Why aren’t Chinese reserves growing faster? – Brad Setser

From Brad Setser’s Blog:

In July, China’s reserves increased by $13.4b or so, reaching $954.5 billion. China’s July trade surplus was $14.6b.

Valuation changes from moves in the euro-dollar didn’t have much of an impact in July. Nor did the yen dollar. The market value of the ten-year Treasury note rose in July (interest rates fell), which would work to increase the dollar value of China’s reserves. Or it would if China marked its securities portfolio to market, something I am told it doesn’t do.

That implies that on net, capital was flowing out of China, not into China. Otherwise, the growth in China’s reserves would top China’s trade surplus. No hot money inflows, a $15b trade surplus and the typical $5 billion in FDI inflows implies a monthly pace of increase of around $20 billion.[Full Text]

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