China’s Forex Reserves Hold Steady Above $3.4 Trillion as May Figures Extend Upward Trend

On June 7, the State Administration of Foreign Exchange (SAFE) released data showing that as of end-May, China’s foreign exchange reserves stood at $3,442.2 billion, an increase of $31.7 billion or 0.93% from end-April.

According to SAFE, in May, influenced by the global macroeconomic environment and expectations regarding major economies’ monetary policies, the US Dollar Index rose while global financial asset prices generally increased. The combined effects of exchange rate translation and asset price changes contributed to the rise in foreign exchange reserves. China’s economy maintained a steady and progressive development trajectory, with high-quality development advancing solidly, providing support for the basic stability of foreign exchange reserves.

During the month, global financial markets exhibited a divergent pattern across equities, bonds, currencies, and commodities, with heightened volatility. In currency markets, the high interest rate environment enhanced the attractiveness of USD-denominated assets, with the US Dollar Index closing at 98, up 0.9% month-on-month. The Japanese yen, euro, and British pound depreciated by 1.7%, 0.6%, and 1.1% respectively against the dollar. Since foreign exchange reserves are denominated in USD, depreciation of non-dollar currencies reduced the USD-denominated scale of reserves.

In bond markets, rising inflation expectations pushed the 10-year US Treasury yield up by 5 basis points to 4.45%, while Japan’s 10-year government bond yield rose by 14 basis points to 2.66%. Within the eurozone, inflation divergence led the 10-year government bond yield to decline by 6 basis points to 3.03%.

Pang Ming, Distinguished Senior Research Fellow at the National Institution for Finance and Development, noted that in terms of exchange rate translation, the strengthening US Dollar Index, driven by global trade conditions, macroeconomic changes in major economies, and adjustments in monetary policy expectations, led to valuation changes in non-dollar currency assets. Regarding asset prices, global financial asset prices diverged but generally rose, bringing positive changes to reserve asset valuation.

Wang Qing, Chief Macro Analyst at Golden Credit Rating, observed that global stock indices generally posted significant gains in May, which offset the impact of a slight decline in US Treasury prices and the rise in the Dollar Index, driving an overall increase in China’s foreign exchange reserve valuation.

Data shows that driven by the AI investment boom, major global stock indices rose substantially in May. This had a greater impact on China’s foreign exchange reserves, Wang noted.

Wen Bin, Chief Economist at China Minsheng Bank, maintained that going forward, exports will continue to serve as the cornerstone of the balance of payments, supported by three key factors: first, strong external demand driven by AI industry chain investments; second, continuously improving market diversification; and third, the advantages of China’s new energy manufacturing and full industrial chain amid the energy crisis. Higher imports driven by expanding domestic demand and rising prices will help the trade account become more balanced. With further implementation of the import expansion strategy, balanced import-export development is expected to achieve greater progress. In cross-border capital flows, the gradual relaxation of market access in sectors such as telecommunications, healthcare, and internet services, alongside the deepening of comprehensive pilot programs for expanding service sector openness, will help sustain a robust trend in foreign direct investment.

Alongside the steady rise in foreign exchange reserves, China’s gold reserves also reached a new high, further optimizing the structure of reserve assets.