China'S Foreign Exchange Reserves Have Dropped To The International Security Warning Line.

Since the RMB to us dollar exchange rate has reached a new low of over 8 years in November, China has allegedly adopted a number of measures to control capital outflows, including phased management of foreign direct investment, registration of capital pactions under large capital pactions, and tightening of cross-border business of RMB funds.

According to the current rate of decline, China

In the near future, it may fall to the international security warning line. China's tightening of capital controls next year will inevitably be inevitable.

Many analysts use the International Monetary Fund (IMF) to assess the warning line of China's foreign reserves by assessing the adequacy of foreign reserves.

In its report this week, CICC pointed out that as long as foreign reserves remain above US $2 trillion and 600 billion, China will be able to cope with the normal external payment needs such as trade and debt repayment, and will not pose a threat to the security of international payments.

The calculation of CICC's warning line is equivalent to that of the Royal Bank of Canada's estimate of $2 trillion and 700 billion in January.

Xia Le, chief Asian economist at Hongkong's external bank in Spain, believes that the bottom line of China's foreign reserves is $2 trillion.

"According to the current situation, it will fall to this level in 2018, so China will further strengthen capital controls," he said in an interview.

With China's economic growth slowing to the weakest in 25 years and the depreciation of the renminbi against the US dollar to a 8 year low, the problem of China's capital outflow has become increasingly prominent. The historical peak of foreign exchange reserves from nearly 2014 dollars in mid 2014 has dropped by about 900000000000 US dollars to the end of the month at 3 trillion and 50 billion US dollars, approaching the psychological barrier of 3 trillion.

Because of Trump's victory in the US presidential election, the confidence of the market in the US's economic growth prospects has increased. The US Federal Reserve raised its expectation of raising interest rates next month. The RMB has accelerated its depreciation against the US dollar. This year it will hit its biggest annual decline in more than 20 years. Next year, it will face further derogatory pressure. China's capital flow will further intensify.

In January, the amount of foreign exchange purchased by individuals in China will be renewed at the rate of $50 thousand per year. China will face enormous exchange pressure, and the foreign reserves will fall below US $3 trillion.

It is assumed that only 1% of China's nearly 1 billion 400 million people will be able to use their quota and outflow funds should also reach about $700 billion.

The average daily turnover of RMB in China's foreign exchange market has risen from US $30 billion 500 million in November to about US $34 billion 500 million since December.

"According to the US dollar index performance and capital outflow this month, foreign exchange reserves fell below US $3 trillion in December," Cheng Cheng, director of the international research department of the ICBC said, "even if it's not broken now, it's only a matter of time."

Since the beginning of this month to 22, the US dollar index has risen by more than 1.5%. The negative impact of light valuation factors on China's foreign currency reserves in dollar terms can not be underestimated.

In addition, the US benchmark 10 year treasury bond yield has risen by more than 17 basis points since December, which is bound to lower the external reserve valuation.

Cheng said that the bottom line of China's foreign reserves is between 2 trillion and 2 trillion and 200 billion dollars. If the rate of decline is at present, it will probably arrive at this point in more than a year.

A Chinese foreign exchange official, who declined to be named, said last night that it was uncertain whether China's external reserves would increase or decrease, and that fluctuations at a certain level would be normal.

But the official also said that the foreign exchange bureau will work together with customs, taxation and public security departments to crack down on underground banks and false trade. Meanwhile, China's reform at the inflow side is facing favorable opportunities, including allowing foreign investors to enter the interbank bond market in China.

CICC analyst Yu Xiangrong and Liang Hong predicted in the report that the 3 trillion drop in reserves will form a "psychological shock", and the concentrated increase of personal swap will bring some pressure to the market.

They believe that China will continue to implement the "foreign exchange and management measures" with wide margin and strict exit, including tightening up the large scale.

The purpose of the project is to examine and approve foreign exchange pactions, and to strengthen the background verification of trade related foreign exchange pactions.

CICC said that China will also maintain a smooth operation of the domestic capital market, especially avoiding the recent risk of debt market, leading to more risk points, resulting in more outflows. If necessary, the management of personal swap pactions will be strengthened, but the swap volume should not be temporarily adjusted, otherwise the market will panic.

From a medium-term perspective, Robin Xing, an economist at Morgan Stanley in Hongkong, said it is expected that policymakers will continue to allow moderate devaluation of the renminbi and tighten regulation when capital outflows accelerate, which may tighten investment in enterprises, strengthen restrictions on overseas payments by UnionPay cards, and secretly tighten the volume of individual purchases of foreign exchange.

Wang Tao, head of China's economic research at UBS, also said that capital controls will be tightened further, especially domestic loans and investment activities by domestic enterprises and financial institutions.

Other ways include the central bank's forward trading.

The higher deposit reserve will strengthen the examination of documents for enterprises to purchase foreign exchange, and encourage state-owned enterprises to repatriate foreign exchange to domestic exchange settlement.

At present, it is unlikely that the government will reduce the amount of personal swap.

Xia Le said that the amount of personal exchange swap may be temporarily tightened next year, such as reducing total quotas or buying foreign exchange in batches.

From the enterprise level, foreign investment and free trade zone will be further tightened.

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