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China data signals capital outflows in 2012

A paramilitary policeman (C) stands guard as passengers walk to board their trains at the Beijing West Railway Station January 31, 2013. REU
A paramilitary policeman (C) stands guard as passengers walk to board their trains at the Beijing West Railway Station January 31, 2013. REU

BEIJING (Reuters) - China posted a $117.3 billion deficit in its capital and financial account in 2012, preliminary data from the country's foreign exchange regulator showed on Friday, signaling capital outflows amid turbulence in the global economy and financial markets.

In the fourth quarter of 2012, China had a $31.8 billion deficit on its capital and financial account, the State Administration of Foreign Exchange said in a statement on its website, www.safe.gov.cn.

That followed a $51.7 billion deficit in the capital and financial account in the third quarter.

"It seems like the trend from Q2 and Q3 has remained in place and that China has continued to see a capital outflow. It seems that in Q4 there was still a lack of confidence among investors about the outlook for the Chinese economy," said Dariusz Kowalczyk, Asia ex-Japan senior economist and strategist at Credit Agricole CIB in Hong Kong.

"But because a strong current account surplus enabled China to record an overall positive balance of payments after two quarters of declines, that explains why the renminbi appreciated in Q4," he added.

China had a surplus of $221.1 billion on the capital and financial account in 2011.

The swing into a capital account deficit in 2012 was mainly caused by market players' preference towards holding their assets in foreign currency while keeping debt in local currency, the SAFE said.

But recent data has started to show net capital inflows as China's economy recovers, the regulator said.

The CSI300 index <.CSI300> of top Shanghai and Shenzhen A-shares has surged some 30 percent since early December.

"The possibility of periodic capital inflows cannot be ruled out if the environment becomes better at home and abroad," it said.

Meanwhile, China posted a $213.8 billion current account surplus in 2012, the SAFE data showed, equivalent to 2.6 percent of gross domestic product. Fourth-quarter current account surplus was $65.8 billion.

The surplus-to-GDP ratio has comfortably fallen below the threshold that some U.S. officials have recommended as necessary to keep the global economy well balanced.

China's current account surplus was about 6 percent of GDP in 2009 and 10.1 percent in 2007. The steady decline has been helped by the country's solid economic growth in recent years.

(Reporting by Xiaoyi Shao and Kevin Yao; Editing by Nick Edwards & Kim Coghill)