CHINA TOPIX

Updated 11:29 AM EDT, Tue, Jun 16, 2020

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China’s Foreign Exchange Reserves Increase for Second Straight Month in April

China’s Foreign Exchange Reserves.

(Photo : Getty Images.) China’s foreign exchange reserves increased for a second straight month in April as the Yuan gained strength against the US Dollar.

China's foreign exchange reserves increased for a second straight month in April as capital outflow eased and the Chinese currency gained strength against the US dollar.   

The People's Bank of China (PBOC) said on Saturday that the country's foreign exchange reserves increased by $7.09 billion last month to reach $3.220 trillion. In March, the forex reserves increased by $10.2.    

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"A second month of rising reserves shows fears of cascading capital outflows are disappearing into the rear view mirror," Chinese state media agency Xinhua said, citing  Bloomberg economists Tom Orlik and Fielding Chen.

Zhu Chaoping, an economist at UOB Kay Hian Holdings Ltd., estimates that $14 billion of capital flowed out of China in the month of April. This is far less than the capital outflow of $145 billion witnessed in the month of January.

On the front of currency, the depreciation in the value of the dollar over past couple of months has greatly helped China's central bank to stabilize the Yuan. The weaker dollar means that China's central bank did not have to burn a hole in its forex reserves to stabilize the Yuan, subsequently halting the decline in its reserve.

However, a possible rebound in the value of the dollar in the coming weeks is likely to bring back the pressure on the Yuan and also on the country's foreign exchange reserves.

Economic experts do not see the recent surge in China's foreign exchange reserves as a definitive sign of an economic recovery. This is mainly because the latest economic data from China's manufacturing and non-manufacturing sectors have been pretty sluggish and continue to depict a sober picture of the country's economy.

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