China's May forex reserves expand on weaker dollar index

BEIJING - China's foreign exchange market registered a stable operation in May, with the forex reserves expanding, official data showed on Tuesday.

China's forex holdings amounted to $3.13 trillion at the end of May, up $8.1 billion, or 0.26 percent from the end of April, ending a four-month declining streak, according to the State Administration of Foreign Exchange.

"The supply and demand of the domestic foreign exchange market remained balanced," said Wang Chunying, the administration's deputy head, commenting on the data.

Wang attributed the increase in forex reserves to the combined impacts of the slight decline in the dollar index due to monetary policy and expectations in major economies, global economic growth prospects, and geopolitical situations.

Deeming the external situations as complex and grim, Wang said that the global financial market still faces uncertainties amid increasing risks and challenges in the global economy.

But China's economic fundamentals for long-term growth remained unchanged thanks to its efforts in coordinating COVID-19 prevention and control with economic and social development, which will help stabilize the country's forex reserves, said Wang.

Echoing Wang's views, Wen Bin, chief analyst at China Minsheng Bank, said he expects the country's forex reserves to maintain stability in the next stage as the country has rolled out policies to stabilize the economy.

An executive meeting last month decided to implement 33 measures in six areas to keep the economy running within an appropriate range, and the country then ordered government departments to introduce practical implementation measures by the end of May.

The economic recovery will consolidate with the COVID-19 impacts wearing thin and the policy incentives taking effect, providing a more solid foundation for the smooth operation of the foreign exchange market, said Wen.

Inflation in the United States has slowed down, and the dollar index eased, which is conducive to maintaining the yuan's exchange rate within a reasonable and balanced range, he said.

Wen also noted that China would likely report a reasonable surplus in international goods trade and remain a strong magnet for foreign investment.

Tuesday's data also showed China's gold reserves remained flat at 62.64 million ounces, valuing $115.18 billion.

The country should accelerate the implementation of the pro-growth measures to bolster the market confidence and fend off domestic and external risks to keep the forex reserves generally stable, said Wen.