China banking system’s net forex purchases plunge 340%

Capital inflows suggest renminbi appreciation.

The People’s Bank of China, the central bank, and financial institutions bought a net US$10.9 billion in foreign currency in May compared to a net purchase of US$48 billion in April, said industry sources.

May was the sixth consecutive month of net purchase, indicating that capital continued to flow into China on expectations of a renminbi appreciation against other currencies.

The banking system's foreign currency purchase position hit US$4.5 trillion in May, slightly higher than the US$4.46 trillion in April, said the central bank.

The data include purchases and sales by commercial banks and other financial institutions but mostly reflect transactions by the central bank.

Analysts said the figures are a proxy for inflows and outflows of foreign capital as most foreign currency entering the country is generally sold to the PBOC.