Foreign-exchange reserves of China

The foreign exchange reserves of China are the state of foreign exchange reserves held by the People's Republic of China, comprising cash, bank deposits, bonds, and other financial assets denominated in currencies other than China's national currency (the renminbi). In December 2022, China's foreign exchange reserves totaled US$3.12 trillion, which is the highest foreign exchange reserves of any country.[1][2]

Foreign exchange reserves of China since 2000

The management of foreign exchange reserves is governed by the State Administration of Foreign Exchange (SAFE)[3] and the People's Bank of China.[4] The composition of foreign exchange reserves is a state secret in China.[5]

The United States has designated China a currency manipulator under the 1988 Omnibus Foreign Trade and Competitiveness Act, as engaging in “unfair currency practices” that gives it a trade advantage. In August 2019, the Trump administration, as part of the China–United States trade war, redesignated China as a currency manipulator.[6][7] That designation was removed in January 2020.[8][9]

Size and composition

China's foreign exchange reserves are held by People's Bank of China, China's central bank.[4] The total of the reserves is regularly announced by the central bank. In July 2020, China's reserves totaled US$3,150 billion, which is the highest foreign exchange reserves of any country,[10] more than twice the size of next country.[11] In December 2022, the reserves stood at US$3,120 billion.[1]

The exact composition of China's foreign exchange reserves is classified information.[5][12] In July 2019, China's State Administration of Foreign Exchange announced that at the end of 2014, US dollar assets accounted for 58% of China's total reserves, down from 79% in 2005; adding that its share of US currency assets was lower than the global average of 65% in 2014.[13] Analysts believe the remaining foreign exchange assets are held mostly in Euros, Japanese Yen, and British pounds.[12]

As of 2014, China had been the largest foreign holder of U.S. Treasury securities since 2008, when it overtook Japan in this respect,[14] accounting for about 22% of all U.S. Treasuries held by non-Americans.[15]

In January 2023, China held US$860 billion of US government debt, 11.6% of the total foreign holdings of US government debt. This ranks China as the second largest holder of US government debt, after Japan.[16] China is gradually reducing its holding of US dollar reserve, down to 25% in 2023 from 59% of its total foreign-exchange in 2016.[16] [17]

Concern over Chinese holdings of U.S. debt

Many American and other economic analysts have expressed concern on account of China's "extensive" holdings, as part of their reserves, of United States government debt.[18][19][20]

The National Defense Authorization Act for Fiscal Year 2012 included a provision requiring the Secretary of Defense to conduct a "national security risk assessment of U.S. federal debt held by China." The Defense Department's report in July 2012 stated that “attempting to use U.S. Treasury securities as a coercive tool would have limited effect and likely would do more harm to China than to the United States. As the threat is not credible and the effect would be limited even if carried out, it does not offer China deterrence options, whether in the diplomatic, military, or economic realms, and this would remain true both in peacetime and in scenarios of crisis or war.”[21]

The United States Congress introduced legislation whose aim was the assessment of the implications of China's ownership of U.S. debt.[21] The subsequent Congressional Report of 2013 claimed that "[a] potentially serious short-term problem would emerge if China decided to suddenly reduce their liquid U.S. financial assets significantly" [emphasis in the original text], noting also that Federal Reserve System Chairman Ben Bernanke had, in 2007, stated that “because foreign holdings of U.S. Treasury securities represent only a small part of total U.S. credit market debt outstanding, U.S. credit markets should be able to absorb without great difficulty any shift of foreign allocations."[21]

A significant number of economists and analysts dismiss any and all concern over foreign holdings of United States government debt denominated in U.S. dollars, including China's holdings.[22][23][24][25]

China's holdings of US debt have been falling since early 2021 and are currently below US$1 trillion and falling.[26]

See also

References
  1. "Official reserve assets". Archived from the original on January 16, 2023. Retrieved January 20, 2023.
  2. "SAFE Releases Data on China's Foreign Exchange Reserves at the End of December 2022_Data Interpretation_State Administration of Foreign Exchange". www.safe.gov.cn. Retrieved January 20, 2023.
  3. State Administration of Foreign Exchange's website -->English-->About SAFE-->Major Functions
  4. About the PBC, People's Bank of China website
  5. "China’s dwindling forex reserves raise worries" by Gabriel Wildau, Financial Times, 18 October 2015
  6. "Treasury Designates China as a Currency Manipulator" (Press release). United States Department of the Treasury. August 5, 2019.
  7. "Trump pressured Mnuchin to label China 'currency manipulator', a move he had previously resisted". Washington Post.
  8. Rappeport, Alan (January 13, 2020). "U.S. Says China Is No Longer a Currency Manipulator". The New York Times. ISSN 0362-4331. Retrieved February 13, 2023.
  9. "U.S. Treasury drops China currency manipulator label ahead of trade deal signing". Reuters. January 13, 2020. Retrieved February 13, 2023.
  10. "Official reserve assets - July 2020". State Administration of Foreign Assets.
  11. "China Reserves Fall in July as PBOC Steadies Yuan Amid Outflows" by Fion Li, Bloomberg, 7 August 2015
  12. "China’s large forex reserves constitute both a blessing and a curse" by Gabriel Wildau, Financial Times, 30 September 2014
  13. Xin, Zhou (July 29, 2019). "How much of China's foreign exchange reserves are in US dollars?". South China Morning Post. Retrieved August 19, 2020.
  14. "Major Foreign Holders of Treasury Securities", U.S. Department of the Treasury, 18 February 2014
  15. "Report Archived January 7, 2017, at the Wayback Machine on China’s Foreign Exchange Reserves and Holdings of U.S. Securities" by Nargiza Salidjanova, United States-China Economic and Security Review Commission, 21 March 2014
  16. Major Foreign Holders of Treasury Securities (Report). Department of the Treasury/Federal Reserve Board. September 16, 2021.
  17. "China limiting its dependence on US dollar". S&P Global. May 4, 2022. Retrieved April 25, 2023.
  18. "Is China's Ownership Of U.S. Debt A National Security Threat?" by Kenneth Rapoza, Forbes, 23 January 2013
  19. "... Should Americans be concerned that China has started dumping some of its Treasury holdings? After all, it raises serious questions about whether China will keep lending Washington money to help finance the federal deficit in the future.": From "China is dumping U.S. debt" by Matt Egan, CNN, 11 September 2015
  20. "Is it a risk for America that China holds over $1 trillion in U.S. debt?", China Power, 2 February 2016
  21. Report on "China’s Holdings of U.S. Securities: Implications for the U.S. Economy" by Wayne M. Morrison & Marc Labonte, Congressional Research Service, 19 August 2013
  22. "...What about indebtedness to foreigners?...To acquire [U.S. gov't bonds], China must export goods to us, not offset by equivalent imports. That is a cost to China. It’s a cost Beijing is prepared to pay, for its own reasons: export industries promote learning, technology transfer and product quality improvement, and they provide jobs to migrants from the countryside. But that’s China’s business. For China, the bonds themselves are a sterile hoard. There is almost nothing that Beijing can do with them;...its stock of T-bonds will just go on growing. And we will pay interest on it, not with real effort but by typing numbers into computers. There is no burden associated with this; not now and not later." From "In Defense of Deficits" by James K. Galbraith, The Nation, 4 March 2010
  23. "...The Chinese buy U.S. T-securities by transferring U.S. dollars (not yuan) from their checking account at the Federal Reserve Bank to China’s T-security account, also at the Federal Reserve Bank. When[ever] the Chinese redeem those T-securities, the money is transferred back to China’s checking account at the Fed. During the entire purchase and redemption process, the dollars never leave the Fed." : From "What Policies for Global Prosperity?" by Warren Mosler, 23 September 2010
  24. Mitchell, Bill, University of Newcastle (Australia). "The nearly infinite capacity of the US government to spend" (28 March 2012); "The US government can buy as much of its own debt as it chooses" (27 August 2013)
  25. "...The US, as a sovereign currency issuer, faces no financial constraint. It cannot be forced into default. It controls its policy interest rate. The rest of the world are users of the dollar; not issuers. They can never hold [the United States] hostage." : From "What If China Dumps US Treasury Bonds?" by L. Randall Wray, University of Missouri-Kansas City, 12 November 2013
  26. Cox, Jeff. "China holdings of U.S. debt fall below $1 trillion for the first time since 2010". CNBC. Retrieved February 13, 2023.
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