China still has ample ammunition, with a relatively small fiscal deficit and a central government with a light debt load. The central bank still locks up 17.5 percent of bank deposits from the biggest lenders as required reserves, even after recent reductions.
The record trade surplus helped spur a surprise increase in foreign-exchange reserves in October despite an erosion of holdings after the PBOC intervened to boost the yuan. The central bank’s stockpile rose to $3.53 trillion last month from $3.51 trillion at the end of September, the PBOC said Saturday.
“The large trade surplus could offset capital outflow” and curb expectations for the yuan’s depreciation, Liu Ligang, chief Greater China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong, wrote in a note.