Owing to shifts in asset prices, China's foreign-exchange reserves grew unexpectedly in May, even as the yuan weakened on worries about an escalation in China-US frictions, and regulators say the country's economic capability ensures stability moving forward.
The country's forex reserves - the biggest in the world - increased to US$3.102 trillion last month, central bank figures showed on Sunday.
Last month China's forex market performed steadily, with demand and supply basically balanced, State Administration of Foreign Exchange spokesperson Wang Chunying disclosed. Wang attributed the rally to multiple factors including exchange rates and asset price changes.
Despite a complex external economic climate in the face of the COVID-19 pandemic, Wang said the country's economy has seen a gradual return to normalcy, and it is resilient, with lots of potentials to adapt and maneuver, providing strong foundations for forex reserve stability.
International inflows into Chinese stocks and equities have improved recently as financial players bet on an economic revival. Tight capital regulations have also helped the country keep forex outflows under control during the last few months, despite the negative impact of the ongoing global health crisis, an extended trade dispute with the US and sluggish economic growth.
Echoing Wang's viewpoint, Wen Bin, head analyst at the China Minsheng Bank, stated that with the imposition of proactive fiscal measures and financial policy efforts directly aimed at the economy, the fundamental long-term goal of the government's economy will support the integrity of foreign exchange scale.
In commodities, the market value of China's gold reserves climbed to US$108.29 billion at end of May, from US$106.67 billion at end of April, indicating an increase in the USD-denominated price of the yellow metal.
Meanwhile, as the offshore Chinese currency matched its record low in the past seven days, it meant as a caution that the country's exchange rate fixing had come back as a major variable to players in the $6.5 trillion per day world foreign exchange marketplace.
China's appetite to let significant declines in its currency will impact the day to day moves of an entire basket of other major currencies. While correlation is not present over a longer timeframe, last Wednesday proved the type of spot impact the Chinese yuan can have for its counterparts.
The offshore yuan was down 0.7 percent at one point versus the greenback in the midst of the bilateral spark in Hong Kong. Australia's currency weakened as much as 1.3 percent, while the Colombian peso declined 1.4 percent.
