How much space is there in China's foreign reserves?

The dollar's downward impact reports that China's huge foreign exchange reserves always hold the public's eye.　　China held $763.5 billion trillion in U.S. Treasuries by the end of April, reducing its holdings by 4.4 billion US dollars in late March, its first reduction since February 2008, according to data released June 15 by the U.S. Treasury Department. Compared with $2 trillion trillion in foreign exchange reserves, a mere 4.4 billion dollars is bucket. However, the move has sparked widespread concern that China's reduction comes as the dollar enters the downward channel. Many scholars in this newspaper interviewed that the short-term choice of assets are limited, but in the medium term will actively promote the diversification of foreign exchange reserves, although it does not necessarily require a large number of reduction in dollar assets.　　And that the government will reduce the accumulation of foreign exchange reserves by encouraging foreign investment. There are very few other assets available in the short term. China now has about $2 trillion trillion in official foreign exchange reserves and manages other foreign exchange assets that are 200 billion to 300 billion dollars that are not included in the official reserves.　　About 2/3 of these reserves are dollar assets (Figure 1). By the end of April, China had held $763.5 billion trillion in U.S. Treasuries, less than $767.9 billion at the end of March.　　This means that, in April, China reduced its holdings of about 4.4 billion U.S. dollars in US Treasuries. "Speculation about China's possible wholesale sell-off of US Treasuries is untenable, and as a rational choice, China will not do so, whether it is a financial operation in the financial markets, either by reducing or increasing holdings."　　Wang Zihong, director of the Economic unit of the American Institute of Social Sciences. Wang Tao, chief economist at UBS Securities, expressed the same view. In the short term, it is hard for China to shift its reserves away from dollar assets, particularly US Treasuries, due to the constraints it faces (Figure 2). China is the largest holder of US Treasuries and US institutional bonds, and a substantial reduction may depress the price of those bonds, thus losing the rest of China's dollar debt.　　Moreover, the stability of the dollar and the early recovery of the U.S. economy are also in China's interest, and a sudden sell-off of US Treasuries would result in unusual exchange rate fluctuations and could hurt market confidence. There are very few other assets to choose from in the short term, Ms. Wang said. The main options for China's foreign-exchange reserves are government bonds in other countries, including euro-zone countries, Japan and Britain. It is highly likely that China has begun to gradually increase its holdings of government debt in these countries. Yet Treasurys remain the most liquid asset at the moment and are considered the safest when the financial crisis is most sinister.　　For a country with a foreign exchange reserve of $2 trillion trillion and growing at a rate of $20 billion a month, it is hard to stop buying US Treasuries when the vast majority of other assets are relatively small and illiquid.　　Buying gold does not change the outer storage structure. An indisputable fact is that the dollar is depreciating. Zhang Ming, a researcher at the Academy of Social Sciences, pointed out that since May 2009, a series of indicators of international financial markets had shown a new trend, which marked the end of the bull market for the US dollar and treasuries. First, the dollar against the euro exchange rate from 2009 3At the beginning of the month, 1.25 fell to 1.41 in early June and depreciated by 12.8%. The current situation of China's foreign exchange reserve assets management is also described as a "dollar trap".　　Increasing the share of gold and commodities in China's foreign exchange reserves continues to be a subject of considerable discussion.　　Some CIS countries ' central banks continued to increase their holdings of gold in the first 4 months of this year, according to the World Gold Association's statistical report released this month. From January to April, the Russian central bank increased its total holdings of 17.1 tonnes of gold, the proportion of gold in the first quarter rose from 3.4% to 4.1% in the four quarter of last year, and in Belarus January and February by buying and exchanging more than 1.6 tonnes of gold; Ukraine March,　　In April, a total of 0.2 tons of gold, gold accounted for foreign exchange reserves from 2.4% to 3.1%; Kazakhstan increased its holdings of 0.6 tonnes of gold in April.　　Over time, Wang says, China does buy more gold and other commodities (Figure 3), but the size of these markets is not enough to change China's entire structure of foreign exchange reserves. "For example, if China decides to hold 5% of its reserves in gold, it will need to buy more than 3000 tonnes of gold, which is equivalent to the annual production of gold in the world." Other commodity storage costs are high and prices fluctuate, and they are insignificant compared to the size of China's foreign-exchange reserves or even its annual increase. In 2008, 1/4 of the increase in foreign exchange reserves was able to buy 5 years of copper imports and two years of iron ore imports.　　"said Wang Tao. How to keep the renminbi from being tied to the dollar in the medium term by promoting diversification in two ways?　　Zhang Ming, a researcher of the Academy of Social Sciences, said that in addition to diversifying the reserve currency, opening direct foreign investment channels is one of the channels to improve the current allocation of foreign exchange reserves.　　However, in the current international trading and financial system, the dollar is still dominant in a variety of transactions, asset allocation and official reserves, which will constrain the speed and extent of diversification of China's foreign exchange reserves. "In the medium term, none of these restrictions will prevent China from trying to diversify its foreign exchange assets." "said Wang Tao.　　In the absence of a choice to challenge the central position of the dollar's reserve currency, Wang did not think in the medium term that it would reduce the share of U.S. dollar assets in the reserves below 50% per cent.　　Ms Wang said diversification would diversify official foreign exchange reserves by raising the share of currencies and assets other than the dollar and U.S. Treasury bonds and quasi government bonds, and diversify the holdings and managers of foreign-exchange assets by handing more foreign exchange to businesses, banks and individuals. Because the current-account surplus is expected to be huge in the next few years (Figure 4), diversification does not necessarily mean that China will sell its holdings of US Treasuries on a massive scale. While exports have fallen sharply, UBS Securities expects China's current-account surplus to remain at $380 billion trillion this year as import prices plummet and imports of processed trade exports decline. The agency believes that the high proportion of future processing trade and policy measures to encourage import substitution in high-value-added industries will bringTo sustain a high trade surplus. Encouraging capital outflows to reduce the increase in reserves but even if that is not possible, recent policy measures suggest that China will encourage capital outflows to reduce the accumulation of foreign exchange reserves as another important way of diversifying its foreign exchange reserve.　　This means that OFDI (O D I) (Figure 5), foreign portfolio investment and external lending to businesses and banks will increase. "By encouraging more capital outflows, governments can reduce the increase in official foreign exchange reserves and leave more current account surpluses in the hands of companies, banks and individuals." "This will not only reduce the pressure on the renminbi to appreciate, but will also ease the challenges faced by official reserve managers in managing their growing reserve assets and reduce the potential risk of loss of official reserves," Ms. Wang said.　　Ms. Wang expects the government to increasingly encourage capital outflows in the future to avoid a rise in exchange rates or too fast. However, regardless of whether capital flows through official channels or through unofficial channels, China's holdings of foreign assets will continue to accumulate as a result of persistently high trade surpluses.　　All foreign assets, whether managed by official institutions or managed by enterprises and banks, face the same risk of exchange rate and value. Shiri, a researcher at the Academy of Social Sciences, also pointed out that appropriate overseas investment in fixed assets, through the purchase of companies, in the domestic start-up of a large number of imports of technology and equipment projects; Strategic Petroleum Reserve Base construction and reserve oil is also a point worthy of investment, strategic oil reserves are more important than Beijing And even if the planned three-period reserve base is expanded from 5 to 895 million barrels (a net importer of 90 days in 2020), it costs only 17.9 billion dollars, but only 55% of the Beijing-Shanghai high speed rail investment quota.