As of the end of September, China's foreign exchange reserves stood at US $3.1426 trillion, down US $22 billion, or 0.7 per cent, from the end of August, according to official foreign exchange reserve data released by safe in September.

Although the size of foreign reserves ended five consecutive rising trends in September, the size of foreign reserves has increased by $34.7 billion since the beginning of the year. Important factors contributing to the rise in the size of foreign reserves include changes in the dollar index, as well as trade and cross-border capital inflows, which also affect the exchange rate of the renminbi.

Many analysts believe that although foreign exchange reserves have declined in one month, they are still expected to remain overall stable for the whole year. At the same time, the RMB exchange rate has appreciated significantly recently, and there may be a correction due to the influence of overseas markets after entering the fourth quarter, but the overall situation is still expected to remain stable or even upward.

The scale of foreign reserves is expected to remain stable throughout the year.

Foreign exchange reserves fell by 22 billion US dollars in September compared with August. Wang Chunying, deputy director of the State Administration of Foreign Exchange and spokesman, said that in September, China's foreign exchange market basically balanced supply and demand, and cross-border capital flows were generally stable. In the international financial market, under the influence of factors such as the repeated COVID-19 epidemic abroad and the monetary and fiscal policies of major countries, the US dollar index rose slightly, and asset prices rose and fell each other. Due to the combined effect of factors such as exchange rate conversion and changes in asset prices, the scale of foreign exchange reserves decreased in that month.

Wen Bin, chief researcher of China Minsheng Banking Corp, also said that a combination of valuation changes, real trade and cross-border capital flows led to a decline in foreign exchange reserves in September. Specifically, in terms of valuation changes, in terms of major exchange rate changes, the US dollar exchange rate index rose 1.9% in August, and the main non-US dollar currencies depreciated against the US dollar as a whole; in terms of asset prices, the prices of major assets around the world were mixed. Taking into account the effects of exchange rate conversion and asset price changes, this month's foreign exchange reserves form a valuation loss.

In terms of real trade and cross-border capital flows, Wen Bin said that although the overseas economy as a whole has recovered and the economic prosperity index is relatively high, unstable and uncertain factors have obviously increased. Trade protectionism, unilateralism and geopolitics will still have a negative impact on China's exports. Affected by the recent fluctuations in the capital market, northbound funds showed an overall outflow trend in September. According to Wind statistics, northward capital outflow totaled 32.77 billion yuan in September. As a result, cross-border capital outflows have also contributed to the decline in foreign exchange reserves this month.

In fact, although the size of foreign reserves ended five consecutive rising trends in September, they have risen by $34.7 billion year-to-date. Looking forward to the follow-up, many analysts believe that foreign exchange reserves are expected to remain overall stable throughout the year.

Wang Chunying said: at present, the overseas epidemic situation and the world economic situation are still complex and grim, and unstable and uncertain factors are significantly increasing. However, China has entered a stage of high-quality development, the fundamentals of economic stability and long-term improvement have not changed, and the basic characteristics of China's economic potential, great resilience, strong vitality, large room for manoeuvre and many policy tools have not changed. China's development has many advantages and conditions remain unchanged, which is conducive to the overall stability of the scale of foreign exchange reserves.

RMB internationalization is further strengthened, and the exchange rate may be adjusted in the fourth quarter.

Important factors contributing to the rise in the size of foreign reserves include changes in the dollar index, as well as trade and cross-border capital inflows, which also affect the exchange rate of the renminbi. In fact, at a time when China is still celebrating the "double holiday", the offshore RMB exchange rate market against the dollar has quietly risen nearly 500 points.

As of 19:00 on Oct. 7, the offshore RMB exchange rate against the dollar was 6.7350, up more than 130 points on the day, nearly 500 points higher than on Sept. 30, and at one point rose more than 600 points to a high of nearly 6.72.

In the past three quarters, the onshore yuan rose 3.89% against the dollar, the biggest quarterly increase since the first quarter of 2008. On the last day before the festival (September 30), the onshore RMB / US dollar exchange rate closed at 6.7990. At present, the onshore and offshore exchange rate difference is more than 600 points. It is expected that the onshore RMB / US dollar exchange rate will rise significantly on the first trading day after the festival.

The continued weakness of the dollar index, coupled with the resilience of China's own fundamentals, has led to a significant strengthening of the RMB against the dollar so far this year. With the recent continuous appreciation of the RMB exchange rate, many analysts believe that the RMB will continue to be in the appreciation channel in the short term, and some even predict that the RMB exchange rate will enter a longer appreciation process.

At the same time, the popularity of RMB assets continues, which will support the long-term stability of the RMB exchange rate. The proportion of RMB reserves in the global foreign exchange reserve structure continues to hit a new high. According to the latest data from IMF, at the end of the second quarter of this year, total RMB foreign exchange reserves increased for six consecutive quarters. The total official foreign exchange reserves of RMB rose to US $230.4 billion from US $220.1 billion at the end of the first quarter, accounting for 2.05% of global foreign exchange reserves, a new all-time high.

However, although the market generally believes that the RMB exchange rate is expected to remain stable or even rise in the long run, after a significant rise in the third quarter, some adjustment is expected in the fourth quarter due to the "election effect".

The Societe Generale research macro team believes that there is still room for the dollar index to rise in the fourth quarter, which may put periodic pressure on the RMB exchange rate, but the tight currency and wide credit cycle will continue to support the appreciation of the RMB exchange rate in the medium term.

In addition, with the increasing global demand for RMB assets, many analysts believe that the status of RMB in the international monetary system is further enhanced. Lian Ping, chief economist of Citic Investment and director of the Research Institute, said that the willingness of major economies around the world to allocate RMB assets to their foreign exchange reserves, especially Chinese treasury bonds, will be further strengthened, and the share of RMB in global foreign exchange reserves is expected to continue to rise. the reserve function of RMB internationalization will continue to be strengthened.