Global investors have withdrawn money from China on an "unprecedented" scale since Russia invaded Ukraine

" Global investors have withdrawn money from China on an "unprecedented" scale since Russia invaded Ukraine in late February, according to a report by the Institute of International Finance (IIF) last month. "

China's foreign exchange reserves fell by US$25.8 billion at the end of March amid ongoing large outflows from equities and bonds following Russia's invasion of Ukraine.

Officials attributed the 0.8 per cent drop to US$3.188 trillion to price changes in the global financial market and volatility in the foreign exchange market.

"In the international financial market, affected by the monetary policies of major countries, the geopolitical situation, the resurgence of the coronavirus and other factors, the US dollar index rose, and the bond prices of major countries fell in general," State Administration of Foreign Exchange (SAFE) spokeswoman Wang Chunying said on Thursday.

"The foreign exchange reserves are denominated in US dollars, and the value of the assets denominated in currencies other than the US dollar declined after being converted into US dollars, along with changes in asset prices that caused the decline of the reserves."

Chinese financial magazine Caixin on Thursday quoted an unnamed SAFE official who said that the exchange regulator still expects foreign investments in yuan-denominated assets to increase over the long run, despite recent volatility.

"Short-term fluctuations in cross-border securities investment do not represent a reversal of the long-term trend of foreign investment in China's capital market," the official said.

Global investors have withdrawn money from China on an "unprecedented" scale since Russia invaded Ukraine in late February, according to a report by the Institute of International Finance (IIF) last month.

The IIF estimated that in March outflows from bonds totalled US$11.2 billion, while equities dropped by US$6.3 billion.

Overseas holdings of Chinese bonds also fell by 80 billion yuan in February after they had increased for more than 30 consecutive months, according to central bank data.

Financial data provider Wind showed in March that there was a net outflow of 45.1 billion yuan from Chinese equities through the northbound Stock Connect programme, which allows international investors to buy Chinese stocks via Hong Kong.

But analysts believe the outflows from equities and bonds may be temporary, and that the People's Bank of China (PBOC) will still be concerned over the strength of the yuan rather than the depreciation pressure from bond and stock outflows.

"It's true that China has seen substantial outflows in equity and bond investment since the war in Ukraine broke out in late February. But equity and bond flows are only a small fraction of China's overall capital flows," said Macquarie Group earlier this week.

The Australian banking group said that the exchange rate of the US dollar and the yuan has remained stable despite the sell-off.

"[The US dollar to yuan exchange rate] recorded 6.311 on February 28 and 6.343 on March 31. The stability should not be too surprising, given the huge dollar pool built by China's banks and corporates over the past two years. The PBOC might be more concerned that the yuan is too strong instead of too weak," Macquarie added.