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Wan LixinOpinion deputy editor of Shanghai Daily
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Forex reserves fall to lowest since 2011
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CHINA’S foreign exchange reserves fell to the lowest since 2011 in August as the central bank intervened to support the yuan as it weakened to near-six year lows.
While the US$15.89 billion drop was in line with market expectations and was described by analysts as modest, it was the biggest fall since May and could signal fresh capital outflows from the economy as it starts to show signs of steadying.
China’s reserves fell to US$3.185 trillion in August — the lowest since December 2011 — from US$3.20 trillion at the end of July, central bank data showed yesterday.
China’s reserves, the largest in the world, fell by a record US$513 billion last year after Beijing devalued the yuan, sparking a flood of capital outflows that alarmed global financial markets.
But declines have slowed sharply in recent months as authorities tightened capital controls and cracked down on forex trading which is suspected to be speculation.
Traders believe the central bank has stepped in via state-run banks since mid-July to slow the pace of depreciation in the yuan, which has weakened 2.6 percent against the US dollar so far this year.
Analysts expect pressure on the yuan and reserves to continue as expectations of another US Federal Reserve interest rate hike this year support the dollar.
“With a Fed rate hike likely before the end of the year, the authorities will have their hands full with containing any wild spikes in USDCNY triggered by capital outflows, and can expect FX reserves to remain on a downward path through to the end of the year,” said Chester Liaw, an economist at Forecast Pte Ltd in Singapore.
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