China's forex reserves fall for 3rd month

SHANGHAI/BEIJING • China's foreign exchange reserves fell for a third straight month in September and by slightly more than markets had expected, suggesting fresh capital outflows from the world's second-largest economy.

Forex reserves fell by nearly US$19 billion (S$26.1 billion) to US$3.166 trillion, from US$3.185 trillion in August, 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 threatened to destabilise the economy and alarmed global financial markets.

But declines had slowed sharply in the first half of this year as the authorities tightened capital controls and cracked down on forex trading, which they suspected to be speculative. Tentative signs of stabilisation in the economy and investment inflows were also believed to be offsetting outflow pressures.

However, while last month's US$18.8 billion drop was modest compared with overall reserves, it was larger than a decline of US$15.89 billion in August and the biggest in three months.

Capital Economics' China economist Julian Evans-Pritchard called it a "considerable fall", adding that the impact of exchange rates and bond market movements meant the real figure was probably higher. "There is still quite significant intervention in the currency markets by the PBOC (People's Bank of China) and today's data highlights that."

China was potentially even more vulnerable than last year to a large rise in capital outflows that would hit currency markets, he added.

Traders believe the PBOC has stepped in via state-run banks since July to slow the pace of depreciation in the yuan, which has weakened 2.7 per cent against the US dollar so far this year. China is believed to have wanted stability in the currency ahead of a Group of 20 leaders' summit last month and the yuan's inclusion in the International Monetary Fund's basket of reserve currencies from Oct 1.

But most market watchers expect the central bank will allow the yuan to resume its gradual descent later this year.


A version of this article appeared in the print edition of The Straits Times on October 08, 2016, with the headline 'China's forex reserves fall for 3rd month'. Print Edition | Subscribe