China Daily

Decline of currency reserves turned around by US Treasury bonds

- By CHEN JIA chenjia@chinadaily.com.cn

China’s foreign exchange reserves rose to $3.112 trillion in June, bolstered by an increase in the value of its US Treasury holdings, which ended a two-month decline, the central bank said on Monday.

Analysts said the scale of reserves will remain stable and could rise slightly in the coming months given fluctuatio­ns in global financial markets that may push up the value of the Treasury.

The reserves increased by $1.51 billion last month, or 0.05 percent, compared with a drop of $14.23 billion in May, the central bank data showed.

The State Administra­tion of Foreign Exchange, the nation’s top foreign exchange regulator, said in a statement on Monday that the slight rise in foreign exchange reserves in June was mainly because of “comprehens­ive factors”, including depreciati­on of other currencies against the US dollar and asset price changes. It did not provide details.

“The Chinese foreign exchange market generally remained stable and the country basically achieved a balance of payments equilibriu­m,” the administra­tion said.

“US Treasury yields were down in June, so valuation factors were conducive to an increase in foreign reserves,” E Yongjian, chief financial analyst at Bank of Communicat­ions, said in a research note.

Although emerging markets are facing pressure from capital outflows and currency depreciati­on as Sino-US trade friction has escalated, sound and stable economic fundamenta­ls in China have helped stabilize market expectatio­ns and cross-border capital flows remained stable, according to the SAFE statement.

“Generally, market sentiment and cross-border capital flows were stable, despite some vulnerabil­ities in global capital markets,” E said.

The possibilit­y of largescale capital outflows or any sharp depreciati­on of the yuan is slim in the near future given the stable condition of the Chinese economy, E added.

Wen Bin, a researcher at China Minsheng Bank, said the nation’s foreign exchange reserves might continue to increase slightly in the coming months as US Treasury prices may continue to rise given that more uncertaint­ies could emerge in global financial markets.

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