UpdateChina's foreign exchange reserve falls for 5th consecutive month on PBOC intervention to prop up yuan

China’s foreign exchange reserve fell for the fifth month in a row, and analysts expect the trend to continue in the months ahead as capital outflows persist.

The foreign exchange reserve fell by US$43.3 billion in September to US$3.51 trillion, according to the People’s Bank of China data released on Wednesday. Gold reserves fell US$606 million to US$61.2 billion during the one-month period.

“It will continue to fall for the next few months, because there is still downward pressure on the renminbi and capital outflows will continue,” said Julian Evans-Pritchard, China Economist at Capital Economics, who correctly predicted the reserve figure’s decline.

China’s foreign exchange reserve has been on steady downward glide since reaching nearly US$4 trillion in June last year. In the first nine months, the total drop amounted to US$299 billion, or 7.8 per cent, from the January level.

In August, the PBOC reported reserve assets declined US$93.9 billion, the biggest monthly fall in history, stoking concerns over capital flight and a hard-landing of the economy.

One of the main drivers of funds leaving the world’s second-largest economy, according to Evans-Pritchard, is the behaviour of Chinese corporates. “They are anticipating domestic [interest] rates to continue to fall and offshore rates are going to rise once the Fed starts to raise rates.”