China's foreign currency savings continued to shrink in the first 10 months of 2004, extending a trend that emerged about a year ago.

Forex savings deposits dropped by 3.8 percent on a year-on-year basis to US$83.6 billion at the end of October, the People's Bank of China (PBOC) reported yesterday.

Total forex deposits, also including those by corporations, rose by 5.5 percent from a year earlier to US$158.4 billion, it said.

The growth of forex savings, which was typically fast in recent years as the forex assets owned by Chinese depositors expanded, started to slow down early last year and dipped into negative territory near the end of 2003.

Analysts said the key reason was unabated expectations that the renminbi would be appreciated due to international pressure.

But the Chinese Government has continued to insist it will not resort to a simple revaluation of the currency.

Instead, it says it will improve the flexibility of its exchange rate regime.

The expectations, coupled with China's higher interest rates relative to the international market, have pushed many businesses and individuals to increase their renminbi assets and scale back forex-denominated assets.

Outstanding forex loans rose by 10.3 percent on a year-on-year basis to US$133.4 billion at the end of October, with short-term lending jumping by 22.3 percent, the PBOC said.

(China Daily November 16, 2004)