Chinese forex reserves rebound

SAFE attributes rise to stable domestic market, strong dollar

China’s foreign exchange reserves stood at $3.11 trillion at the end of June, up 0.05 percent from May, official data showed on Monday.

The amount, beating market forecasts of $3.10 trillion, came after two months of declines, according to the People’s Bank of China (PBC), the country’s central bank.

The State Administration of Foreign Exchange (SAFE) attributed the rise in June to a stable forex market at home, dollar strength and fluctuating asset prices.

Analysts pointed to the performance of US bonds in June, which are believed to make up a major part of China’s reserves.

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

Fears about a global trade war were among the factors in June that drove investment flows into safe haven assets, such as US government bonds.

China is the largest holder of US government debt. Its holdings fell to $1.18 trillion in April from $1.19 trillion in May, data from the US Treasury Department showed. China also invests its reserves in other US instruments as well as sovereign debt of other countries.

“The impact of a strengthening US dollar on foreign exchange reserves in June was not as big as in May,” said Wen Bin, chief analyst at China Minsheng Bank.

The economy has been stable this year with a good growth momentum. Sound economic fundamentals have stabilized market expectations and crossborder capital flows, the SAFE said on its website.

The forex regulator said that as the country pursues supplyside structural reform, innovation-driven development as well as reform and opening-up, its potential for stable economic growth can ensure stability in the forex market.

SAFE warned of external uncertainties, especially those originating in the US, but expects forex reserves to generally stay stable.

According to the PBC, gold reserves were unchanged in June at 59.24 million ounces, equivalent to $74 billion.