(Yicai Global) Jan. 8 -- China's foreign exchange reserves reached a new half-year high of USD3.11 trillion last month under the influence of exchange rate conversion and asset price changes.

China's foreign exchange reserves increased USD12.3 billion or 0.4 percent last month from November and grew USD35.2 billion or 1.1 percent over the start of last year, according to the latest data the State Administration of Foreign Exchange released yesterday.

The US dollar index and major countries' bond prices have fallen because of such factors as the state of global trade, major central banks' monetary policies and the UK elections, said SAFE Press Spokesperson and Chief Economist Wang Chunying. Exchange rate translation, asset price changes and other factors have caused China's forex reserves to rise slightly, she added.

Valuation changes played a role in December's reserve rebound, several experts argue.

The exchange rate conversion is expected to generate about USD20 billion in gains in book value, which will come from the conversion of foreign reserves' non-US dollar denominated portion into dollars, Zhao Qingming, an expert on international financial issues, told Yicai Global.

The US dollar index depreciated 1.9 percent from 98.3 at the end of November to 96.4 at last month's end, said Wen Bin, chief researcher with China Minsheng Bank. Major non-US dollar currencies appreciated against the US dollar. The euro gained 1.8 percent against the greenback, while the yen strengthened 0.8 percent.

The yield on 10-year US Treasury notes rose to 1.92 percent from 1.78 percent at the end of November, and the hedged global bond index denominated in US dollars fell slightly by 0.2 percent, leading to falling prices of major bonds held by China and lowering the book value of forex reserves, he stated. Valuation factors are expected to positively impact the month's forex reserve scale, with some valuation gains offset.

Exchange rate translation may be the main reason for China's foreign reserves growth this year, Zhao said, adding that major developed countries have little room for interest rate cuts and bond prices are expected to remain stable. The dollar exchange rate may fall this year, while other currencies' rates are expected to moderately rise, he added. 

Editor: Ben Armour