SAFE confident China can handle U.S. rate hikes

Updated 2017-01-20 09:21:35 Global Times

Regulator reports banks' net forex sales shrink to 7.7 bln in 2016

China's currency regulator is confident the country can cope if the U.S. raises interest rates at a faster pace than expected in 2017 due to its stable economy, the regulator's spokesperson said on Thursday.

U.S. rate hikes impact economies around the world. Whether an economy can handle the change depends on the strength of its economy, said Wang -Chunying, spokesperson of the State Administration of Foreign Exchange (SAFE).

China's economy fared well in 2016 and is expected to continue to do so in 2017, Wang said at a press conference in Beijing on Thursday.

On Monday, the IMF upgraded China's GDP growth forecast for 2017 to 6.5 percent, up 0.3 percentage points from its October forecast in 2016.

The Federal Reserve said at its December meeting that it expects to raise interest rates three times in 2017. Three month earlier, the U.S. central bank said it planned to increase rates two times in 2017.

Wang questioned whether the Fed would actually carry out its plan to raise rates three times.

"The pace of the U.S. Federal Reserve's interest rate hikes will hinge on the new administration's policies," Wang said.

The question about China's ability to weather additional interest rate increases came after SAFE released foreign exchange settlement statistics for 2016.

Domestic banks' net sales of foreign exchange fell to 7.7 billion in 2016, down from 5.9 billion in 2015, showing that the cross-border capital outflow pressure eased in 2016.

In 2016, China's foreign exchange settlement deficit peaked in the first quarter at 4.8 billion. The deficit partially resulted from large outflows of capital following the U.S. Federal Reserve's interest rate hike in December 2015, its first since 2006.

Despite the economic slowdown over the last few years, China remains an attractive destination in the global capital market, Wang said. Reforms such as the opening of the interbank bond market to overseas investors have helped draw more investment into the country.

Analysts predicted that foreign exchange outflows will slow in 2017 as the economy has picked up steam and SAFE has tightened restrictions on foreign exchange.

The domestic capital market won't have much of a reaction to U.S. interest rate hikes because it knows what to expect, said Liu Xuezhi, a senior analyst at Bank of Communication.

Earlier this month, SAFE issued more detailed rules for individual foreign exchange purchases in an effort to crack down on speculation and money laundering.

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