By Liu Zhiqin Source: CGTN Published: 2018-9-9
Although the market has been worrying that a weak yuan would trigger a large amount of capital outflow, recent data shows that despite a slight dip in China's foreign currency reserve in August, outflow will likely remain stable.
According to the People's Bank of China, reserves fell by 8.2 billion US dollars to 3.1 trillion US dollars this month. The main reasons for the drop reflect the fluctuation of the exchange rate and the strong value of US dollar in August.
The figure does not mean that the economic situation in China has confronted serious problems. The international financial market is experiencing growing uncertainties, but China's foreign exchange reserves still remain stable overall. In a way, China's economy has been maintaining its momentum of growth despite global trade tensions.
One thing to point out is that China's economy has met huge pressure from both sides – international and domestic, and conditions for both have changed as economic growth slowed down in August. The PMI index weakened at 52, the lowest in five months, compared to 52.3 in the previous month. Manufacturing and service activity were the main reasons for the drop in PMI. Both have resistance from the overseas market.
Meanwhile, another set of trade data perhaps can alleviate more worries about China's economy and the current trade war between China and the US.
Data from the US showed an 8.6 percent drop in US exports in July, while the export of Chinese goods to the US increased by 1.9 percent, indicating that the US-initiated trade war may be impacting its economy.
China's exports increased by 12.5 percent and a further increase could be expected.
The increase in exports reflects a potential increase in foreign reserves, specifically in US dollars. The core policy to boost infrastructure investment to maintain economic growth will not be sufficient to support the whole economy, thus we need multiple powerful policies to keep the momentum.
It is certain that until the end of this year the export business from China to the US will be boosted by seasonal demands: the Christmas market will provide huge demands on products from China. Another reason is that US importers are striving to import more goods from China before tariffs are enforced, and they prefer to deposit imported goods to keep the market price stable and healthy. As a result, Chinese exports are boosted even under the threat of heavy tariffs. This anti-logic scenario shows the market movement has to follow its own track and principle.
Liu Zhiqin is a senior fellow at the Chongyang Institute for Financial Studies of Renmin University.