China’s foreign exchange reserves hit $US4 trillion in the second quarter of 2014. Yesterday they fell below $US3 trillion for the first time in nearly six years, despite the country generating a trade surplus last year of more than half a billion dollars.
China’s central bank spent hundreds of millions of dollars on propping up the value of the renminbi and Beijing imposed new capital controls in an effort to slow the pace of outflows, questionable and legal. The government forced Chinese companies to can tens of billions of dollars on foreign takeovers last year as well.
Reserves at the People’s Bank of China fell by a small $US12.3 billion to $US2.998 trillion in January, a dip of0.4% from December.
It is the first time forex reserves dropped below the $US3 trillion mark since February 2011 and was the seventh consecutive monthly.
For all of 2016, China’s reserves shrunk by nearly $US320 billion after the record drop of $US513 billion in 2015.
Since the renminbi’s sharp depreciation in August 2015, China’s Government and monetary authorities has tried to slow the slide in the currency against the US dollar by selling dollars from the foreign exchange reserves and tightening capital controls.
The renminbi is still down 4.4% from a year ago. The dollar is likely to strengthen further if the US Federal Reserve continues on its intended monetary policy tightening this year.
A further tightening of capital controls since November has helped slow the pace of outflows, but from the smaller falls in December and January hasn’t stopped them completely.
The central government has cracked down on over invoicing – where exporters over bill offshore buyers (Hong Kong and Taiwan were the preferred destinations). That has seen a fall in this area (as seen by the value of Chinese exports to Hong Kong and Taiwan compared with the import figures from China’s from both countries).
But late in 2016, the central government started cracking down on big acquisitions by Chinese companies – especially state owned companies, such as insurers.
Outbound investments deals worth nearly $US75 billion were cancelled last year as this crackdown saw 30 acquisitions in Europe and the US cancelled.
China’s gold reserves rose to $US71.292 billion at the end of January, from $67.878 billion at end-December as prices rose last month.
China’s 2016 trade surplus was $US510 billion, smaller than the $US594.5 billion surplus in 2015.
