China's capital outflows not a risk, in line with reforms - regulator

BEIJING (Reuters) - China's foreign currency regulator is not concerned by signs of forex outflows as the economy slows, the country's foreign exchange regulator said on Thursday, saying a recent decline in forex reserves is in line with Beijing's policy goals.

China is closely monitoring the impact of any changes in U.S. monetary policy, amid signs of greater volatility in cross-border flows, said Guan Tao, head of the department of international payments at State Administration of Foreign Exchange (SAFE).

"Capital inflows are swinging into outflows due to recent two-way fluctuations in the yuan exchange rate and the complex external and internal environment, which is normal," Guan told a news conference. "Such capital outflows are not risky."

China's foreign exchange reserves, the world's largest, fell by about $100 billion in the third quarter to $3.89 trillion at the end of September, central bank data showed.

Some analysts said the decline suggested speculative "hot money" outflows from China amid increased market jitters about whether the world's second-largest economy may be at risk of a sharper slowdown.

Guan said the decline in reserves was mainly caused by a recent rise in the U.S. dollar against other major currencies, which reduces the dollar value of the proportion of the reserves held in other currencies.

"The slowdown in growth of foreign exchange reserves will become a new normal and is in line with the direction of reforms," he said.

The central bank is gradually exiting from regularly intervening in the foreign exchange market, he added.

China's vast factory sector grew a shade faster in October as firms drew more foreign and domestic orders, a private survey showed earlier on Thursday, but analysts say the modest expansion does not indicate a turnaround for the cooling Chinese economy.

Data this week showed China's annual economic growth slowed to 7.3 percent in the third quarter - the weakest pace since the depths of the global financial crisis, from 7.5 percent in the previous quarter.

China's officials have pledge to rebalance trade to help slow down the build-up of foreign exchange reserves, which could complicate monetary policy and stoke inflation in the long term.

The government will further develop derivative instruments to help companies better hedge against two-way volatility in the yuan exchange rate, Guan added.

In March, the central bank doubled the yuan's daily trading band against the dollar in a bid to introduce two-way swings in the yuan, hitting investors who bet on its continued rise.

The yuan has been on a steady uptrend since late May but remains down year-to-date after the currency slumped early in the year, which many traders said was due to central bank behind-the-scenes manipulation targeting speculators.

(Reporting by Kevin Yao; Writing by Pete Sweeney; Editing by Jacqueline Wong)