China Jan FX reserves fall below US$3 trln for first time in nearly 6 years

BEIJING: China’s foreign exchange reserves unexpectedly fell below the closely watched US$ 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 Beijing is keeping the yuan too cheap.

Reserves fell US$ 12.3 billion in January to US$ 2.998 trillion, more than the US$10.5 billion that economists polled by Reuters had expected. While the US$ 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 US$ 3 trillion level, the breach could bolster China’s argument that it not deliberately devaluing its currency, ahead of the US Treasury’s semiannual report in April on currency manipulators. — Reuters