Caixin
Mar 07, 2017 07:04 PM
ECONOMY

China’s Forex Reserves Post First Rise in Eight Months in Feb.

(Beijing) — China’s foreign exchange reserves, the world’s largest, increased for the first time in eight months in February swinging back to above the $3.0 trillion psychological “comfort level,” official data showed Tuesday.

The country’s stockpile of foreign currency rose to $3.0051 trillion last month from $2.9982 in January, snapping a steady decline since last July, data published by the People’s Bank of China (PBOC) showed.

The gain in February’s foreign exchange reserves showed that cross-border capital flows were “balanced overall,” the State Administration of Foreign Exchange (SAFE) said in a statement on its website after the figures were released.

“Looking forward, pressures on capital outflows will ease with the strengthening growth momentum of the Chinese economy,” it said.

China’s growth recorded a better-than-expected rate of 6.8% in the last three months of 2016, picking up from a 6.7% gain in the preceding nine months. Official data this year also seemingly pointed to sustaining traction.

But many analysts have also voiced concern that growth may lose steam later in 2017 due to possible corrections in the overheated property market, sluggish private investment and limited government financial resources to boost infrastructure investment.

SAFE also warned that uncertainties in the international financial market remained, and that the size of China’s foreign exchange reserves may “gradually stabilize amid volatilities.”

U.S. Federal Reserve Chair Janet Yellen signaled last week that the agency was set to raise interest rates this month and may lift them further later this year, which is likely to add downside pressures on the yuan’s value.

The strengthening of the dollar and previous pessimism about China’s growth have sparked a wave of money outflows for the past year and a half. The country’s capital account starting logging a deficit from the second half of 2014 and the yuan weakening by around 6.5% in 2016, which in turn, fuelled the surge in capital flight.

Authorities have taken a series of measures to curb the trend, including scaling back the country’s holdings of U.S. Treasury bonds to bolster the yuan’s value, which was accompanied by a decline in China’s foreign exchange reserves.

They have also stepped up restrictions on domestic company investments overseas since late last year. At the start of this year, the PBOC sharply raised the cost of borrowing yuan in the offshore market in order to clamp down on short selling of the Chinese currency.

Chinese banks have been required to enhance scrutiny of individuals’ requests for foreign currency, which has provoked complaints over the inconvenience of answering multiple questions about where and how money will be spent, the protracted time to get cash, and even the rejection of applications.

In its latest tightening move, the central bank has announced that the threshold amount of foreign currency transactions banks must report on to prevent money laundering and other crimes will be lowered to 50,000 yuan ($7,261) from 200,000 yuan from July 1.

Contact reporter Fran Wang (fangwang@caixin.com)

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