CHINESE FOREX DWINDLES - WORLD SURPRISED

A surprise to world market - China's foreign exchange reserves fell by US$ 320 billion last year, It  is as per Beijing announcement. This is , as authorities sought to support the yuan against a soaring dollar , which is encouraging capital outflows.

The country's vast foreign exchange reserves due to trade surplus which happens to be the largest in the world, slipped to US$ 3.011 trillion at the end of December, 2016 as per  the State Administration of Foreign Exchange (SAFE) .

In December too the Forex reserves fell  by US$ 41 billion from the previous month, SAFE said, which would make it their sixth consecutive monthly decline according to figures from the central People's Bank of China. It's surprising to the market .

Reserves continues to fall by $ 46 billion in October '16  and nearly $ 70 billion in November'16 , falling to a levels not seen more than five years ago.The central bank's efforts to stabilize the yuan is the main reason why the reserves have fallen," last year, said an official of the State Administration of Foreign Exchange.

The yuan is now trading at its lowest level in eight years against the dollar after dropping about seven per cent in  of a year, as Beijing sells greenbacks to support its currency.The basic formula of  money , it always flows upwards to avoid a persistently sluggish domestic economy thus  encouraging a flight of funds in search of more remunerative investments abroad.

Aware of the danger, China has tightened its measures to stop the outflow of capital,  by restricting many investments abroad considered doubtful.China's foreign exchange reserves fell for a sixth straight month in December but by less than expected to the lowest since February 2011, as authorities stepped in to support the yuan ahead of US President-elect Donald Trump's inauguration.

Reserves fell by US$41 billion ($56.2 billion) last month to US$3.011 trillion, central bank data showed on Saturday, following a drop of US$69.06 billion in November.Economists who  made such forecast earlier also further indicates a further downfall 

The yuan depreciated 6.6 per cent against the surging dollar in 2016, its biggest one-year loss since 1994, and is expected to weaken further this year despite authorities' latest attempts to slow its descent.

This is the right time for US to built up pressure on the Dragon that too when Trump will be in the helm of power. Adding to pressure on the currency, Trump has vowed to label China a currency manipulator on his first day in office on January 20 and has threatened to impose huge tariffs on imports of Chinese goods.

China has stepped up efforts to shore up the yuan and curb capital outflows, sparking speculation it wants a firm grip on the currency ahead of Trump's inauguration on January 20 and the long Lunar New Year holidays at the end of the month.

It has tightened restrictions on individuals and companies who want to move funds out of the country, while denying it is imposing fresh capital controls. This is ethically        wrong .This week the central bank has also set higher daily guidance rates for the yuan, hiking it the most in a decade on Friday.

As per indications  pressure on the yuan shall persists, as per analysts . But whether China will continue to tighten the screws on capital outflows via administrative and regulatory means, which is in their power ,is remains to be seen .

But if Forex reserves continue to fall at a rapid rate and capital outflow continues, some strategists believe China's leaders may have little choice but to sanction another major devaluation, which may   fuel fresh tension with the US.

China is very cleverly manipulating valuation of their currencies , world has to be careful of Dragon.