Chinese Reserves Unexpectedly Drop Below $3 Trillion For The First Time Since 2011

Tyler Durden's picture

Beijing surprised China-watchers this morning, when the PBOC announced that in January, China’s foreign-currency reserves dipped by $12.3 billion, below the key "psychological level" of $3 trillion, or $2.998 trillion to be exact, declining for the 7th consecutive month, and dropping to the lowest since early 2011. Consensus had expected a drop of $10.5 billion to just above $3 trillion.

According to the PBOC, holdings of SDRs decreased to 2.21 trillion from 2.24 trillion in December. Gold reserves remained at 59.24mm troy ounces, however rose in dollar terms due to the increase in the price of gold from $67.9BN to $71.3BN.

The central bank’s intervention in foreign-exchange markets drove the drop, as did seasonal factors such as high demand for other currencies during the week-long Lunar New Year holiday, the State Administration of Foreign Exchange said in a statement.

The January decline was much smaller than the $41 billion reported in December, and was the smallest in seven months, indicating China's renewed crackdown on outflows appears to be working, at least for now. China has taken a raft of steps in recent months to make it harder to move money out of the country and reassert a firmer grip on its faltering currency, even as U.S. President Donald Trump steps up accusations that Beijing is keeping the yuan too cheap.

While the $3 trillion mark is not seen as a firm "line in the sand" for Beijing, concerns are swirling over the speed at which the country is depleting its reserves and how much longer it can afford to defend the currency. Some analysts estimate China needs to retain a minimum of $2.6 trillion to $2.8 trillion under the International Monetary Fund's (IMF's) adequacy measures, and fears of a devaluation would likely intensify capital flight.

The drop in January's reserves could have been worse if not for a sudden reversal in the surging U.S. dollar in January, some analysts said. The softer dollar boosted the value of non-dollar currencies that Beijing holds. The yuan has gained nearly 1 percent against the dollar so far this year. But analysts expect downward pressure on the yuan to resume, especially if the U.S. continues to raise interest rates, which would likely trigger fresh capital outflows from emerging economies such as China and test its enhanced capital controls.

As Bloomberg adds, further erosion of the world’s largest stockpile may prompt policy makers again to tighten measures for controlling outflows and on companies transferring money to other countries. Authorities recently rolled out stricter requirements for citizens converting yuan into foreign currencies as the annual $50,000 foreign exchange quota for individuals reset Jan. 1.

Some analysts fear a heavy and sustained drain on reserves could prompt Beijing to devalue the yuan as it did in 2015, which would sow turmoil in global financial markets and likely stoke political tensions with the new U.S. administration.

Economists expect more forceful tightening of regulatory controls after Tuesday's data, though China's financial system is notoriously porous, with speculators quickly able to find new channels to get funds out of the country. Here are some thoughts from the economist community:

  • "With FX reserves below $3 trillion, we can expect capital controls as well as tightening yuan liquidity to continue, as the authorities try to avoid a further drawdown," said Chester Liaw, an economist at Forecast Pte Ltd in Singapore, referring the central bank's surprise hike in short-term interest rates on Friday.
  • “With reserves dropping below the psychologically important threshold of $3 trillion, this will further ramp up pressure on Chinese policy makers to prevent the further draining of reserves," said Rajiv Biswas, Asia-Pacific chief economist at IHS Global Insight in Singapore. "The Chinese government and the PBOC are now facing a tremendous battle to stem further significant capital outflows while also trying to maintain confidence in the yuan."
  • "A combination of yuan strength, stricter capital controls and substantial valuation effects failed to arrest the slide," Tom Orlik, chief Asia economist at Bloomberg Intelligence in Beijing, wrote in a report. "A seventh straight month of falling reserves, and a drop below the $3 trillion threshold, means no respite for China’s policy makers in their battle against capital outflows."
  • "The PBOC isn’t defending the $3 trillion threshold at all costs, as some thought," said Harrison Hu, chief greater China economist at Royal Bank of Scotland Group Plc. in Singapore. "Reserves have showed signs of stabilization, and the momentum will continue."
  • "The breach of $3 trillion isn’t significant in the big picture," said Jason Daw, head of emerging-market currency strategy in Singapore at Societe Generale SA. "It was only slightly lower than consensus and inevitable given the trend over the past couple of years."

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NoDebt's picture

That's right, keep defending that peg, ya bastards.

 

petar's picture

They are just getting rid of the $

A82EBA's picture

thats ok the ESF can cover it. Always more tricks up theyre sleaves gen pop never knew about

Obadiah's picture

 

Selling treasuries to keep thier yuan low?

The chineese elite are moving offshore?

 

Which?

gatorengineer's picture

selling treasuries in Dollars and moving to a different currency would strengthen that currency and weaken the dollar.

headhunt's picture

Neither - they are using their reserves to prop up their economy - which is what reserves are primarily used for.

Save for a rainy day.

new game's picture

and stabilize markets with 30trillion in headwinds. peter n; plez put a nail or two in their coffin and watch the demise. the manipulating fuks. liars. cheats. china one my ass. calling tiawan? yup. call repeatedly. piss them off to the point they do something uber dumb. yea dumber than financing the financing that is unpayable. is that calling the kettle black or what? lol.

fuk china, the cocksucking copycat bastards...is that racist?

trump, annouce america one policy. lol

thecondor's picture

I think China is in way worse shape than any juan thinks.  They need the US and it consumerism. 

NihilistZerO___'s picture

I've often wondered if the Western Nations didn't have this planned all along. The Chinese aren't to bright. Mao purged their best and brightest.  Twice.  Build them up to counter the Soviets.  Let them peak.  Then pull the rug to make them victims of a West Friendly revolution.  As it stands I would think the upper class plus the peasants could overthrow the Central Government Oligarchy with ease if the military flipped.  That's a danger of a society so top heavy.  Once a revolution gets started they have an extreme numbers advantage.  The flight of the Chinese oligarchy over the last several years seems to support this theory.  They know what's coming.  I just hope we see each their assets and send them back :-)

TruthHunter's picture

Borrow like there' no tomorrow, then spend your savings...

what could go wrong?

MFL5591's picture

The criminals setting up the crash to dump in Trumps lap while the african clown is playing Golf and laughing at us!

illuminatus's picture

I just wonder why they would announce that?

gatorengineer's picture

To try and make a statement to Mr. Trump that "wee sooo sorry, but no can keep Yuan from Depreciating...... come back tuesday, no starchee"

Kayman's picture

"I just wonder why they would announce that?"

Because the reserves are substantially below $3 Trillion.

DirkDiggler11's picture

Chi-Com's are just trying to send a message to Trump. They are still pissed as shit that Trump is speaking directly to Taiwan.

headhunt's picture

Not really, China has some real and very large economic problems.

The drop is reserves, which are still substantial, is due to the fact they are using their reserves to prop up their economy.

gatorengineer's picture

you can fake some of the books some of the time, but not all of the books all of the time.....

DirkDiggler11's picture

I agree that the Chi-Com's have serious issues. The Chi-Coms also fake about every piece of financial reporting know to man, they make the local finance guy from India seem respectable.
My point is there are definitely signaling by reporting their reserves fell below the 3 Trillion red line in the sand, otherwise they would just lie like they normally do.

pc_babe's picture

$3T is the red line in the sand
$3T is the red line in the sand
$3T is the red line in the sand
$3T is the red line in the sand
$3T is the red line in the sand
$3T is the red line in the sand
$3T is the red line in the sand

eh, not so much, maybe

VinceFostersGhost's picture

 

 

$9T was the red line in the sand for Obama when Bush was President.

 

Then he said screw it......and took it to $20T......cause it was so patriotic!

wrwk_ec's picture

The drop below $3 trillion was definetly not "unexpected"

Dominus Ludificatio's picture

All Chinese money outflows are being used to finance their new colonies their citizens are establishing all over the world.They have long term plans to make others more receptive and accept China as the new world leader.

Caleb Abell's picture

The Chinese will bring peace.  Once the snowflakes succeed in creating open borders, then China can help about 300 million chinese emigrate to the US, where they will win every election and convert the US into a Chinese province.  Things will get better.  A Peking Duck in every pot.

eishund's picture

r they pumping some of the proceeds from the "reserves" they sold into that barbaric relic? or am i hoping too much.

Last of the Middle Class's picture

Anytime my account goes below 3 trillion I shit a brick too. These guys are fucking communists, they can conjure up 3 trillion over a replay of a really bad Karl Marx biography on chinkflix.

BlueHorseShoeLovesDT's picture

Twitter is Nero's new fiddle

Iconoclast's picture

China will blow, and when it does it'll make Lehman and the sub prime fiasco look like a kid's piggy bank smashing on the kitchen floor. It'll take us all down, they've discovered how easy it is to bring money into existence, then pollute control and corrupt the global monetary system. We are so fucked.

Stevious's picture

Stupid graph.  Show one with the missing 75% and the graph becomes instantly ho hum.

Graphs are often used this way, it's sad.

onmail1's picture

China must liquidate ALL the US treasury
& convert it into something that can be used to
run the BRICS banks

Why ? because when US starts a war with China
The first thing they will do is :

TO MAKE ILLEGAL ALL CHINESE HELD US TREASURY

& then its value would become ZERO

China act fast now, buy all the gold, platinum, silver, copper
whatever, only physical stuff

Because in the event of war west will treat ur property
as enemy property & it will all be confiscated

Even real estate

Make BRICS strong, BRICS is the new future
BRICS is the new world order