China’s foreign exchange reserves fall more than expected to US$3 trillion

China’s foreign exchange reserves fell more than expected in September to a 14-month low as the yuan weakened further against the dollar amid mounting trade tension with the United States.

Reserves fell US$22.69 billion in September to US$3.09 trillion, the biggest drop since February, compared with a decline of US$8.23 billion in August, central bank data showed on Sunday.

Economists polled by Reuters had expected reserves to drop by US$5 billion to US$3.1 trillion.

The yuan fell for the sixth straight month in September as the dollar remained buoyant, suggesting Beijing may be in no rush to intervene because a weaker currency would support its exporters amid the escalating trade war with the US.

The United States and China imposed fresh tariffs on each other’s goods last month.

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Foreign exchange rate fluctuations and asset price changes contributed to the decline in reserves, China’s foreign exchange regulator said in a statement.

“Although we face relatively large external uncertainties, the Chinese economy has the ability to accommodate and fend off external risks,” the statement said.

The scale of China’s foreign exchange reserve was expected to remain stable despite fluctuations, it said.

A continuous fall in reserves would test the Chinese authorities’ resolve to defend the currency.

China’s central bank shrugged off an interest-rate increase by the US Federal Reserve last month, piling even more pressure on the yuan. The yuan fell about 0.6 per cent against the dollar in September.

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When raising rates for a third time this year on September 26, the Fed forecast another rate hike in December, three more next year and one in 2020.

Despite the yuan’s steady depreciation in recent months, there have been few signs so far of a spike in capital outflows like those seen a few years ago after a surprise devaluation by the People’s Bank of China.

Beijing has put tight capital controls in place to prevent capital flights.

The value of China’s gold reserves fell to US$70.33 billion at the end of September, from US$71.23 billion at the end of August.