China’s foreign exchange reserve has been falling for four consecutive quarters, the longest period since 1998, but economists and analysts do not know why.
For the second quarter, the largest forex reserve in the world fell $36.2 billion to $3.69 trillion, down from a record high of $3.99 trillion in the same period a year ago, according to official data, Atimes reported.
This follows the first quarter’s $113 billion decline in the central bank’s forex reserves. In the fourth quarter of 2014, the reserves fell $47.7 billion, following a $105.2 billion drop in the third quarter.
Many analysts say that foreign investors are pulling money out because they don’t have confidence in the economic outlook, said independent Chinese newsite Caixin. The rising US dollar is not helping either.
It is difficult to get estimates on how much capital has left the country. The Chinese government does not publish many details of its forex holdings and investments, and what does come out is not reliable, said Caixin.
Goldman Sachs reported on July 21 that about $200 billion left China in the second quarter, a record amount, reported Caixin. But, two days later, at a press conference held by the State Administration of Foreign Exchange, a spokeswoman said that there were no significant capital outflows in the first half year.
Zhu Haibin, chief China economist of JPMorgan Chase, said capital outflows could be divided among four categories: cross-border capital flows into companies’ forex deposits and debts, direct net foreign investment, yuan payments across borders, and “hot money.” He told Caixin that the changes in all three categories except hot money were actually positive.
