China’s foreign-currency reserves drop to $3trn

Bloomberg

China’s foreign-currency holdings fell in September, as heightened trade tensions with the US fueled concerns of capital outflow and further yuan depreciation.
Reserves declined by $22.69 billion to $3.087 trillion in September, the People’s Bank of China (PBOC) said on Sunday. That compares with $3.110 trillion the previous month and the median estimate of $3.105 trillion in a Bloomberg survey of economists. The small drop in reserves was due to changes in the value of foreign currencies and asset prices, the State Administration of Foreign Exchange (SAFE) said in a statement, adding that the holdings will generally remain stable despite some fluctuations.
The nation’s reserve holdings, the world’s biggest, have shown modest fluctuations in value this year as capital controls remain in place and policy makers have taken measures to stabilize the falling currency. That said, amid a worsening trade-war outlook, negative sentiment around China’s economy and a surging US dollar could yet test the nation’s defenses. “China’s foreign-exchange reserves should decline given a stronger dollar and increasing depreciation pressures on the yuan, which could prompt the PBOC to intervene,” said Ken Cheung, a senior currency strategist at Mizuho Bank Ltd. “Also, capital outflows should be increasing due to mounting risks on China-US trade war risks.”