World Economy

China FX Reserves Lowest Since Dec. 2011

China FX Reserves Lowest Since Dec. 2011China FX Reserves Lowest Since Dec. 2011

China’s foreign exchange reserves, the world’s largest, fell by $28.57 billion in February to $3.20 trillion, the lowest since December 2011, central bank data showed on Monday.

The decline was slightly less than the $30 billion decrease that economists polled by Reuters had expected, and compared with a drop of $99.5 billion in January.

China’s reserves have now fallen four months in a row as the central bank dumps dollars to ease depreciation pressure on the yuan and prevent an increase in capital outflows.

China’s gold reserves stood at $71.01 billion at the end of February, up from January’s $63.57 billion, according to data published by the People’s Bank of China on its website.

China’s International Monetary Fund reserve position was at $10.73 billion, up from $3.76 billion the previous month. It held $10.28 billion of IMF Special Drawing Rights at the end of last month, compared with $10.27 billion at the end of January.

 Capital Outflow Easing

China’s capital outflow eased in February, with analysts saying the smallest decline in foreign exchange reserves for eight months will reduce anxiety over the country’s financial stability.

Expectations of renminbi depreciation and concern about China’s slowing economy have fuelled unprecedented capital outflow since the country’s official reserves hit an all-time high of $3.99 trillion in June 2014.

As renminbi selling pressure intensified, the central bank has drawn on its reserves to curb downward pressure on the exchange rate. But the renminbi recovered 0.3% in February, reducing the need for intervention.

“The capital flight thesis—the notion that Chinese residents and companies are desperate to get money out of the country and will do so regardless of short-term movements in the exchange rate—is inconsistent with the February outflow,” wrote Michael Parker, head of Asia Pacific strategy at Sanford Bernstein in Hong Kong, in a note.

Analysts have warned that China may eventually be forced to scale back its market interventions in support of the renminbi to prevent reserves being depleted below safe levels. On Sunday a top central banker sought to reassure investors that China’s official reserves were composed exclusively of highly liquid assets.

The comments by Yi Gang, deputy governor of the People’s Bank of China, were a response to claims by some bearish investors who believe the central bank figures include assets such as foreign real estate and private equity, which cannot easily be deployed in currency markets.