(Yicai Global) July 8 -- China’s foreign exchange reserves slumped in June after a slight uptick in May as a sustained strengthening of the US dollar triggers a sharp decline in global asset prices and causes the value of non-dollar assets to depreciate, according to the latest official data.

China’s forex holdings stood at USD3.07 trillion at the end of June, a decline of 1.8 percent from May, according to the data released yesterday by the State Administration of Foreign Exchange.

Foreign reserves are denominated in US dollars, so the value of non-US dollar currencies would decrease after being converted into dollars, which, together with changes in asset prices, resulted in shrinking foreign exchange reserves in June, said Wen Bin, chief economist at China Minsheng Bank. In terms of the balance between income and expenditure, there was not much change.

The US dollar index climbed 2.9 percent last month, driven upward by rising inflation expectations, the US Federal Reserve’s recent interest hike and gloomy global economic prospects.

The exchange rate translation would result in a devaluation of China’s holdings of non-dollar currencies of around USD30 billion, Wen said. As for assets, the global bond and stock markets fell as central banks tightened currencies, which could cause losses of over USD10 billion, he added.

As the Covid-19 outbreaks come under control and work and life return to normal, the outlook for the Chinese economy is good, conducive to maintaining the balance of payments and stability in foreign exchange reserves, Wen said.

The country’s forex reserves could still fluctuate slightly in July, said Zheng Houcheng, director of the Yingda Securities Research Institute.

“Global economic growth is slowing and inflation remains high,” said Wang Chunying, deputy director and spokeswoman for the State Administration of Foreign Exchange. "This makes international financial markets more volatile and as a result the external environment has become more complex and severe.”

“However, China adheres to promoting sound economic and social development as well as implementing rigorous pandemic prevention and control in order to provide the basis for strong economic resilience and long-term potential, all of which are beneficial to the overall stability of foreign exchange reserves,” Wang said.

Editor: Kim Taylor