Forex re­serves in­crease for the sixth con­sec­u­tive month

China Daily (Hong Kong) - - TOP NEWS - By WANG YANFEI wangyan­fei@chi­nadaily.com.cn

China’s for­eign ex­change re­serves grew for a sixth con­sec­u­tive month in July, as a stronger yuan and strength­ened over­sight over out­bound in­vest­ment helped curb cap­i­tal out­flows.

The forex re­serves rose by $3.2 bil­lion over June to $3.08 tril­lion in July.

An­a­lysts said a re­cent weak dol­lar is one ma­jor rea­son for the con­tin­ued gain of China’s forex re­serves.

The dol­lar in­dex, which mea­sures the value of the dol­lar against a bas­ket of ma­jor cur­ren­cies, has tum­bled since late June to hit 92.57 early this month, as con­cern over US Pres­i­dent Don­ald Trump’s plans for a large fis­cal stim­u­lus per­sist.

The in­dex is down by 10 per­cent com­pared with early this year. The re­cent weak­en­ing of the dol­lar has helped push up the value of non­dol­lar cur­ren­cies in China’s forex hold­ings, ac­cord­ing to Zhao Xue­qing, an an­a­lyst with Bank of China.

Apart from the val­u­a­tion ef­fect, eas­ing cap­i­tal out­flow pres­sure since the be­gin­ning of the year has helped bol­ster forex re­serves, where the gov­ern­ment’s strength­en­ing of over­sight over ir­ra­tional in­vest­ment in other coun­tries has played a role, she said.

China has en­hanced ef­forts in reg­u­la­tion of over­seas in­vest­ment since late last year, which has led to more ra­tio­nal out­bound in­vest­ment ac­tiv­i­ties, ac­cord­ing to an of­fi­cial with Na­tional Devel­op­ment and Re­form Com­mis­sion, who de­clined to be named.

The of­fi­cial said that if cap­i­tal out­flow pres­sure is ex­pected to con­tinue eas­ing, the gov­ern­ment will loosen some of its grip over out­bound in­vest­ment, while con­tin­u­ing to keep an eye on in­vest­ments in some fields.

Look­ing ahead, China’s forex re­serves are ex­pected to see a mod­er­ate in­crease, ac­cord­ing to Guan Tao, a former Ad­min­is­tra­tion of For­eign Ex­change of­fi­cial, be­cause the mar­ket has be­come more up­beat about the yuan.

The yuan rose by more than 3 per­cent against the dol­lar from Jan­uary to July, com­pared with de­pre­ci­a­tion of around 6.5 per­cent last year.

The State Ad­min­is­tra­tion of For­eign Ex­change said on Mon­day that it ex­pected cross-bor­der flows to re­main sta­ble due to the coun­try’s strong eco­nomic per­for­mance.

The econ­omy ex­panded by 6.9 per­cent in the first six months, beat­ing mar­ket ex­pec­ta­tions and lead­ing ma­jor in­ter­na­tional or­ga­ni­za­tions to raise their fore­casts for China’s growth this year.

The cen­tral bank, sup­ported by sound eco­nomic fun­da­men­tals, will have less need to sta­bi­lize the cur­rency through use of re­serves, ac­cord­ing to Liang Hong, chief econ­o­mist with China In­ter­na­tional Cap­i­tal Corp.

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