China is keeping a watchful eye on any monetary policy adjustments in the United States and will make countercyclical adjustments to keep the foreign exchange market stable if necessary, officials and experts said on Friday.
"This round of the US Federal Reserve's policy adjustments will neither alter China's generally balanced international payments nor change the overall stability of the Chinese yuan," said Wang Chunying, spokeswoman of the State Administration of Foreign Exchange, the country's foreign exchange regulator.
Yet, the SAFE will monitor the Fed's pace of raising interest rates and the spillovers, while "paying close attention to" the inflationary pressure in the US, which could sustain amid restricted production and recovering demand, she said at a news conference on Friday.
In response, the administration will further foreign exchange market reform and opening-up to maintain the flexibility of the yuan, and will make countercyclical adjustments at a proper time, Wang said.
Experts said Wang's remarks coincide with the perception of a risk in the financial markets that overseas central banks may scale back stimuli at a rapid pace, which could create pressure in the form of capital flowing out of China and a weakening yuan.
"The global inflationary pressure and energy shortages have shaken the basis of easy monetary conditions and made overseas central banks speed up their pace of tapering," said Wang Youxin, a senior researcher with Bank of China.
Despite potential depreciation pressure facing the yuan, the remarks of the SAFE spokeswoman show that Chinese regulators will stay committed to reforms aimed at allowing the foreign exchange market decide cross-currency rates and refraining from intervening in the market, Wang Youxin said.
At the same time, the regulators will remain vigilant for any risks of sudden or rapid currency depreciation and capital outflows, and be ready to respond with countercyclical policy tools, like the countercyclical adjustment factor on the yuan and the reserve requirement ratio on the trading of foreign-exchange forward contracts, he said.
"I do not think that cross-border capital flows will worsen so much this year and trigger such measures," he said. "Even if the Fed begins tapering this year and raises interest rates next year, impacts on the yuan will be much more limited than those seen after the tapering cycle started in 2014."
The Chinese economy is still faring better than many other economies, the country's prudent monetary policy has avoided major asset bubbles vulnerable to tighter global liquidity conditions, and the yuan-denominated assets have become more attractive for global investors, he said.
Within China's bond market, which has been valued at 128.1 trillion yuan ($20.1 trillion), up to 3.1 percent of the value was held by foreign investors at the end of September, up by 0.2 percentage points from the end of last year, official data showed.
According to the SAFE spokeswoman, China's improved external debt structure, a greater flexibility of the yuan and the Fed's continuous communication with the market about its tapering plan will also help contain the spillover of the Fed's tapering into China's foreign exchange market.
She said the country's foreign exchange market has performed steadily this year. Chinese lenders sold around $1.68 trillion worth of foreign exchange and bought about $1.86 trillion in the first three quarters of the year, resulting in net purchases of $180 billion.
The central parity of the onshore yuan against the US dollar came in at 6.4032 on Friday, strengthening from 6.4854 at the end of last month.
