Weaker Dollar Helps Push Up China's July FX Reserves

     BEIJING (MNI) - Stronger valuation effects pushed the level of China's

foreign-exchange reserves to the highest since last October.

     Foreign-exchange reserves surged $23.93 billion in July to $3.081 trillion,

the sixth consecutive monthly increase. June's increase was just $3.22 billion.

     "In July, cross-border capital flows remained stable, and the supply and

demand of foreign exchange is trending toward an overall balance," the State

Administration of Foreign Exchange (SAFE) said on its official website on

Monday.

     The valuation effect was the main reason behind the surge, SAFE said.

     "In the international financial market, non-dollar currencies have in

general appreciated versus the dollar," pushing up the value of forex reserves

overall, SAFE said.

     Largely affected by the strong euro, the dollar index fell from 95.6309 on

June 30 to 92.8091 on July 31.

     Xie Yaxuan and Yan Ling, analysts at China Merchant Securities, estimated

that the valuation effect contributed a $29.1 billion increase to

foreign-exchange reserves in July, while Liu Jian, senior analyst at Bank of

Communications, estimated it contributed $24 billion.

     On top of the strong valuation effect, traders also said greater selling of

foreign exchange was behind the increase.

     "I have a strong feeling that the environment has changed," a

Shanghai-based foreign-exchange trader at a commercial bank told MNI. "The

selling of foreign exchange has become more and more pronounced."

     "I expect the foreign-exchange sales data to be at least 'not bad' for

July," the trader continued.

     SAFE said it expects foreign-exchange reserves to remain stable.

     "As the supply-side structural reforms deepens and the innovation-driven

development strategy continues to be implemented, the Chinese economy will be

more positive," SAFE said. "As the financial market opens up further, the

foreign-exchange market develops healthfully and market expectations remain

stable, the foundation for stable cross-border capital flows will be more solid,

resulting in the stabilization of foreign-exchange reserves."

--MNI Beijing Bureau; +86 10 85325998; email: he.wei@marketnews.com

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

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