China’s foreign exchange reserves stood at $3.25 trillion at the end of December, 2021, up $27.8 billion month-on-month and hitting a six-year high, according to data released by the State Administration of Foreign Exchange on Friday.
The Chinese currency’s rising valuation continued to be the main factor behind the increase in China’s foreign exchange reserves in 2021, officials said.
Wang Chunying, a spokesperson from the forex administration, said that due to the recent coronavirus flare-ups and expectations of monetary policy shift in some major countries, the US dollar index has fallen, which caused “valuation rise” of non-US dollar currencies and contributing to the upward trend of China’s foreign exchange reserves.
Resulting from the stronger-than-expected production of the manufacturing sector thanks to the government’s effective anti-pandemic prevention and control measures, China’s exports are fired up, which help support the robust growth in the country’s foreign exchange reserves, Xi Junyang, a professor at Shanghai University of Finance and Economics, told the Global Times on Saturday.
While China’s December trade data is due to be released on Friday, the market is broadly expecting Chinese exports to continue its upward trajectory.
China’s solid economic fundamentals and rising foreign exchange reserves are to offer support to the yuan’s value in 2022, which performed relatively well against a variety of other currencies in 2021, particularly the US dollar.
Although an appreciating domestic currency will hamstring China’s exports, Xi said the exchange rate is just one of many factors that impact exports. How the Chinese exports will fare in 2022 will depend on the overall performance of the Chinese economy and the world economy in the post-pandemic era, he said.
“In any case, an abundant foreign exchange reserve will shore up the country’s financial system stability and security, when it comes to emergence of sudden financial risks in the foreign exchange market or foreign debt market,” Xi noted.