November 22, China's funds outstanding for foreign exchange (FOFE) fell in October, the first time since 2007, down RMB 24.89 billion ($3.9 billion) from September, the People’s Bank of China, or central bank, said on Monday.

Prior to the decline, the central bank bought RMB 376.94 billion worth of foreign exchange from commercial banks in August and RMB 247.26 billion in September.

Market watchers believe the reduction in October was related to the outflow of speculative capital, or hot money.

Fu Bingtao, a deputy director at Agricultural Bank of China's strategic management department, said the fall was due to fluctuations in hot money as some international speculative capital was drained from China because of the receding expectation of renminbi appreciation.

On the other hand, the growing European Union sovereign bond issues may have led some foreign financial institutions to withdraw funds from China, Fu added.

The growing expectation of renminbi deprecation against the green back is another cause. “Many international companies can buy the U.S. dollar at lower price in China and then sell it at a higher price overseas,” a trader at a joint-venture bank told the 21st Century Business Herald.

In the third quarter, China’s capital and financial account surplus fell dramatically compared with the previous 2 quarter of this year, data from the State Administration of Foreign Exchange showed.

Peng Wensheng, chief economist at China International Capital Corp., said that may reflect the uncertainties of EU debt and a liquidity squeeze among European banks.

The decline was in line with less FOEE added in October and FOEE may continue to slide in the future, Peng said.

edited by Tony ZHU

Source:21cbh.com