China's foreign exchange reserves crawl to $2.45 trillion

China's foreign exchange reserves, the largest stockpile in the world, rose at the slowest pace in 11 years by just $7.2 billion in the second quarter to $2.45 trillion by the end of June, a 15.1 per cent increase year on year, China's central bank said yesterday.

The slow pace at which China's foreign reserves rose in the second quarter was due to Beijing's easing-off its bank lending, reigning the yuan, making it less attractive for overseas capital inflows and the eurozone economic crisis that would have reduced the dollar value of its euro-denominated assets.

The People's Bank of China said that the country's foreign exchange reserves increased by a mere $7.2 billion in the second quarter, a sharp decrease compared to the first quarter, when reserves grew by $126.5 billion.

In April, China's forex reserves increased by $43.4 billion, but declined drastically by $51 billion in May, while it increased by $14.8 billion in June.

China's first $1-trillion forex reserves came after 10 years in 2006, but it zoomed to $2 trillion last April on the strength of its manufacturing and exports and totalled $2.4 trillion by the end of 2009. (See: China's foreign exchange reserves touch $2.4 trillion) 

China's reserves have risen due to its huge trade surplus and investors, who had briefly moved money out of China in the last quarter of 2008, began flocking back last year as it became the most lucrative country to invest in.

Currently, China, the world's third-largest economy, keeps on buying dollars generated by its huge trade surplus and it is estimated that China has invested nearly 70 per cent of its reserves in US dollar-denominated assets.

It is the single-largest overseas investor in the US Treasury bills, having invested $900 billion in T bills at the end of April, according to the US government. This is despite Beijing trimming its Treasury holdings by several billion dollars in recent months.