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Foreign reserves grow for 7th month

Wang Yanfei
Updated: Sep 8,2017 9:14 AM     China Daily

China’s foreign exchange reserves in August increased for the seventh consecutive month, a further indication of the stabilizing trend in the country’s cross-border capital flows.

An official and experts said regulators may relax capital control measures in the coming months if the trend can be sustained.

Forex reserves increased by $10.8 billion to $3.09 trillion at the end of August, central bank data showed on Sept 7.

It was the first time since June 2014 that the data climbed for seven months in a row.

The continued rise can be attributed to the better than expected economic recovery since the beginning of the year and improved market expectations of the yuan’s exchange rate, the State Administration of Foreign Exchange said on Sept 7.

The data came after China stepped up efforts to strengthen its oversight of activities moving capital to foreign countries since late last year.

Irrational outbound investment would be carefully scrutinized, according to documents released by several top financial regulators earlier this year.

“So far the measures have taken effect,” said a senior official with the National Development and Reform Commission, who declined to be named.

If the capital flow pattern and other related data are able to see continued improvement, the government may loosen some capital control curbs, particularly temporary ones related to several specific industries, according to the NDRC official.

The official said China has room to make adjustment to capital control measures in the future, but did not further elaborate on specific changes.

Liang Hong, chief economist at China International Capital Corporation, said in a research note that after capital pressure eased in recent months, net capital outflows are likely to turn into net inflows in the near future.

The change will be mainly supported by sound economic fundamentals and more rational expectations of the exchange rate of the yuan, according to Liang.

Rising costs betting on continued depreciation of yuan have caused pain for short-sellers, she said.

In the meantime, companies may have a greater appetite to sell forex reserves supported by a stronger yuan, which may help stabilize the trend of the forex reserves level, according to Li Liuyang, a senior analyst with China Merchants Bank.

The yuan has witnessed a sharp recovery compared to late last year, partly supported by the weak dollar.

The yuan has recouped its losses in the last year and appreciated by 2 percent in August alone.

The onshore yuan closed at 6.4972 on Sept 7 after the market closed, compared to 6.5246 in the previous day, hitting the highest level since May 2016.