IMF warns on capital account

The IMF's World Economic Outlook Update, issued in July, projected a widening current account surplus to 4.1 percent of GDP by 2018 and continued net FDI inflows.

As a result, reserve accumulation is expected to continue at $580 billion annually from 2013 to 2018, it said.

China reported a $1.6 billion deficit under its capital account in the second quarter, according to SAFE data.

It was the first capital-account deficit since the third quarter of last year, when the gap was $51.7 billion. In the first quarter of 2013, China recorded a capital-account surplus of $90.1 billion.

Louis Kuijs, chief China economist at the Royal Bank of Scotland, said Chinese companies that have been using arbitrage opportunities available to them as a result of the internationalization of the yuan have more to do with the capital outflows of recent years than international funds.

"These apparent outflows were in part unwound in the first half of 2013 by apparent net financial inflows, in large part again carried out by Chinese companies."

The IMF paper added that the size of the Chinese financial markets may be overstated by aggregate market capitalization and outstanding debt.

Nontradable shares account for about one-quarter of equity market capitalization. Bond market debt may have substituted for bank lending, since almost half of the outstanding bonds are held by banks.

"Once the equity and bond market sizes are adjusted for these two factors, the predicted net accumulation of portfolio assets would narrow to 4 to 8 percent of GDP," the IMF said.