China’s State Administration of Foreign Exchange (SAFE) presented on May 7 that the country’s foreign exchange reserves fell 68.2 billion dollars or 2.14% to 3.11 trillion dollars in April. This is the largest single-month decline since November 2016.
As seen clearly from SAFE’s data, China’s foreign exchange reserves have experienced a downward trend with an increasing pace since the beginning of 2022.
Wang Chunying, Deputy Administrator of SAFE, explained the reason for this dramatic change.
It is the combined impact of the increase in the dollar index and the slump in the global financial asset prices.
This impact comes from some factors, including the monetary policy expectations of major countries, the geopolitical tension, and the resurgence of the Covid-19 epidemic.
However, Wang said that although external uncertainties and fluctuations in the global financial market are rising, China’s strong economic resilience and continued efforts to control the Covid-19 pandemic are unchanged. These factors will help to stabilize the nation’s forex holdings.
According to the Wall Street Journal, the Shanghai Composite and CSI 300 indexes dropped nearly 5%. The offshore yuan fell past 6.60 against the dollar due to the previous sell-off.
Reuters reported that foreign investors had sold a net 1.01-billion-dollar worth of Chinese equities as of April 22, following 7.1 billion dollars in March.
Chinese bonds also suffered a sell-off worth 17.7 billion dollars in March through Hong Kong’s Bond Connect. This was the most significant outflow since August 2017.