China Forex Reserves Fall Below $3 Trillion for First Time in Nearly 6 Yrs
Beijing: China’s foreign exchange reserves unexpectedly fell below the closely watched $ 3 trillion level in January for the first time in nearly six years, though tighter regulatory controls appeared to making some progress in slowing capital outflows.
China has taken a raft of steps in recent months to make it harder to move money out of the country and to reassert a grip on its faltering currency, even as US President Donald Trump steps up accusations that Beijingiskeepingtheyuantoocheap.
Reser ves fel l $ 1 2 . 3 bi l lion i n January to $2.998 trillion, more than the $10.5 billion that economists polled by Reuters had expected.
While the $ 3 trillion mark is not seen as a firm “line in the sand” for Beijing, concerns are swirling over the speed at which the country is depleting its ammunition, sowing doubts over how much longer authorities can afford to defend both the currency and its reserves. Some analysts fear a heavy and sustained drain on reserves could prompt Beijing to devalue the yuan as it did in 2015, which could throw global financial markets into turmoil and stoke political tensions with the new US administration.
While Beijing quickly downplayed the fall below the $ 3 trillion level, the breach could bolster China’s argument that it not deliberately devaluing its currency, ahead of the US Treasury’s semi-annual report in April on currency manipulators.
To be sure, the January decline was much smaller than the $41 billion reported in December, and was the smallest in seven months, indicating China’s renewed crackdown on outflows appears to be working, at least for now. Economists expect more forceful policing of existing regulatory controls after the latest slide, though China’s financial system is notoriously porous, with speculators quickly able to find new channels to get funds out of the country.
While the world’s second-largest economy still has the largest stash of forex reserves by far, it has burned through over half a trillion dollars since August 2015, when it stunned global investors by devaluing the yuan.