Q: The State Administration of Foreign Exchange (SAFE) has just released the latest data on China's foreign exchange reserves. Could you explain the causes of changes in foreign exchange reserves for January 2021? What would you say about the future trends?

A: By the end of January 2021, China's foreign exchange reserves recorded US$3.2107 trillion, down by US$5.9 billion or 0.2% month on month.

In January 2021, China’s foreign exchange market operated steadily, with market expectations and transactions remaining stable. On global financial markets, due to the progress of the COVID-19 vaccine as well as monetary and fiscal policy expectations of major countries, the US Dollar Index increased, while the financial asset prices of major countries fell. As China’s foreign exchange reserves are denominated in the US dollar, non-US dollar currencies declined in value after being converted into the US dollars, which, coupled with the changes in asset prices, led to the contraction of foreign exchange reserves in the month.

Looking ahead, given the uncertainties in the COVID-19 pandemic and the external environment, the foundation for global economic recovery remains weak, and global financial markets may become more volatile. However, China’s economic fundamentals sustaining good long-term prospects remain unchanged, and the balance of payments will maintain a basic equilibrium, which is favorable for the general stability of China’s foreign exchange reserves.