Photographer: Scott Eells/Bloomberg

China Foreign Reserves Post 12th Straight Gain as Yuan Rises

Updated on
  • Stockpile climbed $21.6 billion to $3.16 trillion in January
  • Authorities may relax capital controls gradually: OCBC

China’s foreign-exchange reserves rose for a 12th straight month, as the yuan strengthened and the economic outlook improved.

The world’s largest foreign currency stockpile climbed $21.6 billion to $3.16 trillion in January, the People’s Bank of China said Wednesday, compared with the $3.17 trillion estimate in a Bloomberg survey.

Reserves have been steadily recovering for a full year since slipping below $3 trillion last January, lifted by a stronger yuan and capital controls that continue to keep money from flowing out. Outflow pressure is also being eased by a solid economy, with growth estimates rising after last year’s acceleration, as well as a weaker dollar.

"A lot of exporters will continue to sell their dollar holdings as the yuan surges, which will lead to a continuous increase in foreign reserves and support the Chinese currency," said Tommy Xie, an economist at Oversea-Chinese Banking Corp. in Singapore. "The yuan may climb to 6.2 per dollar in the near term, leading to more fund inflows. The authorities may relax capital controls gradually as a result."

Reserves will remain stable and two-way movement in the currency will become more noticeable, the State Administration of Foreign Exchange said in a statement with the data. The country’s economic fundamentals remain sound, the currency regulator said.

What Our Economists Say...

"A further rise in reserves, partially due to a strong yuan, extended support to the yuan’s exchange rate," said Fielding Chen, an economist at Bloomberg in Hong Kong. "That virtuous circle between reserves and the yuan may open room for the People’s Bank of China to loosen capital controls somewhat."

The yuan strengthened 3.51 percent against the greenback in January to end the month with the strongest reading since August 2015.

"Reserves will steadily increase, but not a huge expansion, amid a stronger yuan outlook," said Wen Bin, a researcher at China Minsheng Banking Corp. in Beijing. "A weak dollar might have pushed up the value of assets denominated in other currencies, and we need to see the purchase and sale of foreign exchange by companies and households to see whether it’s a contributor or a drag."

— With assistance by Yinan Zhao, Miao Han, and Tian Chen

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