Tags: china | forex | reserves

China Forex Reserves Slip, Not Clear Why

By Julie Crawshaw   |   Friday, 02 Jan 2009 11:04 AM

China's foreign exchange reserves, the world's largest, have fallen for the first time in five years, shrinking to less than $1.89 trillion in October and reducing the value of the yuan against the U.S. dollar.

China’s official news agency Xinhua has not announced the new reserves amount.

The drop adds credence to economists’ fears that the effects of the financial crisis will cause increased capital outflows from the world’s fourth-largest economy.

Some analysts suspect the forex reserves decrease is a result of foreign banks withdrawing money to ease tight liquidity.

However, Commerce Minister Chen Deming says there are no signs that large amounts of are capital flowing out of the country.

China has taken steps to combat possible impacts of capital outflows, including a registration management system for offshore equities under the corporate cargo trade accounts.

Xinhua reports that the analysts it polled are not unduly concerned by the reserves’ lowering.

Yuan Yuedong, a senior researcher with the global financial market department of the Bank of China, attributed the reduction to slowing appreciation and a short-term depreciation of the Chinese currency against the U.S. dollar.

Yuan told Xinhua he believed the reduction would not affect the Chinese economy adversely.

He also theorized that increasing offshore investment by Chinese companies contributed to the reserves’ downward trend but offered no data to support this.

Qu Hongbin, chief economist with HSBC China operations, said that because growth of China's exports and imports had slowed, foreign direct investment (FDI) had simply been rising though at a slower pace.

"Indeed, hot money inflows are already yesterday's story," Qu said in a research note yesterday. "And there are also some tentative signs of small outflows. Yet it is still hard to confirm if the reversing of massive speculative inflows has started, particularly given that renminbi (yuan) interest rates are still higher than dollar rates."

He also noted that the renminbi's depreciation against the euro — a major currency in China's forex reserves — was another important factor.

Forex dealers expect China’s central bank will continue to bar extraordinary dollar movements.

Central Bank data show that at the end of September, China's forex reserves stood at 1.9056 trillion U.S. dollars, a growth of 32.92 percent over the same period of last year, Xinhua reports.

The reserves increased 377.3 billion dollars in the first nine months of this year, 10 billion dollars more than the year-earlier increment.

The total increase included 21.4 billion dollars recorded in September, 3.6 billion dollars less than the increment for the same month of last year.

© 2017 Newsmax. All rights reserved.

1Like our page
2Share
StreetTalk
China's foreign exchange reserves, the world's largest, have fallen for the first time in five years, shrinking to less than $1.89 trillion in October and reducing the value of the yuan against the U.S. dollar.China’s official news agency Xinhua has not announced the new...
china,forex,reserves
421
2009-04-02
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved