China’s economy has been the center of much speculating during the past few months as markets all across China have experienced a slowdown and as a result a number of countries who rely heavily on China have suffered as well. Recent reports confirmed that the foreign exchange reserves in China fell by $43 billion during September 2015 and appear that the renminbi is urgently in need of more support.
The government had earlier intervened in China’s forex markets to provide the renminbi with support and this move caused a number of markets all across the world to also experience a decline. Even though the exchange reserves dropped significantly in September, it is a lot better compared to the capital outflow in August 2015 when exchange reserves dropped by as much as $94 billion. The People’s Bank of China had to intervene in August by selling a portion of its large stockpile in order to provide extra support to the renminbi.
In a statement, Ding Shuang, head of greater China economic research at Standard Chartered said
The figure shows capital outflow continued but more slowly than last month. The government is trying to reassure the market that a large-scale renminbi devaluation won’t happen not only through words but also by action. We expect the intervention will generally slow down in the following months.
Except for the month of April, China’s forex reserves have declined every single month in 2015 at an average of $36.5 billion. The market slump has left China’s forex reserves at $3.514 trillion which is the lowest exchange reserve that China has experienced since July 2016. Industry analysts predict that China’s economy might be doing a lot worse than what the figures suggest and predict that it will take awhile before China can fully recover.
China’s central bank has decided to get involved with both offshore and onshore markets in order to prevent the renminbi from plunging to new lows and is doing its best to bring balance but this strategy ends up draining exchange reserves. The golden week which occurred during the first week of October is a holiday period in China where many Mainland Chinese will travel overseas and also purchase foreign currency and also settle their credit card bills causing foreign reserves to take another dive.
The government will be keeping a close watch on foreign exchange reserves and the fluctuation of the renminbi and will decide when it should intervene and offer more support to the struggling renminbi.
