China’s Foreign Reserves Hold Steady in June as Trade War Loomed

(Bloomberg) -- 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 U.S.

Reserves rose $1.51 billion to $3.112 trillion last month, the People’s Bank of China said Monday. That was more than the $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 U.S. neared the imposition of tariffs on at least $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."

China’s sound economic fundamentals have effectively stabilized 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.

To contact Bloomberg News staff for this story: Yinan Zhao in Beijing at yzhao300@bloomberg.net;Miao Han in Beijing at mhan22@bloomberg.net

To contact the editors responsible for this story: Jeffrey Black at jblack25@bloomberg.net, James Mayger

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