Forex reserves decline by 2.2% in November
Govt moves to rein in risks associated with overseas investments in hotels, real estate
The recent strengthening of the US dollar played a key role in the drop in China’s dollar-dominated forex reserves last month, but capital outflow pressure will not persist for long because market speculation is expected to wane after the US Federal Reserve makes its interest rate decision, said analysts.
Official data on Wednesday showed that the foreign exchange reserves fell by $69.1 billion to $3.05 trillion in November.
The monthly dollar-dominated reserve drop came amid a strong US dollar rally, with a potential interest rate hike in the United States expected to come in the near future, according to Yan Ling, an economist with China Merchants Securities Co.
The yuan depreciated by 1.7 percent against the greenback in November, during which the trading volume in the foreign exchange market increased for the third consecutive month, up by 9.3 percent month-on-month.
“But the decline in forex reserves is expected to slow in December when the market is expected to calm down after the US decision to raise its interest rate or not,” said Yan.
A string of measures on strengthened supervision for outbound investment rolled out by the central authorities aroused concerns over the government’s strong intention to curb capital outflows.
Four top regulatory bodies decided to tighten screening of overseas investment projects earlier this month. The National Development and Reform Commission and three other financial regulators on Tuesday said that China will rein in risks in outbound investment, targeting speculative behavior trying to move money out of China.
Four fields of investment will be strictly monitored, including real estate and hotels, according to a Xinhua News Agency report.
Ivan Chuang, vice-president of Moody’s Investors Service Inc’s Asia-Pacific Regional Management Group, regarded stricter supervision as a necessary move as the nation steps up the opening of its economy.
Chuang said that he did not see the necessity for the government to control only outflows without regulating inflows.
“The government should be more willing to see balanced capital flows,” he said.
“Although investors’ appetites do become uncertain as weaker yuan leads them to diversify their assets, it is understandable to see the government tightening control to fend off risks in outbound investment,” he added.