China’s foreign reserves posted a modest gain in the month of December, for their second consecutive month of increase.
The latest data from the State Administration of Foreign Exchange (SAFE) indicates that as of the end of December 2018 China’s foreign reserves stood at USD$3.0727 trillion yuan, for an increase of $11 billion, or 0.4%, compared to November.
“In December 2018, China’s balance of payments continued to maintain steady operation, and supply and demand on the forex market remained balanced,” said SAFE media spokesperson and chief analyst Wang Chunying (王春英).
“Foreign reserves saw a modest rebound due to the combined role of factors including a modest increase in non-US dollar currencies compared to the US dollar at the end of the year, a rise in the value of key sovereign bonds, and shifts in exchange rate conversions and asset prices.”
E Yongjian (鄂永健), chief financial analyst with the Bank of Communications financial research centre, said to Financial News that non-US dollar assets saw an increase in their value as a result of the decline of the US dollar index in December, alongside an appreciation of key currencies such as the yen and the euro.
“The sovereign bonds of key countries also saw declining yields in December and a corresponding rise in prices, and the revaluation of asset prices was also of benefit to foreign exchange growth.
“Additionally, as a result of the impact of easing Sino-US trade conditions, depreciation pressure on the renminbi in December last year markedly eased..this also gave support to foreign reserves.
Looking ahead to 2019, E said that “given overall consideration of the steady growth of the US economy yet downwards pressure, and other factors such as Fed rate hikes and little likelihood of a marked rise in the US dollar index, I expect renminbi depreciation pressure to markedly ease, cross-border capital flows to maintain overall steadiness, but Sino-US trade conditions to potentially bring considerable volatility to exchange rates and cross-border capital flows.”
Other domestic observers have said that they expect China’s foreign reserves to remain at around the $3 trillion level in 2019.