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China’s foreign-exchange reserves demonstrated a record fall in December. It is the biggest fall against November, when foreign-exchange reserves fell to three-year minimum.
This trend can be observed since May 2015, while in December reserves fell by $107.9 billion. China’s regulator is selling the US currency in order to stabiles rate of national currency on the background of economic slowdown and monetary policy normalisation in the US.
Some analysts have already called this period as ‘the end of China’s economic domination’. Now China can be as a bigger exporter of capital. Outflow of capital from China continued in December, after some silence, due to same reasons as earlier. Besides, China’s regulator released average rate of national currency against the US dollar by 0.5% below than it was noted earlier.
Outflow of capital is a new problem for China. Foreign-exchange reserves have been accumulated for a decade. China’s regulator has been buying the American currency on the background of massive export and foreign investments until China’s economy, reaching the second place in the world, started towing.
Judging by released data, China’s foreign-exchange reserves were at $3.33 trillion in December. Total annual reduction was $512.7 billion, reaching its negative record. Besides, reserves also fell due to devaluation of assets which were not nominated in the US dollar after the Fed had raised its rates.
China’s regulator releases periodically rate of national currency against the US dollar, but China’s currency has a free circulation on Hong Kong’s markets. Offshore rate of yuan is quite less than internal rate, which puts a downside impact and increases possibility of further outflow of capital. Moreover, too much devaluated currency frightens off investors which cut their investments, so that the government cannot raise its internal spending.
Fall of foreign liquidity is a direct consequence of outflow of capital. The companies are searching for possibility to repay borrowings with other currencies to secure themselves from further fall of yuan.
Theoretically low rate of currency should stimulate growth of export, but it doesn’t work in China on the background of concerns about economic problems.