Nation can absorb US rate shocks

Wang Chunying, spokeswoman for the State Administration of Foreign Exchange.

China has enough foreign exchange reserves and has taken sufficient measures to cope with any shock from a US interest rate hike and future capital flow fluctuations, according to a spokeswoman for the nation's top foreign exchange regulator.

Wang Chunying, spokeswoman for the State Administration of Foreign Exchange, said on Thursday that China's foreign exchange reserves remain plentiful enough to deal with external challenges, after the US Federal Reserve increased rates by 0.25 percent in December, sending positive signals on the recovery of the US economy.

China's foreign exchange reserves fell to near a six-year low in December, slightly higher than $3 trillion.

"Fluctuations of foreign exchange reserves are normal, and there should not be too much reading into a headline number," said Wang.

She said SAFE is well-prepared to deal with any abnormal fluctuation in capital flows.

Wang expected a long-term stabilizing trend of the yuan-dollar exchange rate, though short-term pressure would persist for a while.

Data from SAFE showed that in December, the deficit in sales and purchases of foreign exchange was 320.3 billion yuan ($46.3 billion), up from the $33.4 billion in November.

In December, banks saw net forex sales from non-banking sectors of $298.3 billion, a record high since last January, reflecting that China's companies and individuals continue to hold on to their forex－a sign that yuan depreciation expectations remain.

"Capital flows are tending to stabilize," said Wang, noting that Chinese banks saw net forex sales to companies and individuals of $51 billion in the fourth quarter of last year, much lower than the $112.3 billion level in the first quarter.

Echoing her remarks, Jiang Chao, an analyst at Haitong Securities Co, said that short-term pressure would dissipate after the market had largely digested the effect of the US interest rate rise.

Jiang said the key is to put more emphasis on boosting market expectations of domestic recovery, otherwise depreciation pressure would return if the market expects a further US interest hike in the second half of this year.

Mervyn King, former governor of the Bank of England, said he expected that the market reaction to a US interest rate rise would calm down in the short term.

Based on what US president-elect Donald Trump has pledged earlier, on boosting the US economy through more infrastructure spending, he has helped ease market expectations of a rate rise in December, according to King.