Tue, Oct 10, 2017 - Page 12 News List

China’s FX reserves increase for eighth consecutive month

Reuters, BEIJING

China’s foreign-exchange reserves rose modestly last month for an eighth straight month and by slightly more than markets had expected, as tighter regulations and a stronger yuan continued to discourage capital outflows.

A dramatic slowdown in capital flight — which had been seen as one of the biggest risks to China — has helped boost confidence in the world’s second-largest economy ahead of a key Chinese Communist Party meeting this month, at which Chinese President Xi Jinping (習近平) is expected to consolidate his grip on power.

Forex reserves rose US$17 billion last month to US$3.109 trillion, compared with an increase of US$10.5 billion in August, central bank data showed yesterday.

Economists polled by Reuters had expected reserves to rise by US$8 billion.

It was the first time that China’s reserves have climbed for eight months in a row since June 2014, and brought its stockpile — the world’s largest — to the highest since October last year.

The consistent rise has led some analysts to believe the People’s Bank of China might have become a net buyer of foreign exchange for the first time in nearly two years.

“But we believe any such purchases reflect a desire to create uncertainty over the short-run trajectory of the currency rather than resisting medium-term appreciation,” Julian Evans-Pritchard, who covers the Chinese economy at Capital Economics, wrote in a note.

China has tightened rules on moving capital outside the country since late last year, as it scrambled to support the yuan and stem a slide in its forex reserves.

Beijing burned through nearly US$320 billion of reserves last year and the yuan still fell about 6.5 percent against the surging US dollar, its biggest annual drop since 1994.

However, the yuan has seen a sharp rebound so far this year, thanks to a reversal in the greenback and a further widening of Beijing’s forex controls, including a clampdown on some overseas acquisitions by Chinese firms which some suspected were really being used to channel money offshore.

The yuan had gained 7.5 percent against the US dollar through early last month, but authorities have allowed it to backtrack a bit in recent weeks, possibly due to concerns that its rapid rise would start to hurt Chinese exports.

The US dollar’s recent resurgence has also pressured the yuan of late, though few China watchers believe Beijing will allow it to retreat much further and risk rekindling outflows.

Taken together, the regulatory measures, exchange rate forces and a stronger trade surplus may have brought China’s capital flows roughly into balance for the first time in years.

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