China October forex reserves dip

Business | Reuters and Tereza Cai 8 Nov 2018

China's foreign exchange reserves in October fell more than expected by US$33.93 billion (HK$264.65 billion) to US$3.053 trillion, hitting an 18-month low amid rising US trade frictions, suggesting authorities may be slowly stepping up interventions to keep the yuan from breaking through a key support level.

The People's Bank of China sold 20 billion yuan worth (HK$22.64 billion) of bills in its first issuance in Hong Kong yesterday, a move that could reduce the offshore yuan's liquidity and support the Chinese currency. Both the 3-month and 1-year tranches were oversubscribed.

The onshore yuan dropped 112 pips at closing from Tuesday's close.

Meanwhile, China's three policy banks and Postal Savings Bank of China (1658) were given the green light to participate in the investment to establish a national financing guarantee fund company.

The maximum investment in the company of the Export-Import Bank of China and the Agricultural Development Bank of China is 10 billion yuan, or 1.5129 percent, respectively, according to the China Banking and Insurance Regulatory Commission.

Also, the investment of China Development Bank and Postal Savings Bank of China's investments in the company is limited to 2 billion yuan, or a 3.0257 percent stake.

The regulator also said that the four banks should assure that the operation of the fund would not stray away from the core business, and fulfill the policy purpose of reducing the financing costs of small enterprises and Three Rural Issues.

On Tuesday, PBOC chief Yi Gang said the central bank would step up funding support for private firms including developing an equity financing tool. It marks the government's latest move to support the country's slowing economy pressured by a trade dispute with the United States.

China's overall liquidity is ample but more effort is needed to channel cash to private firms and other parts of the economy where support is needed, Yi told the state-owned Economic Daily in an interview.

The central bank was also studying plans to promote equity financing for private firms, Yi also said, adding that it was working with fund managers, brokerages and commercial banks on the initiative.

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