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Slide in reserves reported
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China's foreign exchange reserves slid the most in at least nine years in January, Reuters reported yesterday, citing an unidentified person "familiar with the situation".

Analysts said outflow of foreign capital to replenish liquidity in the financial system of developed economies, as well as the rumor that the yuan would depreciate in January, are potential causes if the country's foreign exchange reserves really did drop that much.

The Reuters report did not disclose the exact amount of declining reserves, but said the decline was partly due to the US dollar's appreciation and withdrawal of capital by foreign companies and investors hurt by the financial crisis.

"China's trade surplus was impressive in January, and if the reserves really dropped, withdrawal of capital by foreign companies and investors is a possible cause," said Zhao Xijun, finance professor of the Renmin University of China.

Repayment of short-term borrowing may also be a cause, said Zhao. The expectation of US dollar appreciation may have pushed capital to flow into the US in January, but the rumor that the yuan would depreciate may be a more powerful force, he said.

China's forex reserves reached US$1.95 trillion at the end of last year. The country does not release the monthly data and the first-quarter figures are due to be released in April.

(China Daily March 18, 2009)

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