China’s FX reserves likely dropped to $3.5trn

Onshore CNY spot trading volume averaged around $23.3bn, i.e. lower than the record $31.4bn observed in August but still well above the levels seen before the currency regime change. Also, there have been signs of FX intervention in the offshore CNH market. However, a series of measures have been introduced to tighten capital controls on corporates and households, which may have helped mitigate capital outflow pressures. 

China's FX reserves dropped by $57bn in September to $3.50trn, compared with a $94bn decline in August, estimates Societe Generale. Since there was little change in major currency valuations vs the USD, the estimated decline implies $55bn of FX intervention by the PBoC, down from $110bn in the previous month. The PBoC seems to have remained active in the onshore currency market. 

In addition, intervention in the derivatives market, which does not leave much of a mark on the current FX reserve data, seems to have taken place as well. Such intervention should show up on the table of "predetermined short-term net capital drains on foreign currency assets", reported monthly by the SAFE, added SocGen. In light of the possibility of state-owned commercial banks selling USD at the behest of the PBoC, the reserve figure could surprise on the upside as it did in August.