Foreign Reserves Rise by $100B Against the Odds
In the past year, due to the continuous interest rate hikes by the US dollar, our country's foreign exchange reserves were suppressed. Through tenacious trade growth, we achieved a higher trade surplus, and at the same time, we continuously adjusted the asset structure of foreign exchange reserves, resolutely sold US bonds, and bought gold in large quantities. Eventually, in the fourth quarter, we welcomed a reversal in the situation.
This reversal was hard-earned, let's take a look at the latest data and review the various efforts made by China.
01 Rare Quarterly Growth
At the end of 2021, foreign exchange reserves were $3,250.166 billion, which means that throughout 2022, the total decreased by $122.475 billion. However, if we look at it quarter by quarter, the first three quarters of last year saw a decrease each quarter, but the fourth quarter increased by nearly $100 billion.
At the end of September, our country's foreign exchange reserves fell to the lowest point in nearly 12 months, at $302.8955 billion, and then for three consecutive months, foreign exchange reserves showed a counter-trend growth, with a cumulative increase of $98.736 billion, reversing the continuous downward trend of the previous three quarters.
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The previous three quarters continuously showed an overall downward trend, and looking at the monthly data, only two months saw an increase compared to the previous month, while the other seven months were in a monthly decline.
02 Global Decline
However, global foreign exchange reserves were also declining last year. A previous data report indicated that in just the first three quarters of last year, the cumulative total of global foreign exchange reserves decreased by 10% compared to the end of 2021.Therefore, although China's foreign exchange reserves are also declining, compared with the global environment, China's decrease is relatively small.
All countries' foreign reserves include non-US dollar assets, and due to the appreciation of the US dollar, these non-US dollar assets have suffered exchange rate losses when converted into US dollars, which is a common point.
However, some countries have consumed a certain amount of foreign exchange reserves to intervene in the foreign exchange market and support their own currency exchange rates, such as Japan and India.
On the other hand, some countries cannot have a stable and continuously increasing foreign trade surplus like China, which brings in foreign exchange, and therefore experience a net decrease.
03, Where Success Lies
Of course, for China, what is more important is that some successful responses have been made.
Throughout the year last year, China has been continuously selling US debt.
After reaching the peak of US debt holdings in 2013, we began to slowly reduce the amount of US debt held, but the real selling mainly occurred in the recent period.
At the end of December last year, China's holdings of US debt were still as high as 1.08 trillion US dollars, but by October this year, we had sold a large amount of 171.2 billion US dollars.
Selling US debt not only reduced dependence on the US dollar and US debt but also reduced the losses caused by the continuous decline in US debt prices over the year.On the other hand, we continue to increase our holdings of gold, with the central bank's recent two-month announcements showing a certain increase in gold reserves.
Under various efforts, our foreign exchange reserves have seen a strong growth in the fourth quarter of this year.
04, US Contraction
In recent times, the US economy has fully entered a state of contraction.
Previously, the US manufacturing PMI had already fallen below 50, indicating a contraction in the manufacturing sector, with the December manufacturing PMI marking a sequential decline for five consecutive months.
However, the service industry accounts for a larger proportion in the US, exceeding 70%. Therefore, the official data released by the US over the weekend showed that the service industry's PMI also fell below 50, which is the shocking bad news.
The market had previously expected a decline in the service industry PMI, but it was still as high as 55.
However, the final data was only 49.6, which is 5.4 percentage points lower than the market expectation and 6.9 percentage points lower than the value announced last month.
If this data cannot rebound quickly in the next few months, the contraction of the US economy will continue for a longer period of inertia, and the US will have to lower interest rates.
Therefore, it can be imagined that in 2023, our foreign exchange reserves will continue to grow further, partly due to the US lowering interest rates and the decline of the US dollar index.
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