China’s massive foreign exchange reserves shrank on a quarterly basis for the first time since 1998, likely due to a combination of a smaller trade surplus and expectations that renminbi appreciation against the US dollar will slow, The Wall Street Journal reported. The country’s forex reserves topped US$3.18 billion at the end of December, down US$20.55 billion from the end of the third quarter. Analysts pointed to several possible causes for the decline. China’s trade surplus has narrowed in recent months as demand falters in the US and Europe. Global investors might also be exiting their renminbi positions because further appreciation of the currency seems less likely as China’s growth cools. Estimates for the size of capital flight in the fourth quarter vary from US$34 billion to US$100 billion. Speculation is also mounting that China might shift its forex reserve asset portfolio to generate higher returns.
Categories