Foreign exchange reserves rise in Q3

China's foreign exchange reserves rose slightly to $3.29 trillion by the end of September, the central bank announced over the weekend, amid continuing trade surplus and resumption of yuan appreciation.

The world's largest holder of foreign exchange reserves saw its stockpile increase by about $50 billion during the past quarter after a drop in the second quarter, according to the statistics from the central bank.

The country's foreign exchange reserves shrank to $3.24 trillion at the end of June from $3.31 trillion by the end of the first quarter.

"The main factors behind the rise in foreign exchange reserves are continued trade surplus over the past few months as well as the yuan's return to appreciation in September," Lu Ting, China economist at Bank of America Merrill Lynch in Hong Kong, told the Global Times Sunday.

China's trade surplus widened to $27.67 billion in September after exports hit a record monthly high, customs said Saturday, the second consecutive month of expansion in trade surplus.

The rising yuan in particular helped the increase, Lu noted, explaining that the yuan appreciation serves to push individuals and companies to unload their holdings of foreign currencies, thus boosting the official reserves stash.

The yuan's value has seen an upward trend since September and hit a record high against the US dollar Friday, according to the State Administration of Foreign Exchange (SAFE).

The slight increase in the third quarter also serves to add to market faith that the country is shifting away from rapid growth seen in its foreign exchange reserves for years, and some economists pointed out the pace of the country's reserves expansion is likely to pick up in the last quarter.

Growth in China's foreign exchange reserves weakened over the past year, as capital inflows grew at a slower pace while capital outflows quickened amid the economy's sluggish outlook, Lian Ping, chief economist at Bank of Communications Co in Shanghai, told the Global Times Sunday, noting that lingering yuan depreciation expectations before September also prompted private investors to hold on to foreign exchange, therefore reducing the amount of reserves held by the central bank.

China's foreign exchange reserve growth has been slowing down in accordance with the country's economic growth slowdown, the SAFE said in a recent report.

But Lian said international capital inflows to the country may recover the growth momentum in the fourth quarter when the economy is expected to see renewed vitality in terms of GDP growth, pushing up the foreign exchange reserves.

"If the economic growth, mostly driven by (new round of) investment, is much stronger than expected and the overall price level is trending higher, the monetary policy will be tightened," Lian said.

The central bank may raise interest rates of yuan, which will draw in more foreign capital, according to Lian.

The yuan is also expected to continue to face appreciation pressure, contributing to a pickup in reserves stash, although there will be no substantial appreciation, he noted.