MNI 5 THINGS: China FX Reserves Valued Higher 2nd Straight Mo

     BEIJING (MNI) - China's foreign exchange reserves increased for a second

consecutive month in July on asset prices changes, according to a statement by

the People's Bank of China (PBOC) Tuesday.

     -FX reserves rose by $5.82 billion to $3.12 trillion as of July 30,

compared with an increase of $1.51 billion in June. The State Administration of

Foreign Exchange, a division of the PBOC, said the higher value of China's FX

reserve in U.S. dollar terms was due to non-dollar currency depreciation against

the greenback and changed asset prices.

     -Forex market supply and demand were basically balanced in July and

cross-border capital flows remained stable, and the flexibility of the yuan

exchange rate has been enhanced markedly, SAFE said. The increase of forex

reserves indicated China's capital account showed a net inflow, despite the yuan

losing 3.03% in value against the dollar.

     -SAFE said that financial markets has been volatile this year due to a

complicated international economic and financial scenario, rising global trade

protectionism and policy diversification of major economies. China's forex

reserves will remain stable given strong economic fundamentals, alongside stable

capital flows and forex market.

     -The increase of forex reserves also suggested the PBOC may not have

deployed forex reserves to defend the yuan in July, as the central bank tried to

avoid direct intervention in the market. In addition, the declining total forex

reserves in recent years gave the PBOC smaller ammunition to intervene in the

forex market.

     -SAFE data signals that current capital outflow pressure remains moderate,

but will likely pick up in the future. The capital and financial accounts

deficit, which includes net error and omission numbers, was $5.8 billion for the

second quarter, compared with a $72.5 billion surplus Jan-Mar. Capital inflow

through surplus capital account may be eroded in the future, weakening the

country's overall international payments.  

--MNI Beijing Bureau; +86 (10) 8532 5998; email: marissa.wang@marketnews.com

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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