China has for the first time disclosed its return on investment of its foreign exchange reserves and the share of US dollar-denominated assets in the stockpile. Foreign exchange reserves generated an annual average return of 3.68 per cent from 2005 to 2014, according to the 2018 annual report released by the State Administration of Foreign Exchange (Safe) on Sunday. The agency did not provide more recent figures. By the end of 2014, US dollar assets accounted for 58 per cent of China’s total reserves, down from 79 per cent in 2005, the administration said, adding that the share of the assets in the US currency was lower than the global average of 65 per cent in 2014. “The currency structure of China’s foreign exchange reserves has been increasingly diversified, and it is more diversified than the international average,” it said. The currency structure of China’s foreign exchange reserves has been increasingly diversified, and it is more diversified than the international average State Administration of Foreign Exchange China’s holding of US dollar assets, especially US Treasury bonds, is often seen as leverage by Beijing in its broad rivalry against Washington, raising debate over whether China could “dump” its holdings of US assets to disrupt US financial markets – a suggestion Beijing has repeatedly rejected. If the US dollar’s share had remained steady at 58 per cent, China would be sitting on about US$1.8 trillion worth of US dollar assets as the end of June, based on China’s US$3.12 trillion in forex reserves as of the end of June. According to US Treasury data, China held US$1.11 trillion worth of US government bonds as the end of May and was the US’ biggest foreign creditor. Li Jie, a researcher of China’s foreign exchange reserves at the Central University of Finance and Economics in Beijing, said the US dollar’s share of China’s reserves had fallen significantly. It’s possibly a result of China’s currency swap deals with other central banks Li Jie “It’s possibly a result of China’s currency swap deals with other central banks,” Li said. China’s central bank has signed bilateral currency swap deals with about 40 countries, pledging a combined swap quota of about US$500 billion. At the same, China has been deliberately reducing the weighting of US dollars and expanded holdings of the euro and the currencies of other major trading partners, according to Li. Safe said it had adopted an “ultra risk averse strategy” in managing the US$3.1 trillion in assets, based on two principles: to maintain the value and grow the value and zero tolerance for major operational risk. In the report, the administration said it had set up a 24-hour operation with its head office in Beijing as well as trading teams in Hong Kong, London, Singapore, New York and Frankfurt. While the average annual investment returns of 3.68 per cent is higher than the 10-year US government can offer, the rate lags that reported by China Investment Corporation (CIC), the sovereign wealth fund created in 2007 to pursue a higher returns from China’s state reserves. CIC said it had achieved an annual average 5.94 per cent investment return from its overseas portfolios in the decade through 2017. Safe, which releases the foreign exchange reserve total on a monthly basis, is often criticised for not adequately protecting the country’s foreign exchange reserves, partly because the agency does not release information about investment performance or the composition of the reserves. China’s foreign exchange reserves peaked at nearly US$4 trillion in mid-2014 before they started to decline. The reserves shrank dramatically by about US$1 trillion in about a year after China’s stock market rout in the summer of 2015 triggered a capital exodus. Administration spokeswoman Wang Chunying said in a statement on Sunday that China was always trying to improve the transparency of its reserves and the information in the report could “help shore up international confidence in China’s economic and financial situation”.