SINGAPORE -- As China's foreign exchange reserves threaten to tumble below the critical $3 trillion mark, the biggest fear for investors is not whether Beijing can continue to defend the yuan but whether it will set off a vicious cycle of more outflows and currency depreciation.
Data this week is expected to show China's forex reserves precariously perched just above $3 trillion at end-December, the lowest level since February 2011, according to a Reuters poll.
While the world's second-largest economy still has the largest stash of forex reserves by far, it has been churning through them rapidly since August 2015, when it stunned global investors by devaluing the yuan CNY=CFXS and moving to what it promised would be a slightly freer and more transparent currency regime.
Since then, authorities have repeatedly intervened to support the yuan when it weakened too sharply, burning through half a trillion dollars of reserves and prompting them to sell some of their massive holdings of U.S. government bonds.
They also have put a tightening regulatory chokehold on individuals and businesses who want to move money out of the country, while denying they were imposing new capital controls. ...
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