China says will persist with crackdown on forex irregularities

BEIJING (Reuters) - China will maintain a crack down on foreign exchange irregularities to ensure stability in the currency market and the broader economy, the country's forex regulator said on Friday, in a sign Beijing will continue to keep a tight leash on capital outflows.

Authorities will "severely crack down on underground banks and other foreign exchange violations to prevent and resolve risks from cross-border capital flows", the State Administration of Foreign Exchange (SAFE) said, after an internal meeting.

The move will keep foreign exchange market stable and ensure the national financial stability and economic safety, it said.

Over the past few months Chinese authorities have tightened controls on capital outflows in a bid to support the yuan and protect the country's foreign exchange reserves. And there is little sign Beijing will relax the restrictions despite the yuan's recent rebound.

Policy stimulus has stabilised the economy, but leverage and financial risks have raised concerns about the outlook, and analysts say the authorities will be keen to avoid instability ahead of a key leadership transition in the autumn.

China's non-financial outbound direct investment (ODI) nearly halved in the first half of 2017 as curbs over capital outflows took effect, commerce ministry's data showed.

The yuan has gained 3 percent against a broadly weaker dollar, following a 6.5 percent drop in 2016 - the biggest decline since 1994.

The SAFE reiterated that it will actively back legitimate overseas investments by domestic firms and support the country's "belt and road" initiative - a programme to bolster China's global leadership ambitions by building infrastructure and trade links between Asia, Africa, Europe and beyond.

It also pledged to pursue the opening of China's financial markets and capital account in a steady and orderly fashion, and create a more transparent business environment for foreign firms.

China will also safeguard and increase the value of the country's forex reserves in the second half of this year, the SAFE said.

(Reporting by Beijing Monitoring Desk and Kevin Yao; Editing by Shri Navaratnam)