Beijing:  China''s foreign exchange reserves have declined on a quarterly basis for the first time in a decade, indicating a need for the country to shore up market liquidity.

According to the data released by the People’s Bank Of China, the country’s foreign exchange reserves have declined from 3.2 trillion dollars to 3.18 trillion dollars at the end of 2011 due to shrinking trade surplus and accelerating capital outflows.

The reserves had witnessed the first drop for a single month in September over the past  16 months by shrinking to 60.8 billion dollars.

"The change from a monthly drop to a quarterly fall points to an accelerated outflow of speculative capital, as the European debt crisis worsens," The China Daily quoted School of Banking and Finance dean Ding Zhijie, as saying.

Chinese banks'' yuan positions for foreign exchange purchases, an indicator of capital flows, also fell for the first time in four years in October, and declined consecutively in November and December, according to People’s Bank Of China.

 "Declines in foreign reserves and Yuan positions reflect the fluctuation of the foreign exchange market as the debt crisis in the eurozone is prompting investors to sell their emerging market assets," Ding said.

 An analyst Kevin Lai predicted that Chinese foreign exchange reserves would continue declining throughout the year due to expected slower economic growth and higher macroeconomic risk.

A Chinese economist Yao Wei said the decline in Chinese foreign reserves has drained money from the domestic market. (ANI)