China's central bank sees continued net forex sales in October

A clerk counts yuan bank notes and US dollar bills at a bank of the Industrial and Commercial Bank of China in Huaibei, East China's Anhui province, Nov 28, 2012. [Photo/IC]

BEIJING - China's central bank continued to see net foreign exchange sales in October as a weakening yuan increased capital flight pressure, data showed Monday.

The People's Bank of China said its yuan funds outstanding for foreign exchange fell 267.9 billion yuan ($39.2 billion) in October to 22.6 trillion yuan.

It was a milder drop than the 337.5 billion yuan decrease in September but marked the 12th consecutive month of declines.

As the Chinese currency is not freely convertible under the capital account, the central bank has to purchase foreign currency generated by China's trade surplus and foreign investment in the country, adding funds to the money market. Such funds are an important indicator for foreign capital flow in and out of China as well as domestic yuan liquidity.

Concerns about capital outflows had been on the rise as the economy slowed, the possibility of a US rate hike loomed and authorities revamped the forex mechanism last year to better reflect market changes.

China's forex reserves shrank for a fourth straight month to $3.12 trillion in October, the lowest level since March 2011, as the central bank sold dollars to defend the yuan against a stronger US dollar.

The central parity rate of the Chinese currency weakened 176 basis points to 6.8291 against the dollar Monday, the lowest since 2009.