China’s forex reserves are up – and so are fears of a US trade war hit
China’s trade surplus has been the biggest contributor to its foreign exchange stockpile but that could change amid tensions with the United States
China added US$8 billion to its foreign exchange reserves last month to take the total to US$3.14 trillion at the end of March, but concerns are growing that a looming trade war could shrink the biggest source of those funds – the trade surplus.
The growth in the reserves, the world’s biggest, partially reversed February’s US$27 billion decline and continued the broader trend of steady replenishment of the stockpile, the size of which has become a barometer of confidence in the Chinese economy.
The reserves have grown in tandem with the country’s exports, hitting an all-time high of US$4 trillion in June 2014 from a mere US$212 billion in 2001, when China joined the World Trade Organisation and its exports took off.
Beijing briefly worried in mid-2014 that the stockpile was too big but those fears vanished over the next 18 months as a Chinese stock market rout and a yuan devaluation misstep triggered capital outflows, bleeding off a quarter of the reserves. The government then started to curb outflows to staunch the losses.
Over the years, the trade surplus has remained the single largest contributor to the reserves. According to China’s customs administration, the country had a US$422.5 billion trade surplus last year, with US$276 billion, or about two-thirds, from the United States.