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China’s foreign reserves hold steady in June as trade war loomed

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China's foreign currency holdings held steady in June, with a slight month-on-month increase, as the yuan slumped and the nation came closer to the trade war that has now begun with the US.

[BEIJING] China's foreign currency holdings held steady in June, with a slight month-on-month increase, as the yuan slumped and the nation came closer to the trade war that has now begun with the US.

Reserves rose US$1.51 billion to US$3.112 trillion last month, the People's Bank of China said on Monday. That was more than the US$3.102 trillion estimate in Bloomberg's survey of economists.

The increase came as the yuan suffered its worst quarter since 1994, as China and the US neared the imposition of tariffs on at least US$34 billion of each other's goods. Further declines in the yuan may stoke concern over capital flight, prompting the central bank to use reserves to defend the currency.

"Rising FX reserves this month is a little bit surprising," said Iris Pang, Greater China economist at ING Bank NV in Hong Kong. The increase "could mean that there is more room for yuan to depreciate".

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China's sound economic fundamentals have effectively stabilised market expectations, the State Administration of Foreign Exchange said in a statement on its website, with cross-border flows remaining relatively stable. China's foreign exchange market in June was steady overall, and balanced international payments, a rising dollar, and asset price changes all contributed to the increase last month, it said.

"Combining the external and internal factors, China's foreign reserves are likely to remain stable with some volatility," SAFE said.

BLOOMBERG