Arjen van Dijkhuizen, the senior economist at ABN AMRO, notes that China’s FX reserves for June were reported at USD 3.12 trillion, up by USD 18 billion compared to May and also higher than consensus expectations.

• “FX reserves are now back at the highest level in fourteen months. According to the State Administration of Foreign Exchange (SAFE), the rise of FX reserves was partly driven by valuation effects.
• Seen over a slightly longer term, the 25% drop witnessed in 2015-16 (when yuan devaluation fears fed capital outflows) is clearly behind us. Since January 2017, FX reserves have risen by 4%. That partly reflects a fading of yuan depreciation fears: even a 10% CNY depreciation versus USD last year on escalating US-China tensions did not cause renewed pressures on FX reserves.
• Off course, the tightening of capital restrictions in 2016 is an important factor in this respect. Last but not least, the ongoing inclusion of certain Chinese equity and bonds in global indices is a structural factor supporting portfolio inflows from abroad. According to Bloomberg estimates, foreign investors bought at least USD 75bn of Chinese bonds in June (with foreign investors now owning 8.3% of total government bonds).”