A citizen counts the US dollars in Houma City, north China's Shanxi Province, Oct. 11, 2011. The Chinese currency renminbi, or the yuan, strengthened 103 basis points to a record high of 6.3483 against the US dollar on Tuesday, according to the China Foreign Exchange Trading system.Photo: Xinhua

China's foreign exchange reserves increased 1 percent month-on-month in April to $3.09 trillion, as the values of non-US assets rose in response to global monetary and fiscal moves and a recovery in investors' confidence. 

China's central bank data showed on Thursday that the reserves ended a two-month losing streak.

Domestic demand and supply in the foreign exchange market stayed generally balanced in April, said Wang Chunying, a spokesperson for the State Administration of Foreign Exchange. Wang credited it to the containment of the coronavirus within China, showing that China's economy has great resilience and potential.

According to the financial research center at the Bank of Communications, the amount of asset allocation from overseas agencies increased $10 billion by the end of the month.

The better-than-expected increase in forex reserves came after US media reports said the Trump administration is considering to intentionally default on the nearly $1.1 trillion debt the country owes to China. 

Yu Miaojie, deputy dean with the National School of Development at Peking University, told the Global Times that US President Donald Trump is unlikely to play the "debt card" with China, because if the US defaults on its debts, the international status of the greenback will sustain devastating damage.

"The US would lose its creditworthiness, bringing about global sell-offs of US debt as well as a global financial tsunami," Yu said.

According to the US Treasury Department, China held $1.09 trillion in US debt, making it second only to Japan among foreign creditors.

However, an analyst said there is a risk that the US may freeze China's assets, including gold reserves.

"From a trade war to a currency war, the US could move to launch a full-range crackdown on China's economy. And, the conflict could move to the financial sector," said Dong Dengxin, director of the Finance and Securities Institute at Wuhan University of Science and Technology. 

Dong suggested the regulators lower the portion of US Treasuries in China's forex reserve basket and transport gold stored in the US back to China as soon as possible. 

To better deploy China's forex reserves, Dong said China could increase the holdings of forex assets from countries along the Belt and Road Initiative and from EU and Britain.