China's foreign exchange reserves plunge by $122b

BEIJING • China's foreign exchange reserves, the world's largest, fell by US$87.2 billion (S$122 billion) last month to US$3.44 trillion, central bank data showed yesterday, the lowest level since February 2013 and the third-largest monthly drop on record.

Analysts blamed the fall partly on the United States dollar's rally last month, which reduced the value of non-dollar reserves, and partly on China's central bank selling US dollars to support the yuan.

The onshore yuan is down more than 3 per cent so far this year, and remains under pressure as investors expect US interest rates to be increased for the first time in around a decade later this month.

The fall in China's forex reserves was the biggest since a record monthly drop of US$93.9 billion in August. The forex reserves have declined for the past five quarters and posted a record quarterly fall in the third quarter.

"The pick-up in capital outflows appears to have been predominantly driven by increased expectations for (yuan) depreciation," said Mr Julian Evans-Pritchard at Capital Economics. "A rise in offshore interest rates due to the increased likelihood of a December (US Federal Reserve) rate hike will also have added to outflow pressures."

China's surprise devaluation of the yuan on Aug 11 fuelled a wave of capital outflows on fears that the world's second-largest economy might be slowing more sharply than thought, and on worries of a possible interest rate rise by the US Fed.

The yuan's depreciation has been even more marked in the offshore market, where it has lost over 4 per cent this year. Trading at 6.47 yuan per dollar, the offshore rate is at its widest discount to the onshore closing rate since September, indicating enduring bearishness.

Mr Zhou Hao, an economist at Commerzbank in Singapore, wrote in a research note that the People's Bank of China has switched strategies to manage a softening to the yuan-dollar rate instead of trying to halt it completely. "It seems China's central bank has changed its strategy in market intervention."

For its part, the central bank has repeatedly said it sees no reason for the yuan to depreciate further.

The value of China's gold reserves stood at US$59.52 billion at the end of last month, down from US$63.26 billion at the end of October, the central bank said on its website.

China's International Monetary Fund (IMF) reserve position was at US$4.60 billion, down from US$4.64 billion the previous month. The country held US$10.18 billion of IMF Special Drawing Rights at the end of last month, compared with US$10.36 billion at the end of October.


A version of this article appeared in the print edition of The Straits Times on December 08, 2015, with the headline 'China's foreign exchange reserves plunge by $122b'. Print Edition | Subscribe