China’s FX reserves fall in March, but cross-border flows remain balanced: official
China‘s foreign exchange reserves fell in March, data from the State Administration of Foreign Exchange (SAFE) showed on Thursday. But cross-border capital flows remain reasonable and balanced, and the foreign exchange market is generally stable, an official from the SAFE said.
The country’s forex holdings stood at more than $3.18 trillion at the end of March, down $25.8 billion, or 0.8 percent, from the end of February.
Commenting on the data, Wang Chunying, deputy head of the SAFE, said that cross-border capital inflows picked up last month, and supply and demand in the domestic forex market were “basically balanced.”
Wang attributed the decline to the rise of the US Dollar Index and changes in global financial asset prices, which were driven by factors including geopolitics, expectations of major economies’ monetary policies and the COVID-19 situation.
Despite the increased volatility in the international financial market caused by the complicated and challenging external circumstances and the global pandemic, China’s efforts to coordinate COVID-19 prevention and control work with economic and social development, as well as its efforts to stabilize the economy, remain unchanged, and China will maintain the stability of its forex reserves, Wang said.
Since March, global capital markets have become more volatile and many global investment institutes have adjusted their holdings in China’s onshore capital markets, raising concern of a retreat from China’s capital market.
In the third week of March, foreign investors reduced their holdings of Chinese bonds by a combined $1.1 billion, according to research from JP Morgan.
According to Chinese financial data provider Wind Data, the northbound trading of Hong Kong Stock Exchange registered a net outflow of 45.08 billion yuan ($7.08 billion) in March. On three days in April, there were daily outflows of more than 10 billion yuan.
In response to cross-border portfolio investment volatility, an official of the SAFE said that short-term volatility doesn’t point to a change in long-term trends, and that foreign investors are still expected to increase domestic investment.
“The volatility of foreign investment in domestic stocks and bonds is a normal phenomenon amid the recent changing external environment and complex international economic and financial situation,” the official told financial news outlet Caixin, adding that the fluctuation of cross-border capital is within a normal and controllable scope.
The 0.8 percent drop in China’s foreign exchange reserves in March is small and almost negligible, Xi Junyang, a professor at the Shanghai University of Finance and Economics, told the Global Times on Thursday.
“The direct foreign investment may continue to increase as China’s economic development is leading the world, which means a higher investment return. Foreign investment growth in the financial sector however is expected to be limited after multiple Western countries have raised interest rates,” Xi said.
As of the end of February, foreign ownership of China’s onshore bonds and stocks totaled $1.25 trillion, according to the latest data.
“Compared with the reserves, the cuts of foreign investment in domestic stocks and bonds are relatively limited, and the impact on the yuan’s exchange rate and cross-border capital flows is generally controllable,” said the SAFE official.
Supported by the steady recovery of the domestic economy, China saw a net inflow of $25.6 billion and $8.8 billion of cross-border capital in trade and direct investment in February, which was basically balanced in the supply and demand in the domestic foreign exchange market, the official said.
Source: Global Times