China says foreign exchange reserves remain abundant despite recent falls

FEB 4, 20167:13 PM

[BEIJING] China's foreign exchange reserves remain abundant despite recent declines and risks from cross-border capital movements are under control, the country's foreign exchange regulator said on Thursday.

China will likely post a surplus in its current account and a deficit in the capital and financial account in 2016, the State Administration of Foreign Exchange (Safe) said a statement on its website, after it released 2015 balance of payments data.

"China's foreign exchange reserves remain abundant, as the ratio between outstanding short-term foreign debt and foreign exchange reserves is far below the 100 percent international safety line," Safe said.

"The normal international balance of payments are fully guaranteed and we are able to withstand any shocks from cross-border capital flows," it said.

China's foreign exchange reserves fell US$512.66 billion in 2015 - the biggest annual drop on record - to US$3.33 trillion, central bank data showed.

China had short-term foreign debt of US$1.02 trillion at the end of September.

The SAFE said of the 2015 drop in foreign exchange reserves, US$342.3 billion was due to trade and investment transactions while US$170.3 billion was caused by currency and asset price changes.

Analysts polled by Reuters expected China's foreign exchange reserves to fall to US$3.2 trillion at the end of January.

Preliminary data from Safe showed a US$293.2 billion current account surplus and a US$161.1 billion deficit on the capital and financial account for the full year of 2015.

Capital outflows have gained momentum after the yuan's unexpected devaluation on Aug 11 last year, fanned by concerns about China's economic slowdown and expectations of interest rate rises in the United States.

Officials have said the drop in reserves has been exacerbated by a rush by local firms to repay foreign debt and increased dollar buying by local residents as the yuan falls.

The rising value of the US dollar against other non-dollar currencies was also blamed for three consecutive months of falls in the reserves, they said.

But many economists worry about the rapid fall in forex reserves, as the central bank has to sell dollars and buy the yuan to support the Chinese currency, effectively draining more liquidity from the banking system at a time when the world's second-largest economy is already slowing.

REUTERS