Jake's View | No easy fix for China's massive foreign reserves
Forex losses are looming for Beijing as capital outflows are unlikely amid a strengthening yuan
The mainland's fast-expanding trade surplus adds to calls for Beijing to accelerate outward investment in a bid to ease the rapid build-up of foreign exchange funds.
Back when I worked as an investment analyst, I often resorted to charts alone to make my case. I would take clients through them one by one - "A leads to B, which yields C, obviously leading to D, and so fill your boots with this winner. It's a goer."
Newspapering, however, is in the Shakespeare business, text-heavy. I did a deal with the boss years ago to put up no more than two charts per column and he hasn't let me off the hook yet. Thus, much as I would prefer an all-chart column today with only a few scrawled words, I shall satisfy myself with my two best and give the rest of the story the Shakespeare treatment.
The first chart shows you two different ways of looking at China's foreign reserves. The blue line represents foreign assets at cost in the People's Bank of China's balance sheet, translated from yuan into US dollars. The red line is the central bank's actual dollar figure for these reserves.
The red line is the hard market fact of the two and the difference now amounts to an unrealised US$675 billion shortfall in the PBOC's books. Ouch!