China’s FX reserve rise no concern pacifier

China’s FX reserve rose by $10 billion in March, however that can hardly be seen as concern pacifier in Chinese economy, especially from outflow perspective. China is yet to release its current account details for March, but it is sure to show current account surplus, somewhere between $50-60 billion, if not more. Taking rough estimate, without calculating FDI, which is likely to be flat, China still experience outflow in tune of $30-40 billion in March. Moreover Dollar was week in March

So, while FX reserve has turned positive after five months, flow is still in negative. Total reserve now stands at $3.21 trillion.

Moreover latest evidence shows, real money, production and corporations are exiting China.

Latest is Asos, the online retailer, which announced that due to lower profitability and better opportunities in Europe, UK and U.S., it has chosen to exit from China, just after two years of entering. It will be closing 60 offices in Shanghai and a warehouse.

To stimulate the economy, Chinese government has launched large scale fiscal stimulus, which may partly be used to scale down the zombie over producing firms and reduce corporate and municipal leverage.

However, we doubt that this latest stimulus may once again find ways of increasing the debt and leverage, which will not mitigate risks but postpone and prolong the downfall.

Yuan however is strong for the day, thanks to weaker Dollar, trading at 6.469 per Dollar.