February 7, 2020 / 9:24 AM / 16 days ago

China Jan FX reserves unexpectedly rise, regulator sees only temporary virus impact

BEIJING (Reuters) - China’s foreign exchange reserves unexpectedly rose in January as the yuan firmed after Beijing and Washington signed an initial trade deal, defusing an 18-month row that weighed on global growth.

FILE PHOTO: Arrangement of various world currencies including Chinese Yuan, US Dollar, Euro, British Pound, shot January 25, 2011. REUTERS/Kacper Pempel/Illustration/File Photo

The country’s foreign exchange reserves — the world’s largest — rose $7.57 billion in January to $3.115 trillion, central bank data showed on Friday.

Economists polled by Reuters had expected reserves would fall by $7.92 billion to $3.100 trillion.

The increase in January was due to changes in currency exchange rates and the prices of global assets that China holds, the foreign exchange regulator said in a statement.

The State Administration of Foreign Exchange (SAFE) also said the impact of a coronavirus outbreak on China’s economy would be temporary.

Capital Economics estimated capital outflows last month picked up to $30 billion from $15 billion in December, with the increase likely coming in the last third of the month as public awareness of the outbreak jumped.

That amount would still be considered modest, but outflow pressures may have escalated this week as Chinese financial markets reopened after an extended holiday and reacted to the rapidly spreading epidemic.

Some $700 billion in capitalization was wiped off mainland stock markets on Monday alone, though they clawed back a bit of ground later in the week.

Strict capital controls have helped China keep outflows under control over the past year despite the trade war with the United States and weakening economic growth at home. Rising foreign investment in Chinese stocks and bonds have also seen growth in inflows.

China’s forex reserves climbed $35.2 billion in 2019, after a drop of $67.2 billion in 2018.

China burned through $1 trillion of reserves supporting the

yuan during the previous economic downturn which was marked by

rapid capital flight and a surprising yuan devaluation in 2015.

The yuan CNY=CFXS rose 0.38% against the dollar in January, but it fell 1% between Jan. 20 and Jan. 23 amid mounting worries about the impact from the outbreak that started in the central Chinese city of Wuhan.

The dollar rose about 1% in January against a basket of other major currencies .DXY.

China held 62.64 million fine troy ounces of gold at the end of January, unchanged from 62.64 million ounces at the end of 2019.

The value of China’s gold reserves rose to $99.24 billion at the end of January, from $95.406 billion at the end of 2019.

Reporting by Judy Hua and Kevin Yao; Editing by Kim Coghill

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