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January 20, 2017

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SAFE: China’s forex reserves still sufficient

CHINA still has ample foreign exchange reserves despite continued declines, and fluctuations in the reserves are normal, the State Administration of Foreign Exchange said yesterday.

The forex reserves are strong enough to cover China’s import bills and external debts, and are able to safeguard the country’s economic and financial security, said SAFE spokeswoman Wang Chunying.

China’s forex reserves fell for the sixth straight month to US$3.01 trillion last month, US$41.08 billion lower from the November level, according to the central bank. For the whole of 2016, forex reserves shed US$319.84 billion.

The continued drop has stoked market concerns as the forex reserves have approached the US$3 trillion psychological mark, a level that China has stayed above for nearly six years.

But Wang said there is no need to “create excessive hype over a certain number.”

“It is normal to see upward or downward fluctuations in any financial indicator,” she said.

Wang explained that although there is no unified standard for forex reserve levels, traditionally, a country’s forex reserves should cover at least three months of imports and all of its short-term foreign debts.

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.

Forex reserves dropped in December as the central bank used them to balance the forex market and non-greenback currencies weakened against the US dollar, SAFE said in a previous statement.

Wang also mentioned that the domestic private sector’s growing appetite for foreign assets is part of the reason for the reserves’ decline. Despite recent drops, China is still home to the world’s largest forex reserves and enjoys forex inflows from its trade surplus and foreign direct investment.

Wang said China’s forex reserves are set to fluctuate within a reasonable range in the future, given the uncertain trend in the US dollar and China’s medium-high level of economic growth.


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