(Yicai Global) Dec. 8 -- China’s foreign exchange reserves climbed by a higher-than-expected 2.1 percent in November from the previous month, spurred by a tumbling US dollar and adjustments in asset prices.

China’s forex reserves stood at USD3.12 trillion at the end of November, an increase of USD65.1 billion from a month earlier, according to the latest data released by the State Administration of Foreign Exchange. This is higher than the USD3.1 trillion predicted by a Yicai Global poll of chief economists and marks the second straight month of gains.

The US dollar index, which is a measure of the greenback’s value relative to a basket of foreign currencies, plunged 5 percent last month from October to 106. The fall was due to the impact of various factors such as global macroeconomic data and expectations regarding the monetary policy in the world’s major economies, the administration said.

By contrast, the Chinese yuan appreciated nearly 3 percent, the euro jumped 5.3 percent, the UK pound soared 5.1 percent and the Japanese yen surged 7.7 percent. Major national financial asset prices also increased in the period. The S&P 500 Index gained 5.4 percent, the Eurozone Stoxx 50 strengthened by 9.6 percent and the Nikkei 225 Index climbed 1.4 percent.

There are three reasons for the surge in China’s forex reserves in November, said Zheng Houcheng, director of Yingda Securities Research Institute. First, the yields of US 10-year Treasury Bonds, the Eurozone’s 10-year government bonds and the UK’s 10-year treasuries have all slumped, boosting the price of bond assets in forex reserves.

Second, the slide in the greenback means that non-US dollar-denominated assets are worth more. And third, China’s trade surplus in November was USD69.8 billion, which, although it is a drop from October, is still a high figure and has also supported the country’s forex holdings.

As more measures to stabilize economic growth take effect and as Covid-19 restrictions are relaxed, the Chinese economy will maintain its stable and upward tendency, which will help stabilize the country’s forex reserves, said Wen Bin, chief economist at China Minsheng Bank.

China’s forex holdings are very likely to swell next year from this year and to be even bigger in the second half of 2023 than in the first half, Zheng said. This is because the current yield curve for 10-year US Treasuries is now lower than that for three-month ones. Also, the US Federal Reserve could start cutting interest rates by the third quarter of 2023. These factors will lead to a decline in the US dollar index and boost China’s forex reserves from the second half next year.

Editors: Xu Wei, Kim Taylor