(Yicai Global) Mar. 7 -- China's foreign exchange reserves climbed above USD3 trillion in February for the first time in seven months after tighter capital controls and a stronger yuan discouraged outflows.
Official reserves rose by USD6.92 billion to just upon USD3 trillion. China's reserves peaked at USD4 trillion in June 2014, but since then the central bank has sold dollars aggressively to curb yuan depreciation.
A stronger yuan in January weakened investor impetus to buy foreign currency, thus obviating the need for intervention. The yuan recovered by 1 percent in January, in line with a broader downward correction to the dollar after the US currency surged following Donald Trump's election as president and the Federal Reserve's December interest rate rise. The yuan weakened by 6.5 percent versus the dollar last year, its biggest annual decline on record.
The State Administration of Foreign Exchange (SAFE) offered its explanation of the reasons for the change in foreign currency reserves last month as follows.
"Non-dollar currencies depreciated overall against the dollar in international financial markets in February, but asset prices rose and the diversified results of currency invested in foreign exchange and assets increased, and the combined impacts of these factors induced a steady rise in scale. Looking ahead, the pressure of cross-border capital flows will ease, and the scale of foreign reserves may gradually stabilize."
China's massive forex reserves will generate returns each month, and these will increase their amounts, noted Zhao Qingming, a researcher with the China Financial Futures Exchange. He said, "Assuming each month sees a rate of return of 0.5-1 percent, then at least USD30-50 billion will flow into the coffers every month."