Consecutive rise in China’s foreign exchange reserves attributed to supply-side reforms

Experts say consecutive improvements in China’s foreign exchange reserves in the first 6 months of 2017 illustrate that supply-side structural reforms undertaken by the government in 2016 to support economic growth are beginning to bear fruit.

According to statistics released recently by the People’s Bank of China, foreign exchange reserves reached $3.08 trillion by the end of July 2017, up $23.9 billion from the previous month and achieving increments in six consecutive months.

Experts said the rise can be attributed to a series of positive changes in China’s economy brought about by reforms, including good momentum for economic transformation and upgrading, rationality in purchasing foreign exchange and active investments by overseas business people in the Chinese market.

Against the backdrop of supply-side reforms, upgrade of enterprise products and improvements in export comprehensiveness provided strong economic support for the picking up of China’s foreign exchange reserves, said Zhang Huanbo, associate researcher at the Department of Research, China Center for International Economic Exchanges.

Zhang added that China’s foreign exchange reserves saw rapid growth from nearly $165.5 billion at the beginning of the 21st century and a slow decline after reaching the peak of $3.99 trillion in 2014.

Due to pressure from capital outflows brought about by irrational purchase of foreign exchange before, concerned Chinese departments took timely measures to offer proper guidance. Many enterprises faced with risks and problems of investments, mergers and acquisitions overseas reconsidered their plans abroad and thus released pressure for outflow of foreign exchange, Zhang noted.

In addition, increase in foreign direct investments is another contributor to the rise of China’s foreign exchange reserves.

Statistics released by China’s State Administration of Foreign Exchange show that China’s net inflow of foreign direct investments was $14.2 billion in the first half of 2017, signifying foreign investors’ bullish bet on the Chinese market as evident in the fact that more and more foreign banks are setting up branches in China.

Experts stressed the possibility of China’s international balance of payments being further optimized and cross-border capital flows becoming steadier despite any future fluctuations in the country’s foreign exchange reserves.

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