China 2015 Trade Surplus Reaches $594.5 Billions

[Martian2]

There is no definition of "official" reserve currency. Banks and other financial institutions don't have to refer to IMF to make their decisions.

As for paying for oil, yes, even China needs dollars for that, because its currency isn't mature and widely traded. Rather, even AIIB, a Chinese Bank is denominated in dollars.




Yes, this is an example of portfolio investments. And it is NOT advantageous to China, because money is leaving China, and in many cases, even the owners of the money may migrate out of China after owning some property. These are not government owned assets, these are assets owned by individuals, who will not follow the government's diktat, and in the particular case of developing countries like India and China, may even leave the country.

Look, you're crazy.

China is not going to hold $5 trillion in foreign exchange reserves. That's just dead money.

$3.5 trillion still puts China at #1 in the world by far in foreign exchange reserves.

Taiwan is holding another $426 billion in foreign exchange reserves.

Greater China is still holding $3.9 trillion.
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Let's do the math.

China had a $594 billion trade surplus in 2015. The foreign exchange reserves went down about $200 billion.

Oil has dropped from $60 per barrel to $30. This means China's trade surplus should be about $750 billion for 2016. The net foreign exchange drop this year should be no more than $50 billion. It's trivial.

 

[Bussard Ramjet]

Look, you're crazy.

China is not going to hold $5 trillion in foreign exchange reserves. That's just dead money.

$3.5 trillion still puts China at #1 in the world by far in foreign exchange reserves.

Taiwan is holding over $400 billion in foreign exchange reserves.

Greater China is still holding $3.9 trillion.

Greater China is not one political entity. Chinese Government has no control over the financial assets of Taiwan, or even Hong Kong. Also, dollars are by far the most used currency, and owning them gives a lot of financial heft in the world. RMB ain't even close, and is not going to come close for the next 20 years.

US became the largest economy in 1870s, but it took it around 80 years to establish dollar as the sole reserve currency.

China today ain't even bigger than US yet. If everything goes perfect, only then can China hope that it will overtake dollar in 30 years after becoming the largest economy.

 

[Martian2]

Greater China is not one political entity. Chinese Government has no control over the financial assets of Taiwan, or even Hong Kong. Also, dollars are by far the most used currency, and owning them gives a lot of financial heft in the world. RMB ain't even close, and is not going to come close for the next 20 years.

US became the largest economy in 1870s, but it took it around 80 years to establish dollar as the sole reserve currency.

China today ain't even bigger than US yet. If everything goes perfect, only then can China hope that it will overtake dollar in 30 years after becoming the largest economy.

What is your problem? You keep saying things that everybody already knows.

I am not discussing the political status of Greater China. I am talking about the economic entity Greater China.

Taiwan has one to two million Taiwanese living and working on mainland China. Taiwan has been supplying the capital to build Chinese factories and businesses for 40 years. China can indirectly access the Taiwanese foreign exchange reserves through the over 77,000 Taiwanese businesses on the mainland.

About half of Taiwanese export orders are being filled on the mainland.

Reference: The Economic Integration of Greater China: Real and Financial Linkages and ... - Yin-Wong Cheung, Menzie D. Chinn, Eiji Fujii - Google Books

 

[Bussard Ramjet]

China can indirectly access the Taiwanese foreign exchange reserves through the over 77,000 Taiwanese businesses on the mainland.

No it cannot. Rather the people who are working in China and being paid in RMB will take the money back to Taiwan, which would require foreign exchange by China.

 

[Martian2]

No it cannot. Rather the people who are working in China and being paid in RMB will take the money back to Taiwan, which would require foreign exchange by China.

Why don't you Indians push your China collapse theory in the Indian forum?

You Indian doomsayers want to push the idiotic theory that China is about to collapse. You've been saying that for 30 years and now you want to flood the Chinese threads with your garbage.

Why not open threads on India and talk about how India's tiny foreign exchange reserves are more than enough to pay Indian bills?

It is absurd for an Indian with foreign exchange reserves smaller than Taiwan to suggest that China's $3.5 trillion is insufficient.

You Indians have $0.35 trillion in foreign exchange reserves. Worry about your country and stop annoying the Chinese members. We do not see an imminent crisis.

 

[Shotgunner51]

Look, you're crazy.

China is not going to hold $5 trillion in foreign exchange reserves. That's just dead money.

$3.5 trillion still puts China at #1 in the world by far in foreign exchange reserves.

Well said bro! Excessive Forex Reserves sitting on PBoC's balance is in fact a burden for the treasurer due to the generally low yield versus inbound FDI. Let's look at how some other surplus economies (those with very high trade and/or current account surpluses) manage the "troublesome" situation:

• China Hong Kong SAR: Forex Reserves of $358.8 billion, while having a even bigger Sovereign Welfare Fund (SWF) of $417.9 trillion.

• Singapore: Forex Reserves of $246 billion (SGD 350.99 billion, Dec 2015), while having massive SWF's of $537.6 trillion.

• Norway: Forex Reserves of a tiny $56 billion (NOK 508.54 billion, Dec 2015), while having a gigantic SWF's of $824.9 trillion.

• UAE: Forex Rreserves of a tiny $77 billion (AED 285.48 billion, Oct 2015), while having SWF's of $1.2148 trillion which is 16 times of Forex Reserves, second largest in the world!

Hong Kong Foreign Exchange Reserves | 1993-2016 | Data | Chart | Calendar
Singapore Foreign Exchange Reserves | 1972-2016 | Data | Chart | Calendar
Norway Foreign Exchange Reserves | 1980-2016 | Data | Chart | Calendar
United Arab Emirates Total Foreign Assets | 2012-2016 | Data | Chart
List of countries by sovereign wealth funds - Wikipedia, the free encyclopedia​

Despite China's SWF's of $1.5347 trillion is already largest in the world, it's still far too modest compared to excessive Forex reserves. China should build well-managed SWF not idle Forex, though may not go the extreme case like UAE or Norway who are oil exporters, but Hong Kong and Singapore are good references.

China Mainland is a creditor nation with trade surpluses, the good trend is that she is already actively seeking expert experiences from Hong Kong Monetary Authority and Singapore's Temasek in expanding SWF's, let's continue to reduce Forex Reserves to a reasonable level.

 

[slng]

Why dont' you Indians push your China collapse theory in the Indian forum?

You Indian doomsayers want to push the idiotic theory that China is about to collapse. You've been saying that for 30 years and now you want to flood the Chinese threads with your garbage.

Why not open threads on India and talk about how India's tiny foreign exchange reserves are more than enough to pay Indian bills?

It is absurd for an Indian with foreign exchange reserves smaller than Taiwan to suggest that China's $3.5 trillion is insufficient.

You Indians have $0.35 trillion in foreign exchange reserves. Worry about your country and stop annoying the Chinese members. We do not see an imminent crisis.

exactly. i would recommend he use his tiny brain and cells and start giving fellow indie chaps some ideas how to grow balls

he must have forgotten how calculus work in a chinese mindset. just look at asia spreadover of those tycoons. they know better

 

[CHN Bamboo]

grow balls

What does this mean?

 

[Abacin]

Actually the foreign reserves are coming down. They are below 3.5 trillion right now.


So let's do a whole money flow calculus.

China's merchandise trade surplus: 600 billion
China's services trade deficit: 220 billion
Total trade surplus: 380 billion

China's FDI received: 126 billion dollars
China ODI invested: 130 billion dollars
Net Non-Portfolio investments ~0

What is hard to measure is financial, portfolio, and other money flows in and out of the country.

But the net money flow must reflect in the foreign reserves. China's foreign reserves have decreased from almost 4 trillion to below 3.5 trillion.

That means rest everything must point to a capital outflow of almost 900 -1000 billion dollars.

Now I know I had this discussion with @Martian2 before. And he also included returns on investments of foreign reserves, and inbound money from reparations. At that time, I was not sure of the calculus. But now I have checked, returns on liquid foreign reserves is actually very less, less than 1%. And the inbound money is already included in money transfers, portfolio flows. What we know is that money is leaving from China like anything, at too rapid a pace.

All right @Shotgunner51 ?

It is not capital outflow of 1000 billion dollars. It is largely due to loosing control of foreign reserve controls.
Chinese people or companies were required to turn on their foreign reserves earned from trades to central government due to lack of foreign reserves. This is how the central government piles up $4 trillions of foreign reserves.

Now China is working on internationalizing Yuan and makes Yuan a free currency. China is slowly lifting the currency control. The reduction of $1 trillion foreign reserves simply means the reduction of foreign reserves held by central government. Most of them went to personal accounts and corporate accounts. The central government just distributes the foreign reserve risks to personals and companies. This foreign reserve can be increased very quickly if the control gets stricter. However, China needs to work hard to get this control lifted. Only when the control is fully lifted, Yuan can become a free currency.

China has 1.6 billion people. $1 trillion only means about $700 per capita. China still needs more foreign reserve to fill foreign exchange accounts for personals and corporations. By this rate, at least 5 years are needed to free Yuan and make it a fully international currency.

As I know, Yuan is free to exchange for trades and services, but still strict controls for investments and credits by now.

There is a quota of $50,000 dollar per year per capita for investments and credits. This means that you only can convert a maximum of $50,000 dollar per year into your dollar account if you wants to earn interests from foreign exchange or rate change.

 

[Shotgunner51]

Damn, That's crazy almost 600 Billions Dollars Surplus, just in one year !
I am speechless.
Keep Hoarding the money Congrats China !

Hope China keep this Surplus to buy Gold in order to save his Gigantic Foreign Reserves.

Can't wait for Chinese New year holiday next month
@Shotgunner51 @Martian2 @AndrewJin @TaiShang

Thanks bro!

China itself is the world's largest producer of gold, so supply to central bank (PBoC), domestic market (SGX) isn't a problem.

Chinese Central Bank Buys Another 19 Tonnes Of Gold In December | Seeking Alpha
China Establishes World’s Largest Physical Gold Fund | Global Research - Centre for Research on Globalization​

Comparing to gold, another commodity worth mentioning is crude oil.

• In 2015, the huge trade surplus (~$600 billion) happened when China imported a record-breaking 334 million tonnes (6.68 million barrels per day) of crude oil. Just December 2015, the import was 7.82 million barrels per day i.e. further increase.

• China seized the chance to add up to 147 million barrels to its oil reserves (SPR - Strategic Petroleum Reserves; and MCR - Mandated Commercial Reserves) in the first eleven months of 2015, according to Reuters calculations.

• Financially China can easily maintain reserves (SPR plus MCR) at billions of barrels, well above 180 days of peace-time consumption rate or even more (say war-time). However, building physical storage spaces should be priority action plan.

China 2015 crude oil imports up 8.8 pct y/y -customs| Reuters
China Crude Oil Imports Hit Record Amid Global Price Rout - NDTVProfit.com​

 

[onebyone]

Why dont' you Indians push your China collapse theory in the Indian forum?

You Indian doomsayers want to push the idiotic theory that China is about to collapse. You've been saying that for 30 years and now you want to flood the Chinese threads with your garbage.

Why not open threads on India and talk about how India's tiny foreign exchange reserves are more than enough to pay Indian bills?

It is absurd for an Indian with foreign exchange reserves smaller than Taiwan to suggest that China's $3.5 trillion is insufficient.

You Indians have $0.35 trillion in foreign exchange reserves. Worry about your country and stop annoying the Chinese members. We do not see an imminent crisis.

Good

 

[somsak]

but majority of China trade surplus came from foreign companies operating in China. Soon foreign companies will pull their profit out to the country of its origin.

 

[Lure]

but majority of China trade surplus came from foreign companies operating in China. Soon foreign companies will pull their profit out to the country of its origin.

In order to calculate the effect you've mentioned. One should consider account balance. China still has a huge account balance Surplus.

"Majority of trade surplus" doesn't come from foreign companies' activities. Most foreign companies operating in China had local counterparts. Foreign company provides the specs and design and Chinese company produces and sells it to the foreign company. It's how this outsourced manufacturing business works anyway.

Do you think apple produces iPhone in an "Apple factory" in China? No. Apple is produced by Foxconn which is owned by a Taiwanese businessman, and it's headquarters is in China. Which makes it a Chinese/Taiwanese company. Foxconn produces iPhones. Than sells it to Apple, and Apple sells it to consumer directly or sells it bulk to nerwork providers.

Made in China model works like this. Now as the value addition increases, China not only makes the high end manufacturing for Apple but also penetrates Apple's supply Chain. Meaning China makes more money from iPhone Each year. Because instead of buying a glass from a Japanese company in the production process, a Chinese company would provide the glass which creates more strategic leverage, more business oportunity and more economic activity.

Besides there are tons of other Chinese companies which are selling their own products. Have you Ever heard a company called Huawei, lenovo, xiomi or do you have any idea about the Export performance of Chinese companies in businesses like chemical production or mining? Chinese banks sells credits to European businesses do you know that? Hell ICBC bought a Turkish bank this Year. Do you know that China sells electricty to it's neighbours?

Economy and trade is something that is extremely complicated to model with a simple Logic like you provided.

 

[hexagonsnow]

but majority of China trade surplus came from foreign companies operating in China. Soon foreign companies will pull their profit out to the country of its origin.

If you consider about the profit ,I can say that we all work for the west as a cheap labour.The foreigner company run their business in china to make more money and train the workers with skill and teach them how to start business by oursleves.

 

[Shotgunner51]

but majority of China trade surplus came from foreign companies operating in China. Soon foreign companies will pull their profit out to the country of its origin.

But you are very wrong my friend.

1) Fundamental mistake. Note that foreign direct investments (FDI) can get their profits out of the country REGARDLESS of trade balance, be it $600 billion surplus or $6 trillion of deficit.

2) About getting profits, Chinese outbound direct investments (ODI) on foreign soil can ALSO get profits back into the country. Do you know the size of China's ODI?

3) If you insist on "foreign" companies, let's check 2015 FDI Jan-Nov actual data top 5 sources: 78.175% came from Hong Kong, 5.479% from Singapore, 3.653% from Taiwan, 3.457% from South Korea, 2.842% from Japan, the rest are just insignificant. What's so "foreign"?

4) If you insist on FDI's contribution to trade surplus, let's check FDI by sector, 31.9% goes into manufacturing, 60.9% of FDI go into services sector, 8.2% into others. How services sector and others generate merchandise exports, hence contribute to trade surplus?


China ODI rises - The Himalayan Times
Commerce ministry: Increase in FDI, ODI puts economy on target
China's outbound investment expected to exceed FDI in 2015 - China.org.cn
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