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China forex reserves rise in June despite trade jitters

China's foreign exchange reserves climbed in June amid heightened market volatility caused by the China-U.S. trade dispute, Reuters reported.

The country's foreign exchange reserves increased $5.82 billion in July to $3.118 trillion, compared with a rise of $1.51 billion in June, Reuters said, citing People's Bank of China data released Aug. 7. Gold reserves fell to $72.32 billion at the end of July, from $74.07 billion at the end of June.

"The recent depreciation of the yuan hasn't seen massive capital outflows from China and surprisingly, the country's foreign exchange reserves have increased," said Iris Pang, economist for Greater China at ING. "Going forward, we expect reserves to remain relatively stable as the central bank steps in and the government expands [foreign direct investment] inflows."

Pang said the rise in forex reserves was driven mainly by China's trade surplus and higher foreign investments after the country opened up more sectors for foreign investments.

The July increase also suggests the central bank did not deploy its reserves to defend the yuan last month despite its rapid depreciation, said Chang Liu, analyst at Capital Economics in an Aug. 7 note. However, "the PBoC's hands-off approach probably won't last," said Liu, citing signs of increasing capital outflows and the currency approaching the threshold of 7.0 against the dollar.

The yuan has fallen 6.36% since June 14 due to rising trade tensions with the U.S., sparking fears of higher capital outflows, Reuters reported. The yuan was trading at 6.8221 per dollar as of 10:38 a.m. Beijing time.

On Aug. 3, the central bank raised its reserve requirement on forex settlements in a bid to cushion losses.