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January 9, 2017

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Forex reserves drop US$320b last year

CHINA’S foreign exchange reserves fell to near six-year lows in December, but held just above the critical US$3 trillion level.

China’s reserves shrank by US$41 billion in December, slightly less than feared but the sixth straight month of declines, data showed on Saturday, after a week in which Beijing moved aggressively to punish those betting against the yuan and make it harder for money to get out of the country.

Analysts had forecast a drop of US$51 billion.

For the year as a whole, China’s reserves fell nearly US$320 billion to US$3.011 trillion, on top of a record drop of US$513 billion in 2015.

China’s vast foreign exchange reserves, the largest in the world, slipped to US$3.011 trillion at the end of December, the State Administration of Foreign Exchange said on its website.

Reserves had slipped by US$46 billion in October and nearly US$70 billion in November, falling to levels last seen more than five years ago.

The central bank’s efforts to stabilize the yuan is the major reason for China’s falling foreign exchange reserve, the forex watchdog said Saturday.

The People’s Bank of China’s forex market operations, price fluctuations of the forex reserve’s investment assets and exchange rate against the dollar have influenced China’s forex reserves, according to a statement released by SAFE.

The yuan is now trading at its lowest level in eight years against the dollar after dropping about 7 percent in the space of a year, as China sells greenbacks to support its currency.

At the same time, a persistently sluggish domestic economy is encouraging a flight of funds in search of more remunerative investments abroad.

Aware of the danger, China has tightened its measures to stop the outflow of capital, in particular by restricting many investments abroad considered doubtful.

SAFE said in late December that net cross-border capital outflows were expected to narrow in the fourth quarter in 2016, while the PBOC said last week that it would push reforms of the yuan regime, while keeping the currency basically stable in 2017.


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