China’s Reserves Swell More Slowly

The country’s foreign exchange reserves grew in the first quarter by less than they did in the fourth quarter of last year. Reserves stood at $1.95 trillion at the end of March, the People’s Bank of China reports, up $7.7 trillion since the end of December, when they had shown a more than $40 billion increase over the previous year. The first quarter increase was the smallest quarterly gain in eight years.

The numbers are little surprise in that they reflect the shrinking of the trade surplus, which was down 45% in January-March compared to October-December, but they will also reflect the lower returns China is getting on its pile of U.S. Treasuries ($740 billion-worth according to U.S. data) and the weaker euro against the dollar to which the yuan is holding/being held flat.

The deceleration of the growth rate of the reserves is likely to continue in the months ahead, but the pot is still big enough to fund more U.S. debt purchases and foreign acquisitions such as natural resources though loans-for-energy deals. Watch for one of those with Kazakhstan shortly.

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