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 July 2023, China's foreign exchange reserves totaled US$3.20 trillion, which is the highest foreign exchange reserves of any country.
The management of foreign exchange reserves is governed by the State Administration of Foreign Exchange (SAFE) and the People's Bank of China.
Size and composition
China's foreign exchange reserves are held by People's Bank of China, China's central bank. The total of the reserves is regularly announced by the central bank. In July 2020, China's reserves totalled US $3.150 trillion, which is the highest foreign exchange reserves of any country, more than twice the size of next country. In December 2022, the reserves stood at US $3.120 trillion.
The exact composition of China's foreign exchange reserves is classified information. 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. Analysts believe the remaining foreign exchange assets are held mostly in Euros, Japanese Yen, and British pounds.
As of 2014, China had been the largest foreign holder of U.S. Treasury securities since 2008, when it overtook Japan in this respect, accounting for about 22% of all U.S. Treasuries held by non-Americans.
In January 2023, China held $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. China is gradually reducing its holding of US dollar reserve, down to 25% in 2023 from 59% of its total foreign-exchange in 2016.
China's large foreign exchange reserves provide the state with capacity to influence financial markets without the necessity of administrative directives. The size of its reserves also have a symbolic function as a demonstration of China's growing economic strength and the political legitimacy of the Communist Party.
History
At the conclusion of the Chinese Civil War, the defeated Nationalists stripped China of liquid assets including gold, silver, and the country's dollar reserves as they retreated to Taiwan. China did not have a meaningful amount of foreign reserves, nor a specialized foreign exchange reserve management system, until 1978.
Beginning in the early 1980s, China's foreign exchange reserves grew substantially.
China's approach to managing its foreign exchange reserves has been strongly influenced by the lessons Chinese policymakers learned from the 1997 Asian financial crisis and the 2007-2008 global financial crisis. During the Asian financial crisis, Chinese policymakers learned from the experiences of neighboring countries which suffered for their lack of foreign policy reserves (which had been further exacerbated in those countries by capital flight). China therefore tightened controls over foreign exchange and capital flows, including by making violations of these regulations punishable as criminal offenses.
From 2001 to 2006, China's foreign exchange reserves nearly quadrupled. In 2006, China became the world's largest holder of foreign exchange reserves. This rate convinced Chinese leadership that its foreign exchange reserves would continue to grow and help deter capital flight. After 2006, policymakers focused less on attracting foreign capital and instead to evaluate how reserves could advance China's interests domestically and internationally. For example, in December 2006 at a Standing Committee Meeting of the Tenth National People's Congress, Vice Premier Zeng Peiyan advocated for the use of foreign exchange reserves to support Chinese companies in obtaining foreign mineral resources, thereby developing China's access to strategic minerals.
The volatility of the 2007-2008 global financial crisis prompted Chinese policymakers, academics, and state-owned enterprise executives to begin evaluating whether China was overexposed to US treasury securities. Following the global financial crisis, the Communist Party and the public sentiment generally agreed that investing so much of China's foreign exchange reserves in the US government's debt was untenable.