China says forex reserves ample, has plan to deal with outflows

The building of State Administration of Foreign Exchange (SAFE) is pictured in Beijing, China on Jan 11, 2017.
The building of State Administration of Foreign Exchange (SAFE) is pictured in Beijing, China on Jan 11, 2017. PHOTO: REUTERS

BEIJING (REUTERS) - China's foreign exchange regulator said on Thursday (Jan 19) that the country's forex reserves were ample and it has plans to deal with cross-border capital flows, even as bank forex sales in December climbed to their highest in nearly a year.

"In the future, we believe China's foreign exchange reserves have conditions to fluctuate up or down within a reasonable range," State Administration of Foreign Exchange (SAFE) spokeswoman Wang Chunying said at a news briefing.

China's foreign currency reserves, by far the world's largest, fell almost US$330 billion (S$471.05 billion) in 2016 to end the year at just over US$3 trillion as authorities struggled to stem capital outflows and shore up the yuan.

Chinese banks' net sales of foreign currency rose in December to their highest since January 2016, according to SAFE data released on Thursday, indicating capital outflows remained strong as the yuan hit lows not seen in eight years.

Commercial banks' net sales of foreign currency totalled US$46.3 billion in December, compared with net sales of US$33.4 billion in November, data showed. Net sales were US$54.4 billion in January 2016.

For the January to December period, net forex sales stood at US$337.7 billion, down from US$465.9 billion net sales in 2015, SAFE said in a statement on its website.

Pressure on cross-border capital outflows eased somewhat in 2016, SAFE spokeswoman Wang said, adding that SAFE has existing contingency plans to deal with capital outflows.

"When the pressure is big from inflows and when the pressure is big from outflows, we have a series of contingency plans... Even if we have plans, we will conduct prudent assessment before we implement them," said Wang.

China holdings of US Treasury debt in November fell the most since December 2011 to US$1.049 trillion, according to data from the US Treasury Department on Wednesday.

The pace of China's selling of Treasuries is unprecedented. Over the six months through November, China had shed US$194.66 billion of Treasuries and over the previous 12 months, had sold US$215.11 billion. Both are records.

SAFE is closely watching the impact from the US Federal Reserve's expected rate hikes and the dollar's strengthening, Wang said.

The yuan fell around 6.5 per cent against the dollar in 2016, the biggest annual drop since 1994, and expectations for further weakening remain high in the face of a strong dollar.

That said, the yuan has strengthened somewhat since the start of 2017 after an abrupt tightening of yuan liquidity in Hong Kong, which traders believe was orchestrated by Chinese authorities to squeeze investors shorting the Chinese currency.

Wang reiterated a long-standing government line that there is no basis for yuan depreciation in the medium and long term.

China's central bank sold a net US$46.1 billion worth of foreign exchange in December.