Country's forex reserves surge on trade performance

China's strong exports and consistent cross-border capital inflows amid the weaker US dollar boosted the world's largest foreign exchange reserves in October, and those reserves are expected to remain stable the rest of this year, analysts and experts said.

The country's total foreign exchange reserves reached $3.2176 trillion by the end of last month, up $17 billion from September, or a rise of 0.53 percent month-on-month, the central bank and the nation's foreign exchange regulator reported on Sunday.

Meanwhile, China reported elevated export data for October, which indicated a year-on-year growth of 27.1 percent in terms of the US dollar, beating market expectations.

Analysts believe the surge of factory gate prices and stronger RMB helped bolster exports, and faster capital inflows supported an increase in foreign exchange reserves.

China's trade surplus in October widened to a record high of $84.5 billion from $66.8 billion in September, which also helped strengthen the domestic currency. The CFETS Index, which tracks the RMB exchange rate against a basket of currencies, rose to 100.46 which is the highest level in more than five years.

The foreign exchange reserves are denominated in the US dollar. Last month, the US dollar index showed slight weakness and it influenced the prices of financial assets in major countries. Affected by the exchange rate and asset price fluctuations, the total foreign reserves increased, said Wang Chunying, a spokeswoman of the State Administration of Foreign Exchange.

But there are still many unstable and uncertain factors in global economic recovery, and this may affect the reserves in the coming months, said Wen Bin, chief researcher at China Minsheng Bank.

The US Federal Reserve has decided to start reducing the scale of bond purchases, and the volatility of international financial markets has increased. The COVID-19 pandemic in some regions has rebounded, while production and operation of some enterprises are under pressure, Wen said.

Macroeconomic policies, Wen suggested, should continue to conduct cross-cycle adjustments, and increase structural supports to stabilize and expand domestic demand, preparing for the impact of both internal and external risks.

As international investors expected the strong performance of RMB-denominated assets and equity investment is likely to sustain net inflows, the overall foreign exchange and balance of payments will continue to remain stable, analysts said.