China economy

China’s foreign exchange reserves dip on US dollar rebound

But Beijing seems less concerned about capital flight – in sharp contrast to a year ago

PUBLISHED : Monday, 07 May, 2018, 5:39pm
UPDATED : Monday, 07 May, 2018, 11:07pm

China’s foreign exchange reserves in April fell more than expected, to a five-month low, as the US dollar rebounded and on growing signs that Chinese regulators are less worried about capital flight.

Reserves fell US$17.97 billion in April to US$3.125 trillion – the lowest since November, compared with a rise of US$8.34 billion in March, central bank data showed on Monday.

Economists polled by Reuters had forecast reserves would drop around US$10 billion in April to US$3.133 trillion, with a stronger US dollar versus other currencies expected to depress the value of China’s dollar-denominated reserves.

The dollar index against other major currencies rose 2 per cent last month.

China’s forex reserves are up – and so are fears of a US trade war hit 

Capital flight was seen as a major risk for China at the start of last year, but a combination of tighter capital controls and a faltering dollar helped the yuan stage a strong turnaround, bolstering confidence in the economy.

Last year, China’s reserves rose for the first time since 2014 and its cross-border capital flows went from net outflows to basically stable.

The escalating trade dispute between China and the United States could hurt exporters on both sides and weigh on their economic growth, while adding to volatility in global financial markets.

But China’s foreign exchange regulator said last month that any potential impact on its cross-border capital flows stemming from Sino-US trade frictions could be controlled.

The yuan has lost around 1 per cent against the resurgent greenback in April, but it is still up around 2.5 per cent so far this year.

‘A yuan should be a yuan’, deputy head of China’s foreign exchange regulator says

Indeed, in recent weeks, Chinese authorities have announced a series of moves which suggest they are less worried about capital outflows, including allowing local investors to put more money into global financial markets.

At the same time, China has moved to give foreign investors more access to its equity, bond and commodity futures markets, which will help support the yuan and offer greater balance to cross-border flows.

The value of China’s gold reserves fell to US$77.788 billion at the end of April, from US$78.419 billion at the end of March.