China’s foreign exchange reserves fall more than expected in November

China’s foreign exchange reserves dropped $9 billion in November to $3.096 trillion, according to a central bank data showed on Saturday. The decline came after Washington and Beijing remained locked in negotiations over an interim trade agreement.

Analysts polled by Reuters had forecasted China’s reserves, the world’s largest, would drop $4 billion to $3.101 trillion in November.

Despite the slowing Chinese economy and escalating U.S.-China trade war, its reserves have been gradually growing since late 2018, buoyed by tight capital controls and increasing inflows from foreign investors who are snapping up the country’s stocks and bonds.

Modest changes in reserve levels during recent months have been largely ascribed to fluctuations in global exchange rates and the value of assets that China holds such as foreign bonds.

The yuan has been driven largely by twists and turns throughout the 17-month long trade war between China and the United States.

After tumbling sharply this summer as the dispute suddenly escalated, the yuan grew for three straight months through November on hopes of a trade truce, only to slide again in early December as tensions between Washington and Beijing flared.

Fresh U.S. tariffs on Chinese goods are set to take effect on December 15.

It added 0.12% against the dollar in November, but remains about 2.3 percent weaker for the year to date.

The dollar, meanwhile, gained about 1 percent against a basket of other major currencies in November.

The value of the country’s gold reserves declined to $91.47 billion at the end of November from $94.65 billion at the end of October.

China held 62.64 million fine troy ounces of gold by the end of November, unchanged from October.

China’s economic growth cooled to 6.0 percent in the third quarter, the slowest pace in nearly 30 years, and many economists believe it will decelerate further into the upper 5 percent range in 2020.

Still, analysts note capital outflows have been modest compared with the last economic downturn in 2015-16, when policymakers burned through around $1 trillion in reserves backing the yuan.

China’s central bank has begun to slowly trim interest rates in recent months, and more reductions are likely to occur in coming quarters to avert a sharper slowdown.

But analysts believe those cuts will probably be more gradual and smaller than those in 2015. If so, moves in the yuan are expected to be influenced more by trade developments than policy easing.

Source: Reuters