For­eign ex­change re­serves ‘ad­e­quate’

Re­duc­tion of US Trea­suries ‘not strate­gic’, says of­fi­cial; con­fi­dence in keep­ing yuan sta­ble cited

China Daily (Hong Kong) - - FRONT PAGE - By XIN ZHIMING xinzhim­ing@chi­nadaily.com.cn

China’s for­eign ex­change re­serves, which have dropped to about $3 tril­lion from a peak of nearly $4 tril­lion two years ago, are cur­rently ad­e­quate, said a State Ad­min­is­tra­tion of For­eign Ex­change of­fi­cial on Thurs­day.

China’s re­duc­tion of US Trea­sury se­cu­ri­ties hold­ings, mean­while, is not a strate­gic move, since US Trea­sury se­cu­ri­ties are the most im­por­tant in­vest­ment port­fo­lio in the in­ter­na­tional mar­ket, said the of­fi­cial, who de­clined to be named.

The of­fi­cial said that “$3 tril­lion is, at least seen from the cur­rent sit­u­a­tion, ad­e­quate”.

In the fu­ture, China’s scale of for­eign ex­change re­serves might fluc­tu­ate around cer­tain lev­els, given un­cer­tain­ties caused by chang­ing do­mes­tic and in­ter­na­tional eco­nomic sit­u­a­tions, which is nor­mal, she said. The ad­min­is­tra­tion will pru­dently use its ex­per­tise to man­age the money, the of­fi­cial added.

China’s hold­ings of US debt fell to $1.12 tril­lion at the end of Oc­to­ber, the low­est level in over six years, ac­cord­ing to US Trea­sury Depart­ment data.

China un­loaded a to­tal of $41.3 bil­lion in Trea­sury se­cu­ri­ties in Oc­to­ber, and Ja­pan re­placed it to be­come the largest holder of US debt, trig­ger­ing mar­ket spec­u­la­tion that China is dump­ing its dol­lar as­sets.

“The cut­ting is not strate­gic,” the of­fi­cial said. “All coun­tries take the US Trea­sury se­cu­ri­ties as an im­por­tant tar­get for their for­eign ex­change re­serve in­vest­ment, and China is no ex­cep­tion.”

“In in­vest­ing in US Trea­suries, we take into con­sid­er­a­tion a pack­age of fac­tors, such as the in­ter­est rate hike by the US Fed­eral Re­serve and the changes in yields, and based on that, we make dy­namic ad­just­ment to our hold­ings,” she said. “Such an ad­just­ment should not be in­ter­preted as a strate­gic move.”

Also on Thurs­day, Ma Jun, chief econ­o­mist of China’s cen­tral bank, said China is con­fi­dent of keep­ing the yuan “ba­si­cally sta­ble at a rea­son­able equi­lib­rium level”, de­spite the fast de­pre­ci­a­tion of the cur­rency against the dol­lar since Novem­ber.

The yuan’s cen­tral par­ity rate was 6.94 against the US dol­lar on Thurs­day. It was about 6.77 in early Novem­ber.

The de­pre­ci­a­tion is mainly caused by the strength­en­ing of the US dol­lar, said Ma. The mar­ket has ex­pected US pres­i­dent-elect Don­ald Trump to launch in­fra­struc­ture in­vest­ment pro­grams, which would lead to fis­cal stim­u­lus and ris­ing in­fla­tion, ul­ti­mately caus­ing more in­ter­est rate hikes and dol­lar strength­en­ing.

How­ever, Ma said such ex­pec­ta­tions may be “too op­ti­mistic”.

“The dol­lar in­dex may en­counter cor­rec­tion, and once that hap­pened, other cur­ren­cies would rise against the dol­lar.”

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