China FX reserves rebound above US$3 trillion in Feb, first rise in eight months

BEIJING: China’s foreign exchange reserves unexpectedly rose for the first time in eight months in February, rebounding above US$3 trillion as a regulatory crackdown and a steadying yuan helped staunch capital outflows.

The rebound in reserves could ease fears in global markets that China will engineer another sharp one-off devaluation of the yuan, which would run the risk of inflaming trade tensions with the new US administration under President Donald Trump.

Reserves rose US$6.92 billion during February to total US$3.005 trillion, their first increase since June 2016, central bank data showed. That compared with a drop of US$12.3 billion in January, when reserves fell to US$2.998 trillion.

Economists polled by Reuters had expected forex reserves to drop by US$25 billion in February.

Capital Economics said last month’s rise suggests China’s central bank “purchased foreign exchange in February and that capital outflows stalled”.

But the consultancy added that the picture “is murkier than usual around Chinese New Year, when port and bank closures disrupt both trade and financial flows”.

China’s markets closed for a week for the Lunar New Year holiday, which began at the end of January.

The State Administration of Foreign Exchange, the foreign exchange regulator, said in a statement that China’s foreign exchange reserves are likely to stabilise gradually as pressures on capital outflows ease.

The dollar gained against non- dollar currencies on the international market in February, but prices of assets in which China had invested its foreign exchange reserves increased, the SAFE said.

“Obviously, the sentiment has improved in the Chinese renminbi (yuan) more recently,” said Andy Ji, Asian currency strategist at Commonwealth Bank of Australia in Singapore.

“But the increase didn’t necessarily reflect capital inflows.”

Firms, after snapping up dollars in past months, are selling them back to the central bank given more stringent capital restrictions and higher yuan interest rates, Ji said.

China has tightened rules on moving capital outside the country in recent months as it seeks to support the yuan currency and stem a slide in reserves. — Reuters