Illustration: iStock
Illustration: iStock

Eye-watering would be an apt description. Last month, China’s foreign exchange reserves jumped US$5.82 billion to more than $3.1 trillion despite escalating trade tensions.

On Tuesday, the People’s Bank of China, the country’s de facto central bank, released data which showed an unexpected rise from June’s figure of $1.51 billion.

“Foreign exchange reserves rose $5.8 billion, or 0.19% from a month earlier, to $3.1179 trillion at the end of July, the central bank said,” Xinhua, the country’s official news agency, reported.

“China’s gold reserves remained unchanged at 59.24 million ounces, with a value of $72.324 billion, down from about $74.07 billion at the end of June,” it added.

The numbers came out amid fresh concerns of capital outflows with the yuan tumbling to its lowest level in more than a year.

China’s currency has dropped 6.3% since June 14 due to the trade fallout between Washington and Beijing. In July, the yuan weakened for a fourth straight month, the longest streak since early 2015.

Last week, President Donald Trump’s chief economic advisor, Larry Kudlow, told the media that continued pressure on the currency was a sign that “money” was “leaving China,” as the trade conflict intensifies.

“Some of the fall is money leaving China,” the director of the White House’s National Economic Council said in an interview with Bloomberg TV. “If money leaves China, and the currency could be a leading indicator, they’re going to be in a heap of trouble.”

ING Group tended to take a more measured view. The Dutch multinational banking and financial services group pointed out that the “recent depreciation of the yuan” had failed to spark “massive capital outflows.”

“Going forward, we expect reserves to remain relatively stable as the central bank steps in and the government expand FDI [foreign direct investment] inflows,” ING economists said.

“If the yuan depreciation speeds up again, like earlier this month, then the PBOC is likely to reintroduce the “counter-cyclical factor” to cap the yuan depreciation level [to] discourage massive capital outflows,” they added.

Of course, if a new wave of tit-for-tariffs is rolled out, it might be a different story.

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