China forex reserves fell almost $150 billion in January: Bloomberg

The People's Bank of China has been selling dollars to buy yuan to prevent the currency from depreciating any further.
The People's Bank of China has been selling dollars to buy yuan to prevent the currency from depreciating any further.PHOTO: REUTERS

BEIJING (AFP) - China's foreign exchange reserves have fallen to their lowest level since 2012, reports said on Sunday, as Beijing sells dollars to prevent the yuan from depreciating further.

The world's largest currency hoard shrank by US$99.5 billion (S$140.2 billion) in January to some US$3.2 trillion, Bloomberg News cited the People's Bank of China as saying.

Worries about China's economy have pushed the yuan to a five-year low, with foreign exchange reserves seeing their first-ever annual decline last year as Beijing tried to prevent a more drastic devaluation.

The PBoC is selling dollars to buy yuan amid a capital flight spurred by the slowing growth in the world's second-largest economy.

But some analysts predict a more drastic weakening of the yuan this year and question China's ability to continue rapidly shedding the reserves.

"While the remaining reserves represent a substantial war chest, the rapid pace of depletion in recent months is simply unsustainable," IHS Global Insight economist Rajiv Biswas told Bloomberg.

Outflows increased "as expectations mount that the PBoC will eventually be forced to capitulate once its reserves are sufficiently depleted", he added.

Mr George Magnus, economic commentator and associate at Oxford University's China Centre, wrote on Twitter: "China's fx reserves fell another (US)$100bn... clearly this can't go on for long."

The pace of decline in the reserves in January was slower than December, which at some US$108 billion was the largest monthly drop on record.

China has also tightened some capital controls to try to curb outflows.

"The smaller decline in the reserves suggests that some capital outflow restrictions imposed in January worked," Mr Shen Jianguang, chief Asia economist at Mizuho Securities, wrote in a note.

The drop in February will be much smaller, he added.

China has set its growth target for this year at between 6.5-7 per cent, the top economic planner said on Wednesday, an acknowledgement that expansion - already at its slowest pace in 25 years - will continue to weaken.

Global investors are closely watching the slowdown in China, which has created turbulence in world markets.