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Record monthly fall for China's forex

September 7, 2015

China's decision to devalue the yuan last month left investors jittery, prompting Beijing to take various steps to try to stabilize investment markets. Its latest intervention: An expensive attempt to prop up the yuan.

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Chinese yuan and the US dollar
Image: picture-alliance/dpa

China's foreign exchange reserves registered their largest monthly fall on record in August. The cause: Beijing sold dollars to buy yuan, in an effort to support the value of its own currency following worries over a sudden devaluation.

China's dollar reserves, by far the world's largest, dipped $93.9 billion (84.2 billion euros) last month to $3.557 trillion, according to new data released by China's central bank on Monday.

August was the fourth consecutive month reserves fell, putting the figure at its lowest level since August 2013. In previous years, China's government had bought dollars to slow the appreciation of the yuan.

Jittery markets

The drop in the central bank's foreign exchange reserves left market analysts questioning how sustainable China's efforts to support the yuan are, as capital flows out of the country due to fears of an economic slowdown and prospects of rising US interest rates.

The decline follows a nearly two percent devaluation of the yuan on Aug. 11, which prompted heavy selling of the currency. That move, coupled with wild swings on the Shanghai stock exchange, fueled fresh concerns about the Chinese economy, causing jitters in markets around the world.

Tricky rebalancing

After decades of double-digit expansion, Chinese policymakers are trying to pull off a tricky rebalancing, from an investment- and export-led economic model to one where domestic consumer demand drives slower but more sustainable growth.

China on Monday also revised down last year's economic growth figure to 7.3 percent - a notch below the previous estimate of 7.4 percent.

This year the economy is headed for its slowest expansion in 25 years, stoking concerns that China may miss the official growth forecast of around 7 percent.

But some analysts say increased government spending, together with five interest rate cuts since last November, mean the risk of missing the growth target has diminished.

China's top economic planning agency tried to back up that view, saying on Monday the country's power usage, rail freight and property markets have all shown improvements since August, indicating the economy is stabilizing.

el/nz (Reuters, AFP)