China’s foreign exchange reserves rose slightly in March, though by a bit less than the market expected, as capital control measures and a pause in the dollar’s rally helped contain outflows.
Reserves increased $3.96 billion during March to total $3.009 trillion.
In January, reserves slipped below $3 trillion, but a month later, they moved back above that level, increasing $6.92 billion to reach $3.005 trillion in the first rise in eight months.
Economists polled by Reuters had expected foreign exchange reserves in March to rise by $5 billion to $3.01 trillion in March.
Capital Economics said the way reserves were broadly stable in March “suggests that the recent easing of capital outflows has allowed the People’s Bank of China to step back from FX intervention.”
The latest reserve data came out as Chinese President Xi Jinping is meeting with US President Donald Trump in Florida.
The March increase marks the first time reserves had increased two consecutive months since April 2016.
The State Administration of Foreign Exchange (SAFE), the foreign exchange regulator, said last week that pressure from capital outflows eased somewhat in 2016 and there will be greater flexibility in the yuan’s exchange rate in 2017.
The foreign exchange regulator also said that authorities will take measures to attract capital inflows this year.
Tighter flow scrutiny
In February, China’s central bank sold the smallest amount of foreign exchange in nine months, supporting the government’s assertions that capital outflows were easing amid tighter scrutiny of cross-border flows.
China has tightened rules on moving capital outside the country in recent months as it seeks to support the yuan currency and stem a slide in reserves.
It burned through nearly $320 billion of reserves last year but the yuan still fell about 6.5 percent against the dollar, its biggest annual drop since 1994.
In recent weeks, the yuan has been steady against the dollar. However, the meeting between US President Donald Trump and Chinese President Xi Jinping is expected to have an impact on yuan’s value in the medium term.
Gold reserves value fell to $73.74 billion at the end of March, from $74.376 billion at end-February, data published on the People’s Bank of China website also showed.
Recent remarks by senior government officials seem to indicate that China is not firm in keeping its reserves above the $3 trillion mark, but prefers a gradual drop.
Falls in China’s foreign exchange reserves are normal and not unfavorable and China will not overreact to a decline in the foreign exchange reserves, central bank governor Zhou Xiaochuan said on March 10.
Fan Gang, an adviser to the People’s Bank of China, said late last month he believed the central bank would want a smooth transition to holding smaller foreign exchange reserves.
China does not have a “bottom line” for either the yuan exchange rate against the dollar or foreign exchange reserves, a senior PBOC official told Reuters in March.
Trump had said during the US election campaign that he would declare China a currency manipulator on his first day in office.
The US Treasury’s next currency report is due on April 14.
But now foreign exchange policy experts say that the Trump administration looks unlikely to formally declare China a currency manipulator shortly after meeting Xi Jinping.

Source: Arab News