×

UPDATE 1-China August FX reserves rise for 7th straight month, to $3.092 trln

BEIJING, Sept 7 (Reuters) - China's foreign exchange reserves edged up in August for a seventh straight month, largely in line with market expectations, as tighter regulations and a weaker dollar continued to keep capital outflows in check.

Reserves rose nearly $11 billion in August to $3.092 trillion, compared with an increase of $24 billion in July.

Economists polled by Reuters had expected foreign exchange reserves to rise by $19 billion to $3.1 trillion.

It is the first time that China's reserves have climbed for seven months in a row since June 2014, and marked the highest level since October last year.

A dramatic slowdown in capital outflows - which are seen as one of China's biggest risks - has helped boost confidence in its economy this year ahead of a key political leadership reshuffle next month.

China burned through nearly $320 billion of reserves last year but the yuan still fell about 6.5 percent against the surging dollar, its biggest annual drop since 1994.

Its forex pile, the world's largest, fell below the closely watched $3 trillion level in January for the first time in nearly six years, raising market fears that Beijing may devalue its currency to relieve the pressure.

But the Chinese currency has gained more than 6.5 percent against the dollar so far this year, erasing all its 2016 losses, thanks largely to the U.S. currency's sharp reversal and Beijing's steady tightening of forex controls.

The yuan has also been boosted by fresh steps by the central bank to flush out speculators who were betting the currency would continue to fall.

In August alone, the yuan rose 2.1 percent against the dollar, its best month since 1994, and on Thursday it broke through 6.5 yuan per dollar for the first time since May 2016.

CLAMPDOWN CONTINUES

Since late last year, Chinese authorities have steadily clamped down on outflows and have widened their net in search of other ways that capital may be leaving the country.

In recent months, regulators have turned their attention to "irrational" overseas investment on high-profile acquisitions such as hotels and football teams around the world.

The state's cabinet issued rules on acquisitions abroad for the first time in August, signaling a further slowing of the flood of money that has flowed overseas in recent years.

China's non-financial outbound direct investment plummeted 44.3 percent in January-July from a year earlier.

But Chinese acquisitions in countries officially linked to the Belt and Road initiative, a signature foreign policy of President Xi Jinping, totalled $33 billion, surpassing the $31 billion tally for all of 2016, Thomson Reuters data showed.

Despite the yuan's newfound strength, most analysts believe that tougher forex controls will largely remain in place for some time after the Communist Party Congress in mid-October, even if that complicates Beijing's goal of attracting more foreign investors into mainland stocks and bonds.

Foreign exchange analysts polled by Reuters expect the high-flying yuan to give back much of its gains over the next year, if the dollar gets a lift from any further U.S. interest rate hikes.

The yuan is forecast to weaken to 6.90 per dollar in a year, according to the poll, from about 6.5 now.

Chinese authorities may also start to fret that the rapid pace of yuan gains could blunt export competitiveness.

The value of gold reserves rose to $77.702 billion at the end of August, from $75.084 billion at end-July, data published on the People's Bank of China website also showed. (Reporting by Lusha Zhang and Elias Glenn; Editing by Kim Coghill and Richard Borsuk)