First the good news. China sold only $43 billion worth of foreign exchange reserves, most of which was in U.S. Treasurys, in September.
This number is far lower than the $94 billion it sold in August, so it seems the country managed to stem the bleeding that reduced reserves of $4 trillion (August 2014) to $3.51 trillion in September of 2015.
Fewer sales by China are also beneficial because they reduce the pressure on interest rates here in the United States.
“The FX outflow situation moderated in September amid clearer policy signals to support the currency and … restrictions to slow outflow,” Goldman Sachs writes in a note.
The bad news, however, is that analysts think this number is just the beginning and will eventually be revised higher as new data is released.
“As the People’s Bank of China also intervened [in the derivative] market in the past month, the foreign reserves will likely plunge again when these forward contracts mature,” Commerzbank’s senior economist in Asia, Zhou Hao, told Reuters.
Goldman Sachs prefers to look at bank settlement data by the State Administration of Foreign Exchange, which includes derivative transactions but is not limited to official foreign exchange reserves. This data showed outflows of $178 billion for August, double the number reported by the People’s Bank of China.
Epoch Times has previously reported that the foreign exchange outflows are systemic, but China thinks it can extend and pretend the situation is going to get better soon.
“I think their strategy to bring that about is to stabilize the spot rate, intervene in the offshore and the onshore spot markets, and hope that the economic data portrays a recovering economy and confidence comes back a bit more,” Tim Condon, the Singapore-based head of research for Asia at ING Bank told Reuters.