China hiding trillions of dollars of forex reserves, closer to $6 trillion in foreign assets than it official $3.12 trillion number

[beijingwalker]

China hiding trillions of dollars of forex reserves​

Published: June 30, 2023 09:30 PM

June 30 China has a lot of foreign exchange reserves that do not show up in the official books of the People’s Bank of China.

Those funds have been hidden in the state banks, and largely escaped scrutiny, Brad W. Setser, the Deputy Assistant Secretary for International Economic Analysis in the US Department of the Treasury, wrote in The China Project.

Institutions that report to China’s central government probably have closer to $6 trillion in foreign assets than the $3.12 trillion reported in December 2022.

This total counts the foreign assets of the state commercial banks (owned by a State Council holding company through the CIC), the state policy banks (owned by the PBoC, with some participation of the Ministry of Finance), and the CIC (owned by the State Council but with some funding from SAFE), Setser wrote.

China is so big an economy -- and such an unbalanced economy -- that all its activities just have an outsized global impact.

China’s shadow reserves are big. Bigger than the formal reserves of the world’s second largest holder of reserves (Japan). Bigger than the assets of the world’s largest sovereign wealth (Norway, though Singapore would be in close competition if its sovereign fund disclosed its true size).

It isn’t a surprise that these massive pools of foreign exchange are at the center of most interesting debates. China’s contribution to global debt distress is a function of the diversion of foreign exchange out of the US bond market and into global infrastructure lending, the article said.

Yet China’s banks have access to so many dollars that China’s state commercial banks came to play an important role in providing funding to other global banks through cross currency swaps (what the Bank for International Settlements or BIS calls hidden debt) even as the policy banks turned low income countries into their playground.

Looking at China’s reported holdings of Treasuries just misses the bulk of China’s global financial presence these days. The scale of these hidden reserves -- foreign current currency assets that aren’t formally counted as “reserves” -- also highlights an important fact that is often forgotten amid all the talk of China’s domestic debt problems, the article said.

Globally China is still a massive creditor, and the weight of China’s massive accumulation of foreign exchange is still felt around the globe.

https://www.lokmattimes.com/international/china-hiding-trillions-of-dollars-of-forex-reserves/

 

[beijingwalker]

Official foreign reserve holding countries

 

[beijingwalker]

China Has $3 Trillion of ‘Hidden’ Currency Reserves, Setser Says​

• Lack of transparency in China is a problem for world: Setser
• Nation’s official reserves have flat-lined over recent years

ByCormac Mullen
June 30, 2023 at 11:05 AM GMT+8Updated onJune 30, 2023 at 4:26 PM GMT+8

China is sitting on a $6 trillion pile of money, half of which is “hidden,” and that presents a new kind of risk to the global economy, according to Brad Setser.

A lot of the country’s foreign-exchange reserves don’t show up in the official books of the People’s Bank of China, the former US trade and Treasury official wrote in a report on The China Project, a New York-based news platform. Instead, what can be called “shadow reserves” appear among the assets of entities such as state commercial lenders and policy banks, Setser said.

A lot of the country’s foreign-exchange reserves don’t show up in the official books of the People’s Bank of China, the former US trade and Treasury official wrote in a report on The China Project, a New York-based news platform. Instead, what can be called “shadow reserves” appear among the assets of entities such as state commercial lenders and policy banks, Setser said.

While official reserves have flat-lined over recent years, the “hidden” variety have likely pushed higher alongside China’s export surplus, he said.

“China’s lack of transparency here is a bit of a problem for the world,” Setser wrote. “China structurally is so central to the global economy that anything it does, seen or unseen, will eventually have an enormous impact on the rest of the world.”

The State Administration of Foreign Exchange didn’t immediately respond to a request for comment.


An example of the influence China’s reserves can have is their role in funding the country’s Belt and Road Initiative, which stemmed from a post financial-crisis push to diversify holdings, according to the former Biden administration trade adviser.


“They are powerful enough of an economic force such that an entire, global, decades-long infrastructure plan was in some ways, just a side effect of a 2009 decision to find new ways to manage China’s foreign exchange,” he wrote. “Well, China is so big an economy – and such an unbalanced economy – that all its activities just have an outsized global impact.”

‘Massive Creditor’​

Institutions reporting to the central government probably have closer to $6 trillion in foreign assets, Setser said. That compares with the $3.1 trillion in official reserves SAFE reported at the end of last year, he said.

Setser is now a senior fellow at the Council on Foreign Relations, a New York-based think tank.

The scale of these hidden reserves “highlights an important fact that is often forgotten amid all the talk of China’s domestic debt problems,” he wrote. “Globally China is still a massive creditor, and the weight of China’s massive accumulation of foreign exchange is still felt around the globe.”

China Has $3 Trillion of ‘Hidden’ Currency Reserves, Setser Says

China is sitting on a $6 trillion pile of money, half of which is “hidden,” and that presents a new kind of risk to the global economy, according to Brad Setser.

www.bloomberg.com