China’s December FX reserves rise to US$3.14 trillion, highest since September 2016

BEIJING: China’s foreign exchange reserves rose to their highest in more than a year in December, blowing past economists’ estimates, as tight regulations and a strong yuan continued to discourage capital outflows, central bank data showed on Sunday.

Notching up their 11th straight month of gains, reserves rose US$20.2bil in December to US$3.14 trillion, the highest since September 2016 and the biggest monthly increase since July. That compares with an increase of US$10bil in November.

Economists polled by Reuters had expected reserves to rise by US$6bil to US$3.125 trillion.

Capital flight had been seen as a major risk for China at the start of 2017, but a combination of tighter capital controls and a faltering dollar helped the yuan stage a strong turnaround, bolstering confidence in the economy.

The yuan rose around 6.8% against the greenback in 2017, recovering from a 6.5% loss in 2016 and reversing three straight years of depreciation.

For the full year, China’s FX reserves rose US$129.5bil from US$3.011 trillion at the end of 2016. That’s the first annual rise since 2014.

China’s foreign exchange regulator said in a statement on its website that it would keep the nation’s forex reserves and international balance of payments ”balanced and stable” in 2018.

The country’s reserves dropped by nearly US$1 trillion from a peak of US$3.99 trillion in June 2014 to US$2.998 trillion in January 2017 as it sought to shore up the yuan and reduce potentially destabilising capital outflows.

But reserves have since climbed US$142bil.

Despite the improved capital flow picture, China’s State Administration of Foreign Exchange has continued a clampdown on the movements of funds abroad.

The regulator announced last month it would cap overseas withdrawals by people using domestic Chinese bank cards starting this year.

Some major global acquisitions by Chinese firms have also been put on ice by regulators, who fear they are really intended to disguise movements of capital offshore, though Beijing has maintained genuine investments will still be approved.

China’s central bank reported net foreign exchange buying for the third consecutive month in November, marking a policy victory for the authorities after a long battle to stabilise the yuan, although analysts say capital flows are likely to remain volatile as the economy slows.

Economists polled by Reuters expect the yuan to depreciate slightly this year if the dollar firms.— Reuters by