The desire among China’s wealthy to convert their yuan-based assets into foreign currencies has been a headache for the government. Despite its efforts to curb capital outflows, the problem has become one of the “grey rhino” risks to the economy that are considered too big to ignore. China’s foreign exchange reserves rose for a sixth straight month in July, suggesting efforts to slow capital outflows and boost inflows were paying dividends, but the growth should not be overplayed. “The rise in foreign exchange reserves is partly a result of currency valuation changes in the portfolio,” said Wang Tao, Chief China Economist with UBS. “A rise in reserves doesn’t mean a net capital inflow.” While the government does not release the currency structure of its reserve portfolio, it is generally estimated that the U.S. dollar accounts for about two thirds of the USD3 trillion foreign exchange reserves. The weakening dollar led to a relative rise of the yuan and also an appreciation in euro and yen assets, resulting in a nominal rise in foreign reserves. Xie Yaxuan, Chief Economist with China Merchants Securities, estimated that the valuation change contributed to a nominal rise of USD29.1 billion in July, which in effect means China’s reserves fell by USD5.2 billion during the month. Similarly, if measured by Special Drawing Rights (SDRs), China’s reserves have fallen in each of the past five months, from 2.2196 trillion SDR at the end of February to 2.1884 trillion at the end of July, according to the People’s Bank of China (PBOC). Yuan positions resulting from foreign exchange purchases have also been in decline for 21 months, indicating a steady capital outflow, although the fall in July was only CNY4.6 billion, down from CNY34.3 billion in June. Companies famous for acquiring assets abroad, such as Dalian Wanda Group, HNA Group and Anbang Insurance, have been told by the government to curtail their overseas purchases. Nevertheless, the problem of capital flight is unlikely to go away any time soon, the South China Morning Post reports.