As China's Forex Reserves Stabilize, Experts Foresee No Substantial Future Rise or Fall
Song Yikang
/SOURCE : Yicai
As China's Forex Reserves Stabilize, Experts Foresee No Substantial Future Rise or Fall

(Yicai Global) April 10 -- China's foreign exchange (forex) reserves fell by just USD1.4 billion in this year's first quarter, with substantially narrowing declines as against the previous two quarters.

China's forex reserves rose to USD3.009 trillion as of the end of March, up USD3.964 billion from USD3.005 trillion in February, according to data released by the central bank on April 7.

Changes in the size of China's foreign reserves are stabilizing, said an official from the State Administration of Foreign Exchange. Forex experts remain optimistic about the uptrend in forex reserves.

"We do not see reasons for a sharp decline in the short term," Zhao Qingming, a researcher at the Research Institute of the China Financial Futures Exchange, told Yicai Global, adding that there is little negative news for the yuan now and China's stable economic fundamentals have lessened expectations of a weaker yuan.

Despite a balance between supply and demand in the foreign exchange market now, uncertainties may arise in the future, said Xie Yaxuan, chief macro analyst at China Merchants Securities Co. [SHA:600999]. He expects the yuan's exchange rate to move in both directions against the US dollar, adding that he would not be surprised to see a sporadic decline in China's foreign reserves, but a sustained substantial decline or increase is unlikely.

On one hand, all international black swan events are theoretically good news for the dollar, indirectly putting pressure on the yuan, Xie noted. On the other, the gradual opening-up of the Chinese bond market and especially market entry reforms will help boost the yuan. Experts also noted that the recent meeting between Chinese and US presidents seems to imply more active cooperation between the two countries, which will be good news for bilateral trade development.

Also, as companies' and individuals' expectations for the yuan's exchange rate against the dollar stabilize, enterprises are also becoming more rational about outbound investments.

 

Overseas investment soared at some companies in the second half of last year, but that trend has subsided, said Xie, adding that he expects a balance between supply and demand in the forex market. Though there could be uncertainties in the future, they will mainly be manifested in private sector enthusiasm about outbound investment.

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Keywords: Central Banks , Forex , Foreign Investment , SAFE