Q1 shows record decline for China in foreign reserves

BEIJING - According to the official balance of payments released by China’s State Administration of Foreign Exchange, China’s foreign exchange reserves fell by a record US$79.5 billion during Q1 2015, much more than the decline of US$29.3 billion occurring during Q4 2014.

Observers said this indicates an outflow of capital much larger than expected. This is also the first time SAFE has adjusted its calculation process for balance of payments in line with the standards of the International Monetary Fund (IMF), a move that will ideally help include the yuan in the Fund’s Special Drawing Rights basket (a decision that is expected to be made before the end of 2015). 

Banking expert Guo Tianyong said the drop in reserves will have “little effect”, as the overall total remains quite large, but “it will add pressure on the central bank’s monetary policy…It means the People’s Bank of China may increase money supply in other ways to offset the decrease to ensure market liquidity”.

During Q1 2015, China’s current account surplus increased to US$78.9 billion, an increase from Q4 2014’s US$$67 billion; deficit of financial and capital accounts also expanded during the same period from US$ 30.5 billion to US$78.9 billion. SAFE reported that volatility of cross-border capital flows has increased since the second half of 2014, yet it ultimately achieved a net inflow of US$38.2 billion. www.webershandwick.cn (ATI).