The People's Bank of China said Wednesday that China's foreign exchange reserves declined for a fifth straight month in November. The world's largest currency reserves fell to 3.052 trillion dollars last month, down 69.1 billion dollars from October. That marked the reserves' lowest level since March 2011. 

The declining forex reserves come as a result of China selling US dollars to defend the yuan against depreciation caused by capital outflows. The Chinese yuan has seen a continuous depreciation in the past few weeks.

The Renminbi midpoint fixing softened by 233 basis points to 6.8808 yuan per dollar today, the biggest decline in four weeks. Despite the continual depreciation, experts are pointing out that the Renminbi is still strong as measured against world currencies other than the dollar.

"There is some misconception in the market that everyone is looking at Renminbi versus dollar. This is the most important of course, but people only look at that exchange rate. Of course China is doing international trade with all the other countries, including Euro zone, Japan, UK. So if you look at a currency such as Renminbi versus other currencies, we need to look at the whole basket instead of just look at Renminbi versus dollar."said Gu Sairong, Director of Societe Generale

And the Renminbi is quite stable against other currencies such as the Euro and the Japanese yen. In fact the Renminbi has been rising against the Japanese yen since the beginning of November. The Renminbi rate against Euro has been steady at 7.3 yuan per Euro for at least two weeks. But because of the rising dollar, the forex reserves at the central bank continue to fall. Gu says there are risks involved in not protecting the value of the yuan.

"If we do not have enough currency reserve, we would not have too many bullets to make Renminbi a stable regime. So we need to worry about this. What the government should do is to put in place measures to curb capital outflow while still satisfying the genuine need of overseas investment or trade related kind of payment and receiveables."said Gu Sairong.

And it seems the government is doing just that. According to the Financial Times, China imposed stricter approval procedures on outbound investment in late November.

In reports today the European Chamber of Commerce in Beijing notes a case in which a Shanghai-based foreign company has had problems transferring overseas a dividend payment worth several hundred million yuan. Today, the offshore exchange rate for the Renminbi weakened to 6.9066 during morning trade.