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China’s forex reserves drop US$15.89b, hitting lowest level since 2011

China’s foreign exchange reserves dropped more than expected in August, hitting the lowest level since December 2011, indicating that capital outflow pressures remain a concern.

The forex reserves stood at US$3.185 trillion at the end of last month, down US$15.89 billion from the end of July, according to data released by the People’s Bank of China on Wednesday. The market consensus was for a US$11 billion decline. The reserves fell US$4.1 billion in July.

“The data showed capital outflow pressure remained on expectation of further yuan depreciation,” said Liu Jian, a senior researcher at the Bank of Communications. “A faster depreciation of the yuan in late August may quicken the outflow.”

Liu said pressure on outflows would remain for the rest of the year as a gradual depreciation of the yuan was widely expected, although the pressure was smaller than what was seen last year.

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China unexpectedly devalued the yuan by 2 per cent in August last year, triggering a flood of capital outflows over fears of a sharp further depreciation. The reserves fell by US$513 billion last year. China has already introduced tighter controls on capital outflows to put a brake on the drop.

Julian Evans-Pritchard, China economist at Capital Economics, said the data suggested continued intervention by the central bank and outflows remained sizeable. “The key takeaway is that although concerns about China are no longer front-page news, capital outflow pressures haven’t gone away,” he wrote in a note.