CHINA'S soaring trade deficit and central bank intervention in the country's swap markets has significantly depleted foreign exchange reserves.
Reserves have fallen by US$520 million since the end of last year, to stand at $18.8 billion at the end of June, the official China Daily reported yesterday.
The reserves slide follows a 10.5 per cent drop last year and economists have warned that if the trend continues China's foreign currency holdings could fall to dangerously low levels within the next few years.
The mainland's foreign debt stood at $69.3 billion at the end of last year, and while the debt service ratio is still within internationally accepted limits, economists said it was edging towards to the danger zone.
''The current level of reserves is acceptable but if the trade deficit continues to grow at the rate it has been then there will definitely be problems in two or three years,'' a Western financial analyst in Beijing said yesterday.
A Bank of China official said privately that the continuing fall-off in reserves was a cause for concern in senior government circles.
''There is a determination now to really boost exports so that all debt repayments can be met,'' he said. ''China does not want to go the same way as Latin America.'' But despite intense efforts by the Government to rein in the deficit, there is little evidence so far to suggest they have been successful.