(Yicai Global) March 27 -- China would be better off with only USD2 trillion in foreign exchange reserves, says the adviser to the central bank of the world's second largest economy. China's foreign exchange reserves fell below USD3 trillion last January for the first time in six years, which ignited an intense debate among the economists and pundits.
Speaking at the Boao Forum for Asia 2017 held in Beijing last weekend, Fan Gang, an economist and adviser to the PBOC, said, "From the point of view of stabilizing the balance of payments, I believe that China's central bank is not willing to have USD4 trillion in foreign exchange reserves. Keeping it down at USD2 trillion may be a good thing."
China's foreign exchange reserves in 2014 was close to USD4 trillion. But affected by the Chinese enterprises overseas investment and exchange rate fluctuations, the Chinese government has introduced a series of financial control measures.
As for factors affecting foreign exchange reserves, Fan said: "It [the central bank] does not want this change to occur within a day and does not want it to be fluctuated a lot all of a sudden but hopes that the change occurs gradually, so it introduced some [foreign exchange control] policies, and, therefore, companies feel at a loss. No government, including the Japanese government and other governments, would want to see such changes (foreign exchange reserves volatility) to occur overnight. They want a smooth transition and smooth adjustment."
He also pointed out that the continued appreciation of the yuan over the past few years has attracted a lot of capital into China, but with the yuan value adjustment, these funds are now out of China again.
According to the latest data released by the China's central bank, PBOC, as of the end of February this year, China's foreign exchange reserves was USD3.01 trillion, and the forex reserves are still the highest compared with those of the other leading economies. China's foreign exchange reserves climbed back above USD3 trillion in February, after a seven-month slump to USD2.9 trillion in January, shows official data.