Foreign Exchange Reserves of China Rises for Third Consecutive Month

Flag of ChinaThe Foreign Exchange Reserves of China have seen an unprecedented rise for the third consecutive month and has beaten all the market expectations. The reserves have risen by $21 billion in April 2017 and reached $3.03 trillion as compared to the figure of $3.96 billion in March 2017.

The State Administration of Foreign Exchange (SAFE); which is the regulatory body of the country attributed the rise to balanced supply and demand in FX and appreciation of currency against the dollar. Yan Ling, who is an analyst at China Merchants Securities, the US bonds alone have boosted the reserves by $18.4 billion.

The constant growth in reserves is likely to reassure the market and help the leadership of China to address the economic structure issues with a lot of focus. According to Yan, US dollar index was anticipated to appear weak which is a good thing for Yuan exchange rate. Liu Jian who is an analyst at Bank of Communications said that decline in the US Dollar index along with a sustained economy in China would not only reduce the capital flows but also ease further falls in the Yuan value.

CGTN

Liu Jian has made the following statement in media:

Capital outflows will become more challenging in the second half when the uncertainties of China’s economic growth increase and the US Federal Reserve continue to raise interest rates. However, it’s basically controllable.

The authorities in China have imposed some different restrictions on capital movement to stem capital flight that is encouraged by fears of a slowdown in the country of China and the decision of US Federal Reserves to increase the interest rates. The government has also increased the inspection of investment across overseas and made strict rules for the individual purchase of FX even the reserves have reduced to a figure of $3 trillion in January.

The pressure is however eased after the improvement in the Chinese economy with overall growth in exports at 8.2% on a year-on-year basis in Q1. In addition to this, recovery in the eurozone and policymaking uncertainty in the United States have led the US currency index to reach a low figure in the last six months.

Pan Gongsheng who is the chief of SAFE has said that the improved position hints towards a new policy of the country of opening its economy and it will be continued. According to him, China has to reach the correct process and pace to open up the capital investments by examining all kinds of factors.

But the rise in the interest rates by the Fed Reserve expected in the coming next month might compel the Chinese authorities to make the similar hike. Wei Feng who is an analyst at Guotai Junan has said that the People’s Bank of China might increase the interbank rates by 25 to 30 basis points which in turn can have an impact on the country’s domestic economy.

Steven Rudford

Steven Rudford

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