Capital outflow not severe concern in China: JP Morgan

BEIJING - Capital outflow from China will not pose a major concern to the economy and is likely to slow down in the second half (H2) of the year, a JP Morgan analyst said on Wednesday.

Citing a recent report that estimated $142 billion of capital withdrawals between April and June, chief economist of JP Morgan China, Zhu Haibin clarified that the figure did not seem as worrying as it might look like.

The figure contrasted sharply with the first quarter, when investors pumped around $80 billion into the country.

Zhu said the market expectation of weaker yuan and government's decision to let companies hold more foreign exchange (forex) reserves contributed to the outflow, which to some extent actually reflected positive changes.

The reserves held by enterprises instead of the central bank could more efficiently reflect the trade surplus, Zhu said.

The forex reserves in China have declined for the fourth consecutive quarter to $3.69 trillion by June, official data showed.

Another healthy change, Zhu said, is that China's capital account started to show deficit in recent years after surging overseas investment from Chinese enterprises surpassed foreign investment into China.

"After all, capital outflow does not mean capital flee," Zhu said, expecting the trend will slow down in H2 as the market expects the yuan to appreciate.

In addition, the investment bank said a higher ratio of fiscal deficit to gross domestic product will help ease the pressure on mounting local debts and expects more monetary easing measures will likely take place to stimulate the economy.

It predicts 1 more rate cut and 2 more reserve ratio cuts this year.