China forex reserves up on dollar weakness

BEIJING: China’s foreign exchange (forex) reserves rose slightly in March as broad US dollar weakness continued and escalating trade tensions between the world’s two largest economies bolstered expectations of a firmer Chinese currency.

Reserves rose US$9bil in March to US$3.143 trillion, compared with a drop of US$27bil in February, central bank data showed.

Economists polled by Reuters had expected reserves to increase by around US$6bil in March to US$3.14 trillion.

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

Last year, China’s reserves rose for the first time since 2014 and its cross-border capital flows went from net outflows to basically stable.

China’s forex regulator said in late March it expected cross-border capital flows to remain basically stable this year.

The Chinese currency rose 0.8% versus the US dollar in March and posted its biggest quarterly gain in a decade during the JanuaryMarch period.

Caitong International attributed the recent yuan strength partly to the newly launched crude oil futures in Shanghai, which the brokerage said triggered demand for the yuan from foreign investors.

In 2017, the yuan rose around 6.8% against the greenback, reversing three straight years of depreciation. The Trump administration slapped hefty tariffs on steel and aluminium imports last week and then announced 25% tariffs on some 1,300 Chinese industrial technology, transport and medical products this week in an attempt to force changes in Beijing’s intellectual property practices.

In response, China has slapped extra tariffs of up to 25% on 128 US products including frozen pork, as well as on wine and certain fruits and nuts, and said it would soon announce more measures of equal intensity and scale against US goods.

The looming spectre of a trade war between the two countries fuelled expectations that Beijing may be happy to see a stronger yuan at this stage to defuse tensions with Washington.