China’s forex reserves grew marginally in 2020, despite near-record trade surplus. Where did the money go?

Name: China’s economy accelerated at end of 2020, but virus-hit annual growth lowest in 45 years
Uploaded: 2021-02-03T12:00:12.000Z
Duration: 1 min 33 s
Description: China’s economy accelerated at end of 2020, but virus-hit annual growth lowest in 45 years

China’s foreign exchange reserves rose by only US$108 billion last year, despite a large trade surplus

The gap reflects money being allowed to flow out of China as Beijing tempers excessive yuan appreciation

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China’s foreign exchange reserves rose by only US$108 billion last year, despite a large trade surplus. Photo: AFP

Karen Yeung

Published: 8:00pm, 3 Feb 2021Updated: 10:04am, 4 Feb 2021

Coronavirus disruptions around the world fuelled strong demand for Chinese goods last year, resulting in a massive trade surplus. Meanwhile, the nation’s rapid recovery from the pandemic and China’s buoyant stock and bond markets have sucked in large amounts of foreign investment.

But China’s massive US$535 billion trade surplus and capital inflows did not result in a jump in the nation’s foreign exchange reserves, as they have in the past.

So where did the money go?

Foreign exchange reserves rose by only US$108 billion last year, according to the People’s Bank of China (PBOC), despite the trade surplus being the second-largest on record and the highest since 2015.

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China’s economy accelerated at end of 2020, but virus-hit annual growth lowest in 45 years

Accounting for US dollar inflows from foreign investment, foreign borrowing and negative services trade, China is estimated to have absorbed about US$490 billion last year.