(For other news from the Reuters China Investment Summit, click on http://www.reuters.com/summit/ChinaInvestmentSummit09)
* Expects capital inflows to continue as economy recovers
* Drafting rules on QFII quota management
* Working with other ministries to boost outbound investment
(Adds quotes, background)
By Shen Yan and Simon Rabinovitch
BEIJING, Sept 1 (Reuters) - Capital will steadily flow into China in the coming months as the world's third-largest economy regains steam, an official with the State Administration of Foreign Exchange (SAFE) said on Tuesday. Liu Bin, an official in the capital account management department of SAFE, also said his agency was drafting rules that may allow foreign investors to transfer investment quotas under the Qualified Foreign Institutional Investor (QFII) scheme.
Foreign investors would be able to shift their unused quotas, which are obtained from SAFE to buy securities in China, to other qualified foreign investors under the proposed regulation.
He declined to provide a timetable for the new rules.
Capital inflows were "normal" so far this year and earlier concerns about a possible exodus of capital from China because of the financial crisis had proved unfounded, he told the Reuters China Investment Summit.
"Economic data so far have shown that China has had a fast economic recovery. With such fundamental support, there will continue to be a net capital inflow as long as there are no drastic changes," Liu said.
He said "hot money" was a vague term that lacked statistical meaning for SAFE, but Liu added that the agency kept an eye on short-term and speculative capital flows to prevent any swings in domestic financial markets.
"Our markets, including the capabilities of market players, are not mature enough yet to handle intensive capital inflows or outflows," he said.
SAFE said on Monday that it would strive to avoid either massive money inflows or outflows in the coming months [ID:nPEK6195].
Liu said SAFE was also trying to broaden channels for domestic residents to invest overseas, but he declined to elaborate as its actions would depend on decisions made by other government bodies.
"The direction is very clear. We will broaden outbound investment channels for residents," he said. "But the detailed ways to do that cannot be decided by SAFE alone." In August 2007, SAFE announced that it would launch a programme allowing local residents to buy Hong Kong shares directly, but the scheme has since been delayed indefinitely.
Chinese are able to make portfolio investments abroad only through a tightly controlled allocation of Qualified Domestic Institutional Investor quotas.
NOT SO SIMPLE
As for the yuan's exchange rate, Liu said capital inflows would
theoretically put the Chinese currency
"If inflows are greater than outflows, then foreign exchange is in over-supply, creating pressure on the yuan to appreciate. It is very simple logic," Liu said.
"However, it is not so simple as that, with the yuan rising if capital flows in. That is a fully free-market scenario. The real situation is much more complicated."
China keeps a tight grip on its currency, managing it within a narrow band of a yuan/dollar exchange rate set by the central bank on a daily basis.
The yuan has been virtually pegged to the U.S. currency for more than a year as Beijing has aimed for stability in the exchange rate to help counter the turmoil of the global financial crisis. (Reporting by Zhou Xin and Simon Rabinovitch; Editing by Alan Wheatley)