Strong foundation for stability of foreign exchange reserves

According to the State Administration of Foreign Exchange, as of the end of March 2023, the scale of China's foreign exchange reserves reached $3.18 trillion, up 1.62 percent compared with the end of February.

The rise was not caused by cross-border capital flows, but mainly due to the impact of the decline of the dollar index, as a large part of China's foreign exchange reserves are non-US dollar assets in the euro, yen and pound.

The recovery of domestic demand will drive economic growth and contribute to the swelling of China's foreign exchange reserves as well.

With the proactive government policies, the steady and positive momentum of the Chinese economy has been established and market expectations have gradually improved, which is conducive to maintaining the stability of foreign exchange reserves.

From the perspective of the current account, the surplus is not expected to expand significantly, but it can still maintain a relatively stable state. In the January-February period, China's exports in dollar terms were $506.3 billion, down 6.8 percent year on year. Despite this, the fall in exports has not affected the size of the surplus. The trade surplus in January and February was $116.89 billion, compared with $109.46 billion in the same period last year.

In terms of the capital account, the pressure of cross-border capital outflow has eased, and the enthusiasm for foreign investment in China remains unabated. With China's economic recovery and growth rate rising, the renminbi exchange rate has stopped falling and recovered, the capital outflow pressure has now eased, and the volatility risk of the foreign exchange market has gradually decreased.

As China further opens up to the outside world and the economy recovers, foreign direct investment in China is expected to grow at a double-digit rate this year, with hi-tech manufacturing and new technologies and materials in modern service industries being key areas to attract foreign investment. As such, the country's capital account is expected to achieve a surplus, bringing positive effects on foreign exchange reserves.