A report from China’s state-owned media cites analysts who expect foreign reserves to remain at around USD$3 trillion in 2019.
China’s foreign reserves stood at around $3.09 trillion as of the end of November, while Chinese central bank chief Yi Gang recently said that China had managed to balance foreign reserve asset risk and returns in 2018, making a major contribution to national economic and financial security.
Wang Qing (王青), chief macro-analyst with Golden Credit Rating (东方金诚), said to the state-owned Securities Daily that China’s foreign reserves remain at ample levels based on various IMF exchange measures and cross-border capital flow management models, providing strong support to the stable operation of the Chinese economy.
“What foreign reserves reflect firstly is a country’s foreign payment capability as well as a guarantee against foreign debt.
“For this reason, an appropriately ample level of foreign reserves helps to stabilise the confidence of domestic and overseas markets in China’s macro-economy and the renminbi exchange rate.”
Wang expects China’s reserves to continue to remain at the comparatively ample level of around $3 trillion in 2019.
Against the background of Sino-US trade frictions, in 2019 China’s current account is very likely to see a significant deficit, while the increased external opening of China’s financial markets will contribute to a capital account surplus.
Wang Youxin (王有鑫), a foreign exchange researcher with Bank of China, said to Securities Journal that foreign reserves serve as a key index for developed nations when assessing risk in the Chinese economy, and continued declines in foreign reserves would trigger concern from the market over the scale of China’s foreign reserves as well as its external repayment capability and the stability of the renminbi.
Wang says the bottom threshold for China’s foreign reserves under highly managed conditions is around $1.6 trillion.
Given that China’s foreign reserves are currently valued at over $3 trillion and Chinese financial institutions and households hold over $2 trillion in offshore assets, this is more than enough to deal with demand in relation to balance of payments, external debt payment and cross-border asset allocations.