China’s foreign exchange reserves fell far more than expected in November to the lowest level in nearly six years, as authorities struggled to stem capital outflows and shore up the sliding yuan in the face of the relentlessly rising dollar.
With U.S. President-elect Donald Trump threatening to label China a currency manipulator on his first day in office, the country’s central bank is walking a tightrope, seeking to slow the yuan’s descent and tightening controls on money moving out of the country to deter capital flight.
China’s reserves fell by $69.06 billion last month, the fifth straight month of declines and more than twice what economist had expected, central bank data showed on Wednesday.
The foreign exchange regulator made a rare comment on the reserves data soon after, explaining the reserves’ fall as a combination of the central bank’s activity and the impact of the stronger dollar, which reduced the value of other currencies held by China.
While China still has the world’s largest forex reserves, they have steadily declined over the last two years to $3.052 trillion, levels not seen since March 2011.
Some traders believe the $3 trillion mark is a key psychological level for the People’s Bank of China (PBOC), but it risks rapidly churning through its remaining stockpile if the U.S. dollar inexorably rises and it fights to steady the yuan.
“The central bank is making a difficult choice between the two (keeping the yuan stable or protecting its reserves),” said Wang Jun, senior economist at China Centre for International Economic Exchanges, a Beijing-based think-tank.