China records first decline of forex reserves in Q4 since 1998

China's foreign exchange reserves fell in the last three months of 2011, marking the country's first quarterly decline since 1998.

China's reserves slipped 0.6 per cent to $3.18 trillion, down $20.6 billion from the previous quarter, according to data released yesterday by China's central bank, the People's Bank of China (PBOC).

China continues to be the world's largest holder of foreign exchange reserves. The reserves reflect China's trade surplus as well as investments in China by foreign companies.

China's foreign exchange reserves increased by $72.1 billion in October, but decreased by $52.9 billion and $39.76 billion respectively in November and December, according to the PBOC data.

However, China's nation's foreign exchange reserves still expanded from $2.85 trillion by the end of 2010 on a year-on-year basis.

China's yuan funds outstanding for foreign exchanges fell to 25.36 trillion yuan ($4 trillion) in December, down 100.3 billion yuan from November, and the December data also marked the third monthly decline, according to PBOC data.

Analyst's opine that the fall in reserves may be a sign of speculators moving their money out of the Chinese currency since they expect it to fall against the US dollar.

The data also reflects China's narrowing trade surplus, caused by falling demand for Chinese goods among overseas customers hit by the financial crisis.