China’s forex reserves up surprisingly to US$3 trillion as curbs on capital outflows bite

Forex reserves in China rise for the first time since June 2016

PUBLISHED : Tuesday, 07 March, 2017, 4:42pm
UPDATED : Wednesday, 08 March, 2017, 6:25am

China’s foreign exchange reserves unexpectedly rose last month back above US$3 trillion, marking the first accumulation since June as Beijing’s efforts to curb capital outflows began to show an effect.

The reserves were at US$3.005 trillion at the end of February, a modest rise of US$6.9 billion from US$2.998 trillion at the end of January, according to data released by the central bank yesterday.

Most analysts had expected a fall of up to US$20 billion in the reserves for last month.

The rise could shore up confidence in the yuan and offer ­Beijing more leverage in pushing up the value of the currency against the US dollar.

China has depleted about US$1 trillion in its foreign exchange reserves since June 2014 to prevent a quick depreciation of the Chinese currency.

In the annual government work report delivered to the National People’s Congress on Sunday, Chinese Premier Li Keqiang changed the country’s long-standing rhetoric on its yuan policy, signalling Beijing could alter course on exchange rates this year under pressure from US Federal Reserve rate rises and US President Donald Trump’s threats of a trade war.

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For the first time, Beijing included a requirement to ensure the stable global status of the yuan as one of its major tasks, dropping the line “keeping a stable yuan at a reasonable and balanced level” that has been included in the past three work reports.

The stabilisation in reserves came after Beijing rolled out measures restricting capital outflows.

Joerg Wuttke, chairman of the European Union Chamber of Commerce in China, complained about those measures on Tuesday, saying that Beijing’s controls on overseas funds transfers caused “collateral damage” to foreign businesses.

“Headquarters asked us what China is going to do if it has only US$2 trillion in foreign exchange reserves, or maybe only 3 per cent economic growth,” Wuttke said.

“Are we going to have our cash trapped in China?”

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The State Administration of Foreign Exchange said in a statement that its reserves grew in February because of “relatively balanced cross-border flows”.

“As China’s economic momentum continues to strengthen, outflow pressure will be somewhat relieved,” the statement said.

“But uncertainties in global financial markets remain great, and the scale of foreign exchange reserves may gradually tend to stabilise amid fluctuations.”