China's foreign reserves drop by record amid yuan support

An employee counts 100-yean banknotes at a bank in Lianyungang, China.
An employee counts 100-yean banknotes at a bank in Lianyungang, China.PHOTO: AFP

BEIJING (BLOOMBERG) - China's foreign-exchange reserves declined by a record US$108 billion (S$154.7 billion) to a three-year low in December as the central bank sold dollars to prop up the yuan.

The currency hoard shrank to US$3.33 trillion at the end of December, from US$3.44 trillion a month earlier, the People's Bank of China said in a statement Thursday.

The median forecast of economists surveyed by Bloomberg was for a drop to US$3.42 trillion. The reserves fell by more than a half a trillion dollars in 2015, the first-ever annual decline.

Policy makers fighting to hold up the weakening currency amid slower growth and plunging stocks have been burning through the stockpile to reduce yuan volatility. The yuan sank to a five-year low on Thursday as the PBOC set its reference rate at an unexpectedly weak level, a signal that it's more tolerant of depreciation as growth slows.

The weakening of the fixing contributed to a selloff in stocks that led exchanges to close early on Monday and Thursday after the retreat triggered new circuit-breaker mechanisms. China's CSI 300 Index plunged 7.2 per cent Thursday.

The world's second-largest economy expanded 6.9 per cent last year, the slowest pace since 1990, according to the median forecast of economists surveyed by Bloomberg. The government will release the fourth-quarter gross domestic product report on Jan. 19.