China, holding the world's largest stockpile of foreign exchange reserve, has increased its 2008 reserve to $1.95 trillion, an increase of $417.8 billion, but the increase was lower by $44.1 billion than in 2007.
The Central Bank of China's said yesterday that the total reserves were up 27.34 per cent compared to 2007, which is the lowest growth since 2001 as the growth rate was 32.92 per cent from January to September and 35.37 per cent from January to June.
The growth of its foreign exchange reserve were the slowest since a decade as in the fourth quarter, China like many other countries witnessed a huge outflow of capital due to the global economic turmoil.
The month of October alone, China witnessed its reserves declining by $25.9 billion due to huge capital fleeing the country and it continued to do so in November but the monthly reserves for December saw an increase of $61.3 billion, which was $30 billion more than the same month of 2007.
Foreign investors withdrawing large sums of money from the Chinese domestic market to help stabilize the supply of funds in the West were major factors that caused the fourth quarter reserve to fall sharply.
China's main concern was foreign investors bringing in ''hot money'' into the country to bet on the rise of the Chinese currency, the yuan, as economists felt that this would artificially inflate the price of assets, thereby giving a rise to inflation, which would put pressure on the yuan and make the Chinese economy unstable.
But with the increasing financial turmoil in the West, the source of ''hot money'' dried up thereby stemming the flow of this money into China.
The Chinese economy grew at 9.0 per cent in the third quarter of 2008, the lowest in over five years and its exports declined 2.2 per cent year-on-year to $115 billion in November - the first monthly fall since June 2001, reflecting the slump in US demand after the financial bubble burst. (See: China's exports down 2.2 per cent in November)
In December, China's exports fell by 2.8 per cent from the same month a year earlier and its global trade surplus last year rose 12.7 per cent over 2007 to a record $295.5 billion.
China witnessed a decline in imports as well and in December, importing of goods fell by 21.3 per cent, which eclipsed November's figures of 17.9 per cent decline.
Exports in December were $111.2 billion, while imports were $72.2 billion, which saw December's trade surplus $39 billion, the second-biggest after November's all-time high of $40.1 billion.
China's $1.89 trillion reserves exceed those of Japan's $1.3 trillion and Rusia's $435 billion combined, and marginally lower if India's nearly $246 billion were also added. The three countries are the world's second, third and fourth largest foreign exchange holders.
Among leading emerging nations Korea's reserves were $200.5 billion and Brazil's $189 billion.