Forex reserves rise amid stabilizing economy

China’s foreign exchange stockpile expanded for the fourth month in a row in May, after capital flight pressure eased and the value of the renminbi strengthened.

Forex reserves stood at $3.05 trillion at the end of May, an increase of $24 billion from the figure recorded at the end of April, the State Administration of Foreign Exchange said.

SAFE attributed the continuous rise of forex reserves to stable cross-border capital flows and appreciation of non-dollar assets following a weaker dollar.

A rapid fall of the reserves and a weaker yuan against the dollar since mid-2015 had raised concerns about the vulnerability of China’s financial system.

As China’s economy stands on a firmer footing and the government moves to stem illegal capital flight, the stockpile began to increase steadily in February.

Non-dollar reserve assets strengthened as the dollar index, which measures the greenback against six major peers, declined around 4.1 percent by the end of May from its April reading. billion

SAFE also released figures on the country’s gold reserves, which amounted to $75 billion by the end of May, almost on par with a month earlier.

It sees a stable outlook for foreign exchange reserves on the back of a stable economy with rich potential and resilience and the emergence of new growth drivers.

With the country opening its financial markets wider to the outside world, cross-border capital flows will have a firmer base for stable and balanced activities, it added.

China International Capital Corp forecast in a research note that China’s forex reserve levels may gain further in the near term, as the outflows have become visibly more muted in 2017.

“On the other hand, we expect economic fundamentals in China to remain solid, although the near-term growth may experience a ‘soft-patch’ due to ongoing liquidity tightening and financial deleveraging,” the CIC research note said.

“We do not expect a prolonged period of growth slowdown and deflation following the regulatory house-cleaning. Even looking beyond the recent spike in the renminbidollar exchange rate, we see the renminbi exchange rate to be well supported by the economic fundamentals,” it added.

amount of increase in China’s foreign exchange reserve in May