China’s foreign exchange reserves stood at $3.26105 trillion as of the end of October, decreasing by $55.317 billion from the end of September, a drop of 1.67%, according to data released by the State Administration of Foreign Exchange (SAFE).
Despite the slight decline, China’s foreign exchange reserves have remained above the $3.2 trillion mark for 11 consecutive months, and in 2023, reserves were stable above $3.1 trillion for the entire year.
The decline was largely attributable to the impact of monetary policy expectations in major economies and macroeconomic data, which led to strengthening of the US dollar and caused global financial asset prices to decline, SAFE said.
The combined effects of exchange rate fluctuations and asset price changes contributed to the decline in foreign exchange reserves last month, it said.
China has implemented existing and new policies aimed at bolstering the economic recovery, which will help keep foreign exchange reserves relatively stable, the regulator added.
The data also showed the the People’s Bank of China (PBOC) refrained from gold purchases for the sixth consecutive month in October. As of the end of last month, the PBOC’s gold reserves stood at 72.8 million ounces (about 2,264.33 tonnes), remaining unchanged since April this year. Before that, the PBOC had increased its gold reserves for 18 consecutive months.
The slight decline in foreign reserves last month was mainly due to the fluctuations in exchange rates and asset price changes, said Wang Qing, Chief Macroeconomic Analyst at Golden Credit Rating International.
The US dollar index rose by 3.2% month-over-month in October, while major non-dollar currencies depreciated collectively, with the Japanese yen, euro, and British pound weakening against the dollar by 5.5%, 2.3%, and 3.6%, respectively. The 10-year US Treasury yield rose by 47 basis points to 4.28%. Equity prices saw declines, with the S&P 500 falling 1%, the Euro Stoxx 50 sliding 3.1%, while the Nikkei 225 gaining 3.1%.
The strengthening of the US dollar index in October, partially driven by factors including the US presidential election, is estimated to have directly decreased the dollar value of China’s non-dollar-denominated assets by about $40 billion, and additionally, the rise in US Treasury yields and the decline in global equity markets contributed to the decline in China’s reserve valuation, Wang said.
With external demand rebounding and growth in cross-border e-commerce, China’s exports have maintained strong growth momentum, which will continue to support an adequate level of foreign reserves, Wang said.
Wen Bin, Chief Economist at China Minsheng Bank, said that the current complex and volatile international political and economic environment poses both challenges and opportunities for China, especially with Donald Trump returning to the White House, which could reshape global trade and supply chains.
In the future, reforms in trade liberalization and export structural upgrades will help mitigate external uncertainties, with exports continuing to underpin cross-border capital flows, Wen said.
“Additionally, recent policy packages have had a noticeable positive impact on the stock market, making yuan-denominated assets more attractive to foreign investors and supporting foreign reserves,” Wen said.