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China says forex reserves still abundant

Updated: Jan 19,2017 8:01 PM     Xinhua

BEIJING — China still has ample foreign exchange (forex) reserves despite continued drops, and fluctuations in the reserves are normal, the State Administration of Foreign Exchange (SAFE) said on Jan 19.

The forex reserves are strong enough to cover China’s import bills and external debts and are able to safeguard the country’s economic and financial security, said SAFE spokesperson Wang Chunying.

China’s forex reserves fell for the sixth straight month to about $3.01 trillion last month, $41.08 billion lower from the November level, according to the central bank. For the whole year of 2016, forex reserves decreased $319.84 billion.

The continued drop has stoked market concerns as the forex reserves have approached the $3 trillion psychological mark, a level that the country has stayed above for nearly six years.

But Wang said there is no need to “create excessive hype over a certain number.”

“It is normal to see upward or downward fluctuations in any financial indicator,” she said.

Wang explained that although there is no unified standard for forex reserve levels, traditionally, a country’s forex reserves should cover at least three months of imports and all of its short-term foreign debts.

For China, paying for three months of imports requires about $400 billion, if all paid in foreign currencies. Meanwhile, short-term external debts currently stand between $800 billion and $900 billion, according to Wang.

Forex reserves dropped in December as the central bank used them to balance the forex market and non-greenback currencies weakened against the US dollar, SAFE said in a previous statement.

Wang also mentioned that the domestic private sector’s growing appetite for foreign assets is part of the reason for the slipping reserves.

Despite recent drops, China is still home to the world’s largest forex reserves and enjoys forex inflows from its trade surplus and foreign direct investment.

Wang said China’s forex reserves are expected to fluctuate within a reasonable range in the future, given the uncertain trend in the US dollar and China’s medium-high level of economic growth.