CHINA’S foreign exchange reserves fell to near six-year lows in December, but held just above the critical US$3 trillion level, as authorities stepped in to support the weakening yuan ahead of U.S. President-elect Donald Trump’s inauguration.

    China’s reserves shrank by US$41 billion in December, slightly less than feared but the sixth straight month of declines, data showed Saturday.

    Analysts had forecast a drop of US$51 billion.

    For the year as a whole, China’s reserves fell nearly US$320 billion to US$3.011 trillion, on top of a record drop of US$513 billion in 2015.

    Some analysts estimate China needs to retain a minimum of US$2.6 trillion to US$2.8 trillion under the International Monetary Fund’s adequacy measures.

    If pressure on the yuan persists, analysts suspect China will continue to tighten the screws on outflows via administrative and regulatory means, while pouncing sporadically on short sellers in forex markets to discourage them from building up excessive bets against the currency.

    But if it continues to burn through reserves at a rapid rate, some strategists believe China may have little choice but to sanction another big “one-off” devaluation like that in 2015.

    The yuan depreciated 6.6 percent against the surging dollar in 2016, its biggest one-year loss since 1994, and is expected to weaken further this year if the dollar’s rally has legs.

    Adding to the pressure, Trump has vowed to label China a currency manipulator on his first day in office, and has threatened to slap huge tariffs on imports of Chinese goods.

    That has left Chinese eager to get money out of the country, creating what some researchers describe as a potentially destructive negative feedback loop, where fears of further yuan falls spur outflows that pile fresh pressure on the currency.

    The main reason China’s forex reserves fell in 2016 was because the central bank used them to stabilize the yuan, the country’s foreign exchange regulator said in a statement after the data.

    With the dollar gaining ground, a decline in the value of other currencies held by China also contributed to the decline, the State Administration of Foreign Exchange said.

    China has stepped up efforts in recent weeks to shore up the yuan and curb capital outflows, sparking speculation it wants a firm grip on the currency ahead of Trump’s inauguration and the Lunar New Year holidays at the end of the month. (SD-Agencies)