February Saw China’s Foreign Reserves Decline for First Time in a Year

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Official data indicates that China’s foreign reserves reversed 12 successive months of increase in February.

Figures released by the People’s Bank of China indicate that foreign reserves stood at USD$3.13448 trillion in February, as compared to a figure of $3.1614 trillion for the preceding month, for a decline of around $27 billion.

While February broke a 12-month run of rise in China’s foreign reserves, it also marked the 13th month that levels remained about the $3 trillion threshold.

Analysts say the main reason for the decline in foreign reserves was valuation effects, with Wen Bin (温彬), chief analyst for China Minsheng Bank, telling Beijing Business Today that a 1.66% rise in the US dollar index caused non-US dollar investments to dwindle in value following conversion.

Wen also points out that yields lifted on global bond markets in February, with rates for US 10-year treasuries posting a rise of 0.16%, causing China’s fixed-income investment to shrink in value as well.

Other factors prompting a decline include the impact of the Chinese New Year in February, alongside overseas travel and a rise in forex purchases for consumption purposes, likely contributing to a modest deficit in banking forex operations.

An official with China’s State Administration of Foreign Exchange told journalists that reasons for last month’s decline include increasing volatility on international financial markets and adjustments to exchange rates and asset prices – in particular the decline of other currencies relative to the greenback.

The SAFE official nonetheless pointed out that China’s cross border capital flows and transactions were steady overall, and that supply and demand on the forex market will continue to remain fundamentally balanced.

According to the official a number of factors abet the stability of foreign exchange reserves, including China’s strong growth and efforts to advance supply side structural reforms.

“Driven by fundamentals, the bidirectional movement in the renminbi exchange rate’s will become the norm, creating beneficial conditions for medium and long-term cross-border capital flows and overall balance,” said the SAFE official.

“Additionally, we expect the global economy to continue to recover, with key central banks gradually tightening monetary policy and uncertainty on financial markets rising.

“Given the overall impact of both domestic and overseas factors, the scale of China’s foreign reserves can be expected to remain steady overall.”

 

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