China’s foreign exchange reserves, the world’s largest, posted their biggest annual drop on record in 2015, adding to worries about growing capital outflows that are dragging its yuan currency to multi-year lows and mauling global financial markets. 
Foreign exchange reserves fell $512.66bn in 2015 to $3.33tn, central bank data showed yesterday. 
They dropped $107.9bn in December alone, the biggest monthly decline on record and more than markets had expected. Economists polled by Reuters had expected reserves to end the year at $3.40tn. 
Nearly two-thirds of the year’s drop came between August and December, hinting at the scope of the central bank’s attempts to stabilise the yuan after its surprise devaluation of the currency on August 11 panicked markets. 
Global questions about China’s foreign exchange policy have erupted again early in 2016, as the central bank unexpectedly set its official midpoint rate for the currency yesterday at a near five-year low, allowing it to depreciate at a faster rate. 
“The sharp fall in foreign exchange reserves indicates increased pressure on capital outflows,” said Li Huiyong, an economist at Shenyin & Wanguo Securities, adding that he believed the People’s Bank of China still has ample ammunition to defend the yuan. 
But many economists worry about the rapid fall in forex reserves, as the central bank had to sell dollars and buy the yuan to support the local currency last year, effectively draining more liquidity from the banking system at a time when the world’s second-largest economy was already slowing. 
“The larger than expected drawdown on reserves ... indicates that long-term intervention is unsustainable,” which will likely lead to further falls in the yuan which in coming days, said Chester Liaw, an economist at Forecast Pte in Singapore. 
The drop in December took the cumulative decline in the reserves to $662.85bn, or 16.6%, since a June 2014 peak of $3.99tn, central bank data showed. 
Chinese officials have blamed the rising value of the US dollar against non-dollar currencies such as the euro and the yen as one factor behind the fall in the currency reserves. 
The value of its gold reserves stood at $60.19bn at the end of December, up from $59.52bn at the end of November, the People’s Bank of China said on its website. 
Gold reserves stood at 56.66mn fine troy ounces at the end of December, up from 56.05mn at end-November. 
China’s International Monetary Fund (IMF) reserve position was at $4.55bn, down from $4.60bn the previous month. It held $10.28bn of IMF Special Drawing Rights at the end of last month, compared with $10.18bn at the end of November. 
The central bank in July shifted to reporting its foreign exchange reserves on a monthly basis after adopting the IMF’s Special Data Dissemination Standard (SDDS). The bank had previously released the data on a quarterly basis.