China's Foreign Reserves Rise a Sixth Month on Yuan Strength

(Bloomberg) -- China's foreign-exchange reserves posted a sixth straight monthly increase as the yuan strengthened and economic growth remained robust.

Key Points

• The foreign currency stockpile climbed $23.9 billion to $3.081 trillion in July, the People's Bank of China said Monday
• Level compares with a $3.075 trillion estimate in a Bloomberg survey

Big Picture

Solid economic data and the presence of curbs on moving money abroad have helped restore confidence in the currency and ease outflow pressure. The foundation for steadier cross-border capital flows has become more solid, the State Administration of Foreign Exchange said last month. A weaker dollar has also lifted the value of assets in yen and euros.

Economist Takeaways

"Capital outflows have eased markedly since the start of the year and are now mostly offset by the trade surplus," said Julian Evans-Pritchard, a China economist at Capital Economics Ltd. in Singapore. "This shift should prove supportive of the renminbi, which we think will strengthen against the U.S. dollar during the next couple of years."

"Depreciation expectations in the market have definitely abated, and outflow pressure has eased," said Zhu Qibing, chief macro-economy analyst at BOC International China Ltd. in Beijing. He expects reserves to hover around the current level for the rest of the year.

"This is enough to change market expectations from yuan depreciation to appreciation," said Iris Pang, an analyst at ING Groep NV in Hong Kong. "The pressure on capital outflows has eased a lot, but I don't think regulators will relax curbs."

"Today's data on FX reserves perfectly fits the latest change of mood regarding the Chinese currency," Frederik Kunze, chief China economist at German lender NordLB in Hanover, said in an email. "Fears with respect to a pronounced depreciation of the RMB against the USD have receded substantially. Attention will likely start to focus on more liberalization measures."

The data reflect "the ramping up of efforts by Chinese authorities to curb capital outflows through clamping down on corporate outbound M&A deals as well as tougher regulations on private individual remittances for foreign property purchases," Rajiv Biswas, Asia-Pacific chief economist at IHS Markit in Singapore, said in an email.

The Details

• China has maintained basically balanced cross-border capital flows this year, the State Administration of Foreign Exchange, which executes currency policy, said in a statement
• Reserves fell 3.8 percent from a year earlier
• The onshore yuan strengthened 0.8 percent to 6.7290 per dollar last month

--With assistance from Miao Han and Kevin Hamlin

To contact Bloomberg News staff for this story: Xiaoqing Pi in Beijing at xpi1@bloomberg.net, Yinan Zhao in Beijing at yzhao300@bloomberg.net.

To contact the editors responsible for this story: Jeffrey Black at jblack25@bloomberg.net, Jeff Kearns, Robin Ganguly

With assistance from Xiaoqing Pi, Yinan Zhao