Capital infusions into China expanded to $95.9 billion during the first quarter of 2010, according to new official data published by the State of Administration of Foreign Exchange (“SAFE”) last week. In April, the central bank reported that the face value of its foreign- exchange reserves increased by only $47.93 billion in the first quarter, to $2.447 trillion. This newly released number indicates that there was about twice that amount actually coming into the country.
China's controls on currency exchange and capital movements stipulate that the central bank holds foreign currency that flows into the country from trade and investment in the form of reserves. SAFE’s figures show swings in the value of currencies and the prices of securities trimmed $48 billion off the first quarter's net $95.9 billion increase in reserves, indicating the reason for the discrepancy between current and previous reports.
In an effort to provide more transparency of reserve figures by recognizing the relevance these numbers hold for global financial markets, the agency has recently started reporting these valuation changes with greater frequency.
Although the major driver of China’s previous reserve accumulation was trade, the current-account surplus, a wide measure of the country's trade balance, came in at less than half the total, $40.9 billion in the first quarter. Officials said that the current-account surplus was representative of 3.5% of China’s GDP in Q1 2010, compared to 2009’s figures of 8.2% for the same time period.
In its report on the nation’s balance of payments, SAFE reported that a net $55 billion came into the country from other capital and financial transactions. China’s trade surplus has been shrinking as it increases imports of commodities to supply the increases in construction of infrastructure projects and housing. Only a portion of the $55 billion that came into the capital account was clearly identified by SAFE: $15.3 billion for foreign- currency lending and a net inflow of $17.5 billion of foreign direct investment that will be used by companies to buy or build businesses. The Ministry of Commerce also reported separately that foreign direct investment in April rose 24.7% from a year earlier to $7.35 billion, indicating that this sector of capital inflows is showing no signs of slowing as the year progresses.
The foreign capital inflows come at a time when China’s GDP generated year-over-year growth of 11.9 percent and corporate earnings grew 63.5 percent from a year earlier.…
