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February 8, 2017

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Ample forex reserves despite drop

CHINA still has ample foreign exchange reserves despite a decline in January for the seventh month to below US$3 trillion for the first time since February 2011, the State Administration of Foreign Exchange said yesterday.

China’s forex reserves fell US$12.3 billion from December to US$2.998 trillion last month, below the US$3 trillion psychological level that the country has stayed above for nearly six years. The figure also missed hopes for marginally over US$3 trillion according to Reuters and Bloomberg News polls.

The SAFE attributed the decline mainly to the People’s Bank of China’s foreign exchange injection to meet market demand.

Demand for foreign currencies usually rises before the Chinese New Year as residents travel overseas during the holiday, SAFE said in a statement.

The monthly decline of forex reserves was narrower than December’s US$41.1 billion fall and the US$99.5 billion drop in January last year.

The SAFE said the slower decline indicated an easing in capital outflow pressure.

The US$3 trillion safety mark was dismissed by the SAFE, describing the stockpile as “abundant.”

“Fluctuations in the size of foreign exchange reserves are normal,” the statement said. “There is no need to pay excessive attention to a certain numeral mark.”

The SAFE predicted capital would flow in a balanced manner across the border in the near future.

It said that China’s forex reserves, still the world’s largest, are ample and that the country’s relatively fast economic growth, continued trade surplus, sound fiscal conditions and stable financial system will support the yuan as a strong currency.

In January, the yuan firmed 1.3 percent against the US dollar, according to the central parity rate published by the PBOC.

While fluctuations will continue, the yuan will be basically stable as the economy improves, the financial market opens up and current monetary policy remains in place, according to the China Foreign Exchange Trade System website yesterday.

Traditionally, a country’s forex reserves should cover at least three months of imports and all of its short-term foreign debts, SAFE spokeswoman Wang Chunying said last month.

For China, paying for three months of imports requires about US$400 billion if paid in foreign currencies. Meanwhile, short-term external debts stand between US$800 and US$900 billion, Wang said.

Last year, the country’s forex reserves shrank US$319.84 billion from a year earlier, US$192.81 billion less than the annual drop in 2015.


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