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Forex reserves expected to remain at stable level

By ZHOU LANXU | China Daily | Updated: 2023-02-08 09:10

People walk past the headquarters of the People's Bank of China, the country's central bank, in Beijing in March. [Photo/CHINA DAILY]

China's foreign exchange reserves are expected to remain stable after increasing for the fourth straight month in January as the country's economic recovery gains traction, experts said on Tuesday.

The country's foreign exchange reserves rose to $3.1845 trillion by the end of last month, up by $56.8 billion or 1.82 percent from December and marking the fourth consecutive month of increase, the State Administration of Foreign Exchange said on Tuesday.

Attributing the growth to a weaker US dollar and a rise in global financial markets, SAFE said in a statement that the Chinese economy has recovered with growing endogenous momentum, conducive to keeping the scale of foreign exchange reserves stable.

Zhou Maohua, a macroeconomic analyst at China Everbright Bank, said a weaker greenback, due to expectations of a slowdown in US Federal Reserve interest rate hikes, has made foreign reserves denominated in other currencies more valued in dollar terms.

Zhou said the increase in foreign exchange reserves is also attributable to accelerated foreign inflows into renminbi-denominated assets as the country's economic recovery gains traction.

Northbound trading of stock connects between the mainland and Hong Kong bourses saw net capital worth 141.29 billion yuan ($20.81 billion) flow into A shares in January, marking the highest single-month net foreign inflow since the connect mechanism was launched in 2014, said market tracker Wind Info.

"The rise in foreign exchange reserves has demonstrated the resilience of China's economic development and the recovery in market confidence as the country optimized COVID containment," said Ye Yindan, a researcher at the Bank of China Research Institute.

As China's economic growth is likely to outpace many other major economies this year and underpins the country's balance of payments, Ye said she expects the country's foreign exchange reserves to remain stable despite the challenges of slower global growth and volatile international financial markets.

Zhou also said the country's foreign exchange reserves are expected to remain generally stable given the resilience of the country's foreign trade, the growing appeal of renminbi-denominated assets, a more flexible renminbi exchange rate, and a Fed rate hike cycle that is nearing its end.

The central parity rate of the renminbi against the greenback has strengthened by more than 2 percent since the beginning of the year to 6.7967 on Tuesday, according to the China Foreign Exchange Trade System.

SAFE data showed that China's gold reserves rose to 65.12 million ounces at the end of January, up from 64.64 million ounces in December.

Zhou said the increase in gold reserves might reflect the country's efforts to diversify official reserves as the US dollar weakens while geopolitical uncertainty remains elevated.

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