and bonds.

The government will consider relaxing, or even scrapping the Qualified Foreign Institutional Investor (QFII) quota, Wang added.

China’s securities regulator has issued draft rules that would combine the QFII and Renminbi Qualified Foreign Institutional Investor (RQFII) schemes.

The cross-border Connect scheme linking Hong Kong and mainland bourses has become a more popular channel than QFII for many foreign investors seeking access to China’s capital markets, thanks to its absence of an aggregate quota, and relative convenience in moving money in and out of China. Current QFII quotas have not been used up.

Wang also said China’s foreign debt risks are controllable overall. Last week, the country’s state planner said it is tightening restrictions on property companies seeking to raise funds offshore, in its latest move to reduce potential financial risks.

China’s commercial banks sold a net $19.3 billion of foreign exchange in June, compared with a net purchase of $6.2 billion in May, the regulator said.

For January to June, net forex sales stood at $33.2 billion.

(Reporting by Ma Rong and Kevin Yao in BEIJING, Samuel Shen and John Ruwitch in SHANGHAI; Editing by Kim Coghill)

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