China's forex growth slows falters for the fist time in a decade

14 January 2009

China, holding the world's largest stockpile of foreign exchange reserve, has increased its 2008 reserve to $1.95 trillion, an increase of $417.8 billion, but the increase was lower by $44.1 billion than in 2007.

The Central Bank of China's said yesterday that the total reserves were up 27.34 per cent compared to 2007, which is the lowest growth since 2001 as the growth rate was 32.92 per cent from January to September and 35.37 per cent from January to June.

The growth of its foreign exchange reserve were the slowest since a decade as in the fourth quarter, China like many other countries witnessed a huge outflow of capital due to the global economic turmoil.

The month of October alone, China witnessed its reserves declining by $25.9 billion due to huge capital fleeing the country and it continued to do so in November but the monthly reserves for December saw an increase of $61.3 billion, which was $30 billion more than the same month of 2007.

Foreign investors withdrawing large sums of money from the Chinese domestic market to help stabilize the supply of funds in the West were major factors that caused the fourth quarter reserve to fall sharply.

China's main concern was foreign investors bringing in ''hot money'' into the country to bet on the rise of the Chinese currency, the yuan, as economists felt that this would artificially inflate the price of assets, thereby giving a rise to inflation, which would put pressure on the yuan and make the Chinese economy unstable.