China’s foreign exchange reserves posted their third-largest monthly decline on record last month, central bank data showed yesterday, renewing worries about capital outflows after reserves had appeared to stabilise.
Forex reserves fell $87bn in November, near the record $94bn decline suffered in August — the same month that the central bank surprised global markets by allowing the renminbi to depreciate by 3 per cent in three days.
China’s reserves have fallen for nine of 11 months this year and stand at $3.43tn, as investors sell renminbi assets to protect themselves against depreciation and the central bank sells dollars from its reserves to curb renminbi weakness. Falling interest rates in China and expectations of an imminent rate rise by the US Federal Reserve have also fuelled outflows. Reserves rebounded mildly in October, suggesting outflows had diminished.
China’s forex reserves — the world’s largest — have long been seen as the ultimate guarantor of financial stability, since they can be used to hedge against capital flight or to bail out domestic financial institutions struggling with a rise in bad debts.
The unprecedented declines have raised worries that the reserves could quickly evaporate if capital outflows continue and the central bank continues to defend the exchange rate. Most analysts believe the central bank will be forced to curtail its intervention in order to prevent further depletion of its reserves.
The People’s Bank of China has long intervened in foreign-exchange markets to hedge against excessive volatility. Since August, however, such intervention has expanded from the domestic spot market, which covers daily transactions, to include the offshore renminbi market in Hong Kong, as well as both onshore and offshore futures markets, traders say.
Following the devaluation in mid-August, the renminbi rallied in September and October. Devaluation resumed in November, however, and the renminbi closed at its weakest level in three months at 6.4082 to the dollar yesterday. “Since October many countries around China have experienced some capital outflow, and China has had its share,” said Xie Yaxuan, an economist at China Merchants Securities in Shenzhen. “The strengthening dollar is bound to cause some repositioning into dollar assets.”
继8月中旬贬值后，人民币在9月和10月有所上涨，但在11月再度走低，昨日人民币汇率收跌至三个月最疲弱水平，为1美元兑6.4082元人民币。“中国周边很多国家自10月份起经历了一些资本外流，中国也未能幸免，”深圳招商证券(China Merchants Securities)经济学家谢亚轩表示。“美元走强势必在一定程度上引发转投美元资产的行为。”
Ms Xie estimates that around 40 per cent of the decline in November — about $35bn — is attributable to valuation effects related to the weakening of the euro and other currencies against the dollar in November, rather than outflows.
Additional reporting by Ma Nan