China's central bank advisor dispelled worries that the country's foreign exchange reserves are burning out following a record fall in August, saying intervention in the market will not persist.
The comments from Huang Yiping, a member of the central bank advisory committee, came as China's forex reserves fell by a record 93.9 billion U.S. dollars in August, partly due to heavy spending to support yuan exchange rate after drastic devaluation.
In an interview with China Business News at the Summer Davos Forum, the Peking University professor defended the central bank operation, saying the reserves are amassed for use on "rainy days".
On Aug. 11, the central bank decided to let the market have a greater say in forming the yuan's central parity rate against the U.S. dollar, which led to a depreciation of more than 4 percent last month.
The sharp fall in reserves has raised questions on whether the reserves are sustainable if the current spending pace continues.
"The assumption will not hold as persistent intervention in the market runs against the principle of allowing the market to play a larger role," Huang noted.
The current intervention is due to concerns over excessive fluctuation of the exchange rate, but China's ultimate goal is to make market supply and demand play a larger role in the rate formation system, according to Huang.
Although the yuan is depreciating in the short term, the currency still has room for appreciation from a longer prospective, he added.
While meeting with business leaders ahead of the Summer Davos forum, Chinese Premier Li Keqiang reiterated, saying given China's ample foreign exchange reserve and proper economic growth, there is no basis for continued depreciation of the yuan.
Despite August's drastic fall, China's 3.56 trillion U.S. dollars in foreign exchange reserves remains the world's largest.
The recent yuan devaluation, capital market rout that saw the key index plunge nearly 40 percent from its June peak and fragile growth recovery have fueled doubts whether the government's pledged reforms, especially in the financial sector will proceed as planned.
Huang holds that the current condition remains favorable for gradually opening up the capital market as it enables authorities to take a more cautious approach for fear of possible risks.
