China reserves hover above $3 trillion on government support

Foreign exchange reserves stood at about 3.01 trillion US dollars last month, down from about 3.05 trillion USA dollars in November, the State Administration of Foreign Exchange (SAFE) said, citing figures from the central bank.

The People's Bank of China (PBOC) drained a net 595 billion yuan from the market through open market operations last week.

China's monetary policy will be kept prudent and neutral in 2017 and the government will continue reform of the foreign exchange management system, said a central bank statement issued Friday, echoing the tone set at the Central Economic Work Conference. This will surely bring further tensions with the administration of new US President Donald Trump. Prior to the warning, bitcoin price had reached record highs followed by a steep drop, showcasing the volatility that some naysayers have often pointed to.

"For 2016 as a whole we estimate total capital outflows to have been around $710 billion", Capital Economics' China economist Chang Liu told Reuters in an email.

A close look at the change in capital flows as shown in forex reserves data shows a slew of recent measures have taken effect, according to a report released Sunday by Chinese investment bank CICC.

Three trillion dollars is still a lot of money, he said.

China has stepped up efforts in recent weeks to shore up the yuan and curb capital outflows, sparking speculation it wants a firm grip on the currency ahead of Trump's inauguration on January 20 and the long Lunar New Year holidays at the end of the month.

The offshore yuan jumped 2.6 percent in two days last week, the biggest gain against the greenback since 2010.

The authorities have managed to keep the FX reserves at more than the psychological level of 3 trillion, but the situation continues to be hard as the nation still faces solid capital outflow pressures. But the moves are apparently aimed at strengthening the yuan, not weakening it. The reporting threshold for cash and overseas transfers was cut to just 50,000 yuan ($7,230) from 200,000 yuan. The PBOC earned plaudits past year for adhering more closely to a new fixing method that takes into account global currency moves and previous day's yuan price.

  • Rogelio Becker