China capital outflows slow in January, international reserves dip

China's foreign exchange reserves broke below the $3.0trn mark at the start of 2017 but analysts were confident Asia's largest continued to enjoy more than enough firepower to avoid any undue volatility in its currency.

Chinese reserves slipped by $13.0bn to $2.998trn in January, there first move below the $3.0trn mark since 2011 (Capital Economics: $2.98trn).

"Our view is that the PBOC can afford to keep selling FX at the current pace for a long time," Julian Evans-Pritchard, China economist at Capital Economics said in a research note sent to clients.

To back up his case he referenced IMF guidelines according to which reserves could drop as low as $1.8trn withouth China losing "adequate protection" to balance of payments strains.

Indeed, the research shop estimated that valuation effects on the country's holdings of international reserves had boosted their total value by between $10bn to $15bn in January.

That implied that the People's Bank of China's foreign currency sales - to offset capital outflows - had fallen to roughly $25bn, the least since last August, as capital outflows slowed from $61bn in December to around $45bn.

Thus, the weaker greenback, tighter capital controls and aggressive intervention at the start of the year appeared to have slowed capital outflows.

However, Evans-Pritchard noted that "outflows may start to pick-up again later this year if, as we expect, the US dollar begins to strengthen again. But for now at least, the jitters surrounding capital outflows late last year have subsided."