China FX Reserves leaking again

Stories here, here and here on China FX Reserves dropping by more than USD87.0bn in November. In August, they declined by around USD94.0bn. The FT article has a mitigating quote, attributed to a China-based analyst, in the end. Reserves are the lowest in more than two years now. Should not be surprised. Second and third quarter saw back-to-back capital outflows out of China. October was a partial reversal, it seems. It has resumed in November.

The Bloomberg story is important for it says that the amount of Reserves People’s Bank of China (PBoC) is expending could be more than what is gleaned from the reduction in Reserves. It is accumulating contingent foreign currency liabilities through Forward Contracts – something that Thailand did in 1997-98 and was caught out. It is not clear if China’s FX Reserves disclosure includes disclosure on forward currency positions.

According to this Yahoo! Finance story, Julian Evans-Pritchard of Capital Economics in Singapore estimates that capital outflows in November out of China were USD113.0bn.


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