China is once again facing heavy capital inflows after its foreign exchange reserves posted their biggest quarterly increase since the second quarter of 2011.
Reserves jumped $130bn to $3.44tn – roughly equivalent to the size of the German economy – in the first quarter, helping to fuel a surge in credit growth amid concerns about the level of debt in the economy. China’s foreign exchange reserves are the largest in the world.
The increase marks a sharp reversal from last year when money exited China. The return of cash from abroad helped stoke fast credit growth in the first quarter, according to the government. Total new financing in the economy increased 58 per cent to Rmb6.2tn ($1tn) compared to the first three months of 2012.
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