China’s foreign exchange reserves dipped below $3tn in January for the first time in five years but the decline was the lowest in seven months as tighter capital controls and a stronger renminbi discouraged outflows. Official reserves fell by $12.3bn to just under $3tn, well below the average $52bn monthly drop in the third quarter of last year. China’s reserves peaked at $3.99tn in June 2014 but since then the central bank has sold dollars aggressively to curb renminbi depreciation.
But a stronger renminbi in January weakened investor impetus to buy foreign currency, reducing the need for intervention. The renminbi recovered by 1 per cent in January, in line with a broader downward correction in the dollar following the US currency’s surge after Donald Trump’s election as president and the Federal Reserve’s interest rate rise in December. The renminbi weakened by 6.5 per cent versus the dollar in 2016, its biggest annual decline on record. Zhang Yu, head of international research at Minsheng Securities in Beijing, warned that the currency’s January gains may be shortlived.