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International Finance

China has $3-trillion of ‘hidden’ currency reserves

China has $3-trillion of ‘hidden’ currency reserves
Victoria Park, the traditional venue for a vigil commemorating the 1989 Beijing Tiananmen Square crackdown, is empty in Hong Kong, China, 4 June 2022. (Photo: EPA-EFE/JEROME FAVRE)

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 former US Trade and Treasury Official.

A lot of the country’s foreign-exchange reserves don’t show up in the official books of the People’s Bank of China, Setser 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, he said.

While official reserves have flat-lined over recent years, the “hidden” variety has 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.”

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 the State Administration of Foreign Exchange 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.” DM

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  • Johan Buys says:

    there are lots things hidden behind chinese walls. The really significant threat is the true extent of Non Performing Loans. Cities and provinces have development agencies that hand out what amounts to grants (for unfeasible factories, egomaniac city centers and highways plus airports, etc). The amounts sit on the development agency books but EVERYBODY knows they will never see interest serviced or capital repaid. It was a few years ago, but one estimate had such loans at close to 40% non-performing.

    With luck the secret foreign reserves can offset the rubbish debt.

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